Ohio Subscriber

A

The business risk doctrine is a theory aimed at keeping the responsibility for poor workmanship on the one who performed the work. Your insured is a businessman who represents himself to the public as one who is capable and knowledgeable in the work he performs; he gets paid by his customers for performing that work. Now, this establishes a contractual relationship between your insured and his customers, and this relationship demands proper and competent work for money paid. If the work is not done in a proper and competent manner, the insured should bear the responsibility for that poor workmanship since he is the one who claimed he could handle the job. The business risk doctrine establishes that the insured cannot shift the responsibility for poor workmanship to another, such as his insurer.

The doctrine was very effectively discussed in O'Shaughnessy v. Smuckler Corporation, 543 N.W.2d 99 (1996), a court of appeals decision from Minnesota . That court stated that a business risk is “one that the general contractor effectively controls and one which the insurer does not assume because it has no effective control over those risks and cannot establish predictable and affordable insurance rates.” The court went on to state that the rationale behind the doctrine is “if the insurance proceeds could be used to pay for repairing and/or replacing poorly constructed products, a contractor could receive an initial payment for its work and then receive payment from the insurance company to repair or replace that same work” — in other words, the contractor would receive dual payments for the one job and thus be unjustly enriched.