157 So. 3d 148
Ala.2014Background
- JCH (a general contractor) built a house for the Johnsons; within a year water intrusion and related damage surfaced. The Johnsons sued JCH for breach of contract, negligence, fraud, and wantonness.
- JCH had a commercial general liability (CGL) policy issued by Owners; Owners initially defended under reservation of rights and later filed a declaratory-judgment action seeking to deny coverage.
- The trial court compelled arbitration of the Johnsons’ claims; an arbitrator awarded the Johnsons $600,000 for water damage and mental anguish; that award was entered as a judgment and not appealed.
- The Johnsons and JCH moved for summary judgment in the coverage action; the trial court declared Owners obligated to indemnify JCH for the arbitration award and entered judgment accordingly.
- Owners appealed, arguing (1) the damages were not caused by an "occurrence" under the policy and (2) the “Your Work” exclusion (completed-operations hazard) barred coverage.
- The Alabama Supreme Court affirmed: it held the policy’s definition of "occurrence" did not categorically exclude property damage to the insured’s work and that JCH had purchased products/completed-operations coverage, so the exclusion did not bar indemnity for the award.
Issues
| Issue | Plaintiff's Argument (Johnsons/JCH) | Defendant's Argument (Owners) | Held |
|---|---|---|---|
| Whether the insured’s liability arose from an "occurrence" under the CGL policy | Damage from water intrusion caused by faulty work is an occurrence and thus covered | Faulty workmanship is not an occurrence; only damage to third‑party property (not the insured’s work) qualifies | Court: "Occurrence" = accident (including repeated exposure); faulty workmanship itself is not an occurrence, but resulting damage can be an occurrence; here the definition does not exclude the Johnsons’ claimed damage |
| Applicability of the "Your Work" (Damage To Your Work / products-completed operations) exclusion | Even if the exclusion applies to the work, the policy’s declarations show JCH purchased products/completed-operations coverage up to $4M, which negates the exclusion | The exclusion precludes coverage for damage to the insured’s completed work | Court: JCH purchased completed‑operations coverage; therefore the exclusion does not bar coverage for the award |
| Whether the insurer must indemnify the full arbitration award despite potentially mixed damages (repair of faulty work vs. consequential damage) | The award compensates consequential damage that is covered; evidence supports the award as attributable to covered damage | The award may include amounts for repair/replacement of defective work (an excluded loss); JCH must segregate covered vs. excluded amounts | Court: Affirmed indemnity; noted prior cases require attention to whether award compensates excluded faulty-work remediation, but here trial court found sufficient evidence that the award was supported by covered damage; concurrence would remand to allocate if necessary |
| Standard of review for summary judgment in declaratory-judgment/coverage action | N/A (procedural) | N/A | Court: de novo review; movant must show no genuine issue of material fact and entitlement to judgment as a matter of law |
Key Cases Cited
- Town & Country Prop., L.L.C. v. Amerisure Ins. Co., 111 So.3d 699 (Ala. 2011) (faulty workmanship itself is not an occurrence, but resulting damage may be)
- United States Fidelity & Guaranty Co. v. Warwick Development Co., 446 So.2d 1021 (Ala. 1984) (faulty workmanship held not to be an occurrence where damage was confined to the insured’s work)
- Moss v. Champion Ins. Co., 442 So.2d 26 (Ala. 1983) (poor workmanship that resulted in rain‑caused interior damage constituted an occurrence)
- Lamar Homes, Inc. v. Mid‑Continent Casualty Co., 242 S.W.3d 1 (Tex. 2007) (CGL policy’s occurrence inquiry focuses on whether injury was accidental, not on ownership or character of damaged property)
- United States Fire Ins. Co. v. J.S.U.B., Inc., 979 So.2d 871 (Fla. 2007) (criticizes a coverage distinction based on which property was damaged; like Lamar, focuses on fortuity)
- Bonitz Insulation Co. of Ala. v. United States Fidelity & Guaranty Co., 424 So.2d 569 (Ala. 1982) (coverage exists for damage to property other than the insured’s product when an occurrence causes that damage)