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Ohio Supreme Court holds Property Damage caused by Subcontractor's Faulty Workmanship not an "Occurrence" covered under Contractor CGL policy
Less than a month ago, the Ohio Supreme Court issued a decision in Ohio Northern University v. Charles Construction Services Inc., Case No. 2017-0514 (2018) ruling that in Ohio, a subcontractor's faulty workmanship cannot qualify as an accidental "occurrence" within the meaning set forth in a standard Commercial General Liability (CGL) insurance policy issued by Cincinnati Insurance Co. to general contractor Charles Construction - and that therefore, property damage caused by a subcontractor's faulty workmanship is not covered.
Shortly after the $8 million University Inn and Conference Center at Ohio Northern University in Ada, Ohio was completed in September 2011, the University discovered extensive water damage from leaks allegedly caused by the defective work of Charles Construction and its subcontractors. Finding other serious structural defects while performing water damage repairs, the University estimated that the total repairs would cost approximately $6 million.
In 2012, the University sued Charles Construction for breach of contract and other claims. In turn, Charles Construction served third-party complaints against several of its subcontractors and submitted the claim under its CGL policy with Cincinnati Insurance Co. Cincinnati Insurance responded by seeking a declaratory judgment from the court that the CGL policy did not cover the University's claim, arguing that claims for defective workmanship are not claims for "property damage" caused by an "occurrence."
Pursuant to its contract, Charles Construction had procured a $2 million dollar CGL policy from Cincinnati Insurance Co. that included an additional $2 million dollars in products completed operations hazard ("PCOH") coverage. Like all standard CGL policies, the policy provided coverage for "property damage" caused by an "occurrence." The PCOH clause also provided that the policy covered damages "arising out of completed operations" including property damage "arising out of...your work." The CGL policy also contained a standard "your work" exclusion stating there was no coverage for property damage "to your work," but provided that the "exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor."
Following its 2012 decision in Westfield Ins. Co. v. Custom Agri Sys., Inc., in which the Ohio Supreme Court held that damage caused by a contractor's own faulty workmanship does not involve an "occurrence" such that the contractor's CGL policy did not cover an insurance claim filed by the contractor, in University Inn, the Ohio Supreme Court extended its rationale to rule that a subcontractor's faulty workmanship is likewise not "fortuitous" and therefore not an "occurrence" that could trigger coverage for property damage under Charles Constructions' CGL policy.
The Ohio Supreme Court highlighted the fact that for there to be coverage under Charles Constructions' CGL policy, the property damage must be due to an "occurrence," which the policy defines as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." Although the Court found there to be no question that the water-related damage to the inn was "property damage" and was discovered after work had been completed, the Court ruled that a subcontractor's faulty workmanship was a business risk - not fortuitous or accidental - and therefore did not meet the definition of an "occurrence" necessary to trigger CGL coverage. Insofar as there had been no "occurrence," the PCOH and the inclusive language for subcontractor work under the "your work" provision, the Court reasoned, had no effect.
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Mismatch Letter Program to Return
The Social Security Administration has announced that it will be re-instituting its W-2 mismatch letter program. Some notices have already been sent to employers, and the program is expected to be in full swing by March 2019. The practice of sending W-2 mismatch letters was suspended by the Obama administration in 2012. Its return provides another indication of the current administration's departure from the policies of its predecessor.
A "mismatch" occurs when an employee's name and social security number provided on the W-2 form do not match with Social Security Administration records. These can result from typographical errors, unreported name changes, or incomplete records, and a mismatch does not necessarily mean that falsification of records or other misconduct has occurred. But when an employer receives a mismatch letter, it needs to act promptly to resolve the discrepancy. An employer has 60 days to resolve issues raised by such a letter.
When an employer receives a mismatch letter, it should follow the instructions provided. These will include procedures for registering with the Business Services Online ("BSO") database, where details can be located concerning the mismatch. Employers should also access the Social Security website to gain information and instructions on how to work through the issues. You can access the website by clicking
here. The website explains that the employer should review its own records to see if a typographical or other transmission error has occurred. The employer should then send a notice to the employee, a sample of which is on the website.
Employers should be aware of a few important points. First, as noted above, merely receiving a mismatch letter does not mean that any falsification, fraud, or other misconduct has occurred. Consequently, employers should not take any adverse employment action upon receipt of a mismatch letter. Second, although employees have the duty to resolve any mismatch issues, the ultimate responsibility falls on the employer to ensure that the process is completed. Employers should maintain communication with the affected employees until the issues are resolved, and we recommend documenting all these steps fully. Finally, if the process indicates that in fact falsification or misuse of Social Security information has occurred, employers should consult legal counsel prior to taking any action with respect to the affected employee.
If you have any questions about the mismatch program or how to proceed if you have received a mismatch letter, please feel free to contact either Philip Siegel by clicking here or Scott Calhoun by clicking here .
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OSHA Clarifies Its Position on Workplace Safety Incentive Programs and Post-Accident Drug Testing
In May of 2016, OSHA published a final rule that amended 29 C.F.R. § 1904.35(b)(i)(iv) to include a provision prohibiting employer retaliation against employees who reported work-related injuries or illnesses. At the time, OSHA's position under the rule was that some drug testing and safety incentive policies might deter employees from reporting work-related injuries and illnesses and, as a result, would be a violation of OSHA's regulations.
On October 11, 2018, OSHA published a memorandum to better clarify its position on these programs. In the memorandum, OSHA stated that it believes "that many employers who implement safety incentive programs and/or conduct post-incident drug testing do so to promote workplace safety and healthy. In addition, evidence that the employer consistently enforces legitimate work rules (whether or not an injury or illness is reported) would demonstrate that the employer is serious about creating a culture of safety, not just the appearance of reducing rates." The memorandum further stated that safety incentive or drug testing policies would only violate 29 C.F.R. § 1904.35(b)(i)(iv) if the employer used those programs to penalize an employee for reporting a work-related injury or illness instead of using them for the legitimate purpose of promoting workplace safety and health.
In the memorandum, OSHA acknowledged that some safety incentive programs promote safety and health. Specifically, the memorandum clarified that permissible safety incentive programs include those programs that reward employees for reporting near-misses or encourage involvement in safety and health management systems. OSHA also stated that rate-based safety programs, which focus on reducing the number of work-related injuries and illnesses, are permissible as long as they are not implemented in a manner that discourages reporting. OSHA provided several examples of measures that employers could take to implement precautions which would avoid the unintentional deterrent effect of a rate-based safety incentive policies. Some of these measures include:
- An incentive program that rewards employees for identifying unsafe conditions in the workplace;
- Training programs for all employees that reinforce reporting rights and emphasize the employer's policy against retaliation; and
- A mechanism for accurately evaluating employees' willingness to report injuries and illnesses.
OSHA also clarified in the memorandum that most during testing policies are permissible, including post-accident drug testing. Examples of drug testing policies that are not in violation include:
- Random drug testing;
- Drug testing not related to the reporting of a work-related injury or illness;
- Drug testing in connection with a state workers' compensation law;
- Drug testing under other federal laws, such as a U.S. Department of Transportation rule; and
- Drug testing to evaluate the root cause of a workplace incident that harmed or could have harmed employees. If an employer opts to drug test to investigate such an incident, the employer should test all employees whose conduct could have contributed to the incident and not just employees who reported injuries.
This October 11, 2018 memorandum represents the clearest guidance to date by OSHA provided to employers concerning its position on drug testing programs and safety incentive policies, and makes clear that these policies are generally not in violation of OSHA requirements.
If you have any questions about OSHA's requirements concerning workplace drug testing policies or safety incentive programs, please contact William Burnett or Philip Siegel. You can reach William Burnett directly at (404) 469-9183 or e-mail him by clicking here. You can reach Philip Siegel directly at (404) 469-9197 or e-mail him by clicking here.
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Possible Rule Changes On the Way From OSHA
OSHA recently declared its plans to formally reconsider and revise provisions of the Improve Tracking of Workplace Injuries and Illnesses rule (29 C.F.R. § 1904.41) enacted in May 2016 requiring certain employers to electronically submit annual records of work-related fatalities, injuries and illnesses. The proposed revisions are intended to better protect personally identifiable information or data that could be re-identified with a particular individual by removing provisions of the rule.
To start with, last May, OSHA announced that construction industry employers with 250 or more employees "in each establishment" would only need to submit their Form 300A summary data each year, and were excused from submitting their 300 Log and 301 (incident report) forms as expressly required under the May 2016 rule. Thus, construction-industry employers who have between 21 to 249 employees or 250 or more employees "in each establishment" were required to electronically submit only their 2017 Form 300A (i.e. - their annual summary of work-related injuries and illnesses) to OSHA by July 1, 2018.
On July 27, OSHA formally published a Notice of Proposed Rulemaking in the Federal Register intending to revise the rule in a manner consistent with its current policy. The public comment period in response to the Notice closed on September 30. It is anticipated that OSHA will soon publish a final revised rule, which includes the proposed revisions.
While the Department of Labor considers changes to its Improve Tracking of Workplace Injuries and Illnesses rule , the Occupational Safety and Health Review Commission has announced its own intentions to engage in rule changing. The Review Commission is considering possible changes to its procedural rules, and it is seeking public comment and recommendation regarding the changes. The public comment period was set to expire on October 9, but it was recently extended by the Review Commission until November 16. While the Review Commission is accepting recommended changes to any of its procedural rules, it is particularly focused on the following:
- Simplifying rules on the computation of time;
- Making electronic filing and service mandatory and whether there should be exceptions to the rule;
- Broadening the definition of affected employee;
- Whether citing to Commission decisions as posted on the OSHRC's website should be allowed;
- Eliminating the rule on the staying of a final order as not necessary;
- Narrowing or eliminating the requirement for OSHRC approval of settlements;
- Revising the grounds for obtaining OSHRC review of interlocutory orders issued by its ALJs;
- Broadening protection of sensitive personal information; and
- Increasing the threshold amount for cases referred for mandatory settlement proceedings.
Public comments can be submitted to the Review Commission by clicking here.
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Update On OSHA's Silica Rule Revisions
Over the course of the last year, OSHA has taken several actions in relation to is respirable crystalline silica in construction standard. Each of the actions taken appear to have the purpose of eventually simplifying what is an extremely detailed and complex standard such that it is easier for employers to understand and comply with the standard.
Initially, on May 9, 2018, OSHA announced its intent to consider revision to Table 1 in its final rule on Occupational Exposure to Respirable Crystalline Silica. Table 1, "Specified Exposure Control Methods When Working With Materials Containing Crystalline Silicate" matches common construction tasks with dust control methods. Under the Silica Rule, employers who follow Table 1 correctly are not required to measure workers' exposure to silica and are not subject to the permissible exposure limits. OSHA's announced intent to consider revisions to Table 1 was seen by many in the industry as encouraging because, since the adoption of the Silica Rule in 2016, concerns have been expressed about the viability of Table 1.
Additionally, on August 13, 2018, OSHA released a set of 53 frequently asked questions and the corresponding answers to provide guidance to employers and employees on the Silica Rule and the application of Table 1. The FAQ is organized by topic and clarifies that many common construction tasks are likely to be outside the scope of the standard. Accordingly, the FAQ provides necessary guidance and assists in clarify the complexities of the standard.
Further, on August 22, 2018, OSHA published six training videos on its website on the topic of controlling silica dust in construction. The videos cover the use of various construction equipment. In addition, OSHA has posted a sample employee training power point presentation to its website specific to Respirable Crystalline Silica in Construction Workplaces. Each of these tools can be found on OSHA's website by clicking here.
According to the Fall 2018 Unified Agenda of Regulatory and Deregulatory Actions, the Silica Rule request for information is currently in the pre-rule stage. Information is due to OSHA by December of 2018. If you have any questions about OSHA's Silica Rule, contact J.T. Gallagher. You can e-mail J.T. by clicking here.
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Learning Opportunities from HPSS Available on the Internet
Philip Siegel recently presented two webinars addressing timely labor and employment topics in the construction industry. You can access Philip's webinar on the Top 10 Employment Law Mistakes Most Commonly Made by Contractors presented to eSub Construction Software by clicking here. Philip's presentation to the American Subcontractors Association titled "High Times - Navigating a Drug Free Workplace in Light of Marijuana Use Laws and Restrictions on Post-Accident Testing" can be accessed by clicking here. Lastly, Philip was a featured guest on the Think Bid podcast hosted by nationally known business coach Jon Dwoskin. You can listen to the podcast by clicking here.
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