Alabama Supreme Court Finds Coverage for Construction Defect Claims Even Though the Insured’s Own Work Allegedly Was Defective

The Alabama Supreme Court, withdrawing an earlier opinion, has found coverage for construction defect claims even though the insured’s own work allegedly was defective.

The Case

Thomas and Pat Johnson contracted with Jim Carr Homebuilder, LLC (“JCH”), a licensed homebuilder, for the construction of a new house on Lay Lake in Wilsonville, Alabama. After they took possession, they alleged that they found several problems related to water leaking through the roof, walls, and floors, resulting in water damage to those and other areas of the house. The Johnsons asserted that they notified JCH and that it made some efforts to remedy the problems. Not satisfied, they sued JCH, alleging breach of contract, fraud, and negligence and wantonness, and an arbitrator awarded them $600,000.

A trial court decided that the entire award was covered by JCH’s insurance policy. The dispute reached the Alabama Supreme Court.

The Court’s Decision

The Alabama Supreme Court first issued a decision reversing the trial court. It now has withdrawn that decision and, instead, has affirmed the trial court’s decision.

The court first explained that faulty workmanship itself was not “property damage” “caused by” or “arising out of” an “occurrence.” However, the court continued, JCH had purchased a total of $4 million in supplemental insurance coverage for its completed operations.

The court then decided that because JCH’s “operations” on the Johnsons’ house were completed at the time of the alleged occurrences, that coverage applied to the Johnsons’ claims and, pursuant to the terms of the policy, the insurer had to indemnify JCH for the judgment entered against it.

The case is Owners Ins. Co. v. Jim Carr Homebuilder, LLC, No. 1120764 (Ala. March 28, 2014).