In a recent opinion the Alabama Supreme Court ruled that Owners Insurance Co. must cover a lawsuit blaming a general contractor for water leaks at a newly built $1.2 million home. An earlier ruling by the court had said that there had been no “occurrence,” a requirement for coverage, in the construction defect dispute. But the high court in its recent ruling upheld the trial court’s ruling requiring Owners to pay a $600,000 arbitration award against Jim Carr Homebuilder LLC in a lawsuit filed by homeowners Pat and Thomas Johnson. The Plaintiffs filed the suit after discovering water leaks through the roofs, walls and floors about a year after moving into their new home that JCH built.
A major issue in the fight between JCH and Owners over who should pay the award was whether the Plaintiffs’ lawsuit arose from an “occurrence” or an “accident,” the latter being a required condition for coverage. In September, the Alabama Supreme Court ruled in favor of Owners Ins., finding that there was no “occurrence” because the JCH’s alleged poor workmanship could only have damaged the contractor’s own product. As a result, the court ruled there was no coverage. Owners Insurance took the position that there would be an “occurrence” only when faulty workmanship during a construction or repair project damages property that is not part of the project itself.
In the revised opinion, the Supreme Court criticized Owners Insurance’ interpretation for “ask[ing] the term ‘occurrence’ to do too much.” The opinion reads:
To read into the term “occurrence” the limitations urged by Owners would mean that, in a case like this one, where the insured contractor is engaged in constructing an entirely new building, or in a case where the insured contractor is completely renovating a building, coverage for accidents resulting from some generally harmful condition would be illusory. There would be no portion of the project that, if damaged as a result of exposure to such a condition arising out of faulty workmanship of the insured, would be covered under the policy.
According to the court’s ruling, commercial general liability policies are not intended to cover the cost of repairing or replacing faulty workmanship itself. But at the same time, the court said the policy’s definition of “occurrence” does not specify that it only offers coverage depending on the nature or the location of the property damage. The court also held that coverage was available because Owners bought $4 million in supplemental insurance coverage for its completed operations. The opinion reads:
Thus, because there is no dispute that JCH’s “operations” on the Johnsons’ house were completed at the time of the alleged occurrences, that coverage applies to the Johnsons’ claims and, pursuant to the terms of the Owners Insurance policy.
The court ruled the insurer must indemnify JCH for the judgment entered against it. Greg Brockwell of Leitman Siegal Payne Campbell and James Hill of Weathington Moore & Weisskopf represented the homeowners in this very important case. Greg had this to say about the decision:
It is not only a relief to them, but an important victory for property owners, policyholders, and contractors across Alabama. We are very thankful to the Alabama General Contractors, Alabama Homebuilders, and Alabama ABC for their amicus support.
This is an extremely important decision. The lawyers for the Plaintiffs in this case didn’t give up, kept fighting for their clients and ultimately obtained a very good result.
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