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Birmingham Bar Association Bulletin - Fall 2014

Alabama Law Update Gregory A. Brockwell; Leitman, Siegal & Payne, P.C. “Occ urr ence” Now Means “Acc ident” In Alabama, Too: An Update In the Spring 2014 Bulletin, p. 12, the article “‘Occurrence’ Means ‘Accident’” surveyed the signifi cant recent developments across the country on the issue of whether or not a construction defect (or damage resulting from a construction defect) can be an “occurrence” under the ordinary commercial general liability (“CGL”) insurance policy. Th e article summarized cases from North Dakota, Connecticut, West Virginia, Georgia, and Alabama. At the time of the article’s publication, however, the Alabama case of Owners Insurance Co. v. Jim Carr Homebuilder, LLC, was pending an application for rehearing and had not yet been fi nally decided.1 Now that the Owners case is fi nally resolved, this article provides an update. Background In the Owners case, a homeowner contracted with a homebuilder for the construction of a new house. Within a year after completion of the house, the homeowner noted several problems with the house related to water leaking through the roof, walls, and fl oors—resulting in water damage to those and other areas of the house. Th e homeowner sued the homebuilder and obtained a judgment of $600,000. Th e homebuilder was insured by a CGL policy. In a declaratory judgment action, the homebuilder’s insurer sought to obtain a judgment of “no coverage” for the homeowner’s judgment. In the trial court, the insurer lost. Th e trial court found that the homeowner’s judgment was in fact covered by the homebuilder’s CGL policy, meaning that the homebuilder’s insurer must pay the underlying $600,000 judgment. Owners I On appeal, the homebuilder’s insurer argued that the homeowner’s judgment was not based on an “occurrence.” In the initial opinion (“Owners I”), the Alabama Supreme Court agreed with the insurer. Th e Court stated, “We have previously considered the issue whether poor workmanship constitutes an occurrence and have held that, in each case, it depends ‘on the nature of the damage caused by the faulty workmanship.’”2 Th e Court explained the rule of “occurrence” as “faulty workmanship performed as part of a construction or repair project may lead to an occurrence if that faulty workmanship subjects personal property or other parts of the structure outside the scope of that construction or repair project to ‘continuous or repeated exposure’ to some other ‘general harmful condition’ and if, as a result of that exposure, that personal property or other unrelated parts of the structure are damaged.” Th us, according to Owners I, for there to be an “occurrence,” the property damage must have been to something outside the scope of the contractor’s project. ...something other than the house must be damaged in order for there to be an “occ urr ence.” So, if the homebuilder’s project was a house, something other than the house (or a component of the house) must be damaged in order for there to be an “occurrence.” Th e decision did not explain how this rule fi ts the defi nition of “occurrence” as “accident,” but rather sought to defi ne “occurrence” as something other than “accident.” Understandably, this decision was not well accepted by the losing parties or by the construction industry, who felt that it was both incorrect and would have a dramatically negative impact on the industry. Owners Following the Owners I opinion, the losing parties fi led an application for rehearing, supported by various amici curiae.3 In a remarkable turn of events, the Alabama Supreme Court withdrew and replaced Owners I with a new opinion (“Owners II”).4 In Owners II, the homeowner and homebuilder again argued that the damage to the house was “property damage” resulting from an “occurrence” and therefore covered under the homebuilder’s CGL policy. Th is time, the Supreme Court accepted the argument. First, the Court noted that the policy defi ned “occurrence” as “an accident, including continuous or repeated exposure to the same general harmful conditions.” Second, the Court rejected the insurer’s argument that there may be an “occurrence” only to the extent that faulty workmanship results in damage to property outside the scope of the construction project. Th e Court explained: 18 Birmingham Bar Association


Birmingham Bar Association Bulletin - Fall 2014
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