By J. Paul Zimmerman, Esq.
Christian & Small
On March 28, 2014, the Alabama Supreme Court withdrew its September 20, 2013 opinion in Owners Ins. Co. v. Jim Carr Homebuilders, LLC, et al., Docket No. 1120764, and replaced it with a per curiam opinion. Following Jim Carr Homebuilders’ (“JCH”) and the homeowner’s application for rehearing, the March 28th opinion affirmed the trial court’s order granting summary judgment in their favor, whereas the prior September 20, 2013 opinion had reversed and remanded the case.
The issue on appeal in this action for declaratory judgment was whether Owners was obligated to indemnify JCH, as its insured under a CGL policy, for a judgment entered against JCH on an arbitration award in favor of the homeowner, for whom JCH had built the home. An arbitrator awarded the homeowner $600,000 regarding allegations of JCH’s faulty construction of the home which allowed water leaks causing extensive damage to the home and property inside the home. When the trial court granted summary judgment requiring Owners to indemnify JCH, JCH appealed.
The determinative issue was whether poor workmanship can be an “occurrence,” and thus a covered loss, under the typical CGL policy of a contractor when the contractor’s work is included in the resulting damage. The court analyzed the issue by discussing the different outcomes in Moss v. Champion Ins. Co., 442 So. 2d 26 (Ala. 1983) and U.S. Fid. & Guar. Co. v. Warwick Dev. Co., 446 So. 2d 1021 (Ala. 1984). Previously, while an “occurrence” could occur over time (such as through a leak, leading to water damage), damage to the work performed by the contractor, through faulty workmanship, was not considered a “loss” to be indemnified by the insurer. The court reframed that rule, writing “faulty workmanship itself is not ‘property damage’ ‘caused by’ or ‘arising out of’ an ‘occurrence.’” Ms. 1120764 at 16. The court therefore concluded that “the term ‘occurrence’ does not itself exclude from coverage the property damage alleged in this case.” Id. at 16-17.
However, the court went on to write that the trial court must also consider other provisions in the policy when determining coverage, including whether the policy was intended to cover the builder’s liability for its own negligence after the work is completed, as opposed to covering liability for negligence during the construction. Known as “completed operations hazard,” this analysis examines whether the policy excludes completed “work” with a “products—completed operations” exclusion on the policy’s declarations page. “[I]n order for the “Your Work” exclusion to apply, the damages must not only be to “Your Work,” but also must be ‘included’ in the ‘products-completed operations hazard.’” Id. at 19-20.
Because the insured builder’s “operations” on the house were complete at the time of the water leaks (and resulting damage), the policy’s coverage applied to the homeowner’s claim and indemnity was due. While the opinion only sets out a few key policy provisions, the application of the case to other situations seems likely given the court’s observation that the CGL policy involved is so common.
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