|April 4, 2014|
Previously published on April 2, 2014
When faulty construction of an Alabama residence was alleged to have led to water leakage and extensive damage in other parts of the home, the general contractor's insurance company contended that none of that loss resulting from the poor workmanship qualified as an "occurrence" under the commercial general liability policy in question.
But, in an opinion issued on March 28, 2014 after a rehearing, the Supreme Court of Alabama ("Court") affirmed the Shelby Circuit Court ruling obligating the insurer, Owners Insurance Company ("Owners"), to pay an arbitration award entered against its policyholder, Jim Carr Homebuilder, LLC--the contractor. Significantly, the Supreme Court had reached the exact opposite result in a September 20, 2013 opinion on the same case.
In its most recent ruling, the Court explored the definition of "occurrence" at length and explained that the interpretation in this scenario depends on the nature of the damage.
Despite having sided with Owners in its prior opinion, the unanimous Court chastised Owners as having stretched the meaning of "occurrence" too thin in its appeal, noting that the term "occurrence" was defined in the Owners policy simply as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions."
"If some portion of the Owners policy seeks to affect coverage by references to the nature or location of the property damaged, it is not the provision in the policy for coverage of occurrences," the Court wrote. "The policy simply does not define 'occurrence' by reference to such criteria."
By the reversal of opinion, Alabama joins 19 other state courts that have found faulty workmanship to constitute an "occurrence." These are Alaska, Arizona, California, Connecticut, Florida, Georgia, Kansas, Minnesota, Mississippi, Montana, Nevada, North Dakota, South Dakota, South Carolina, South Dakota, Tennessee, Texas, West Virginia and Wisconsin.
Only nine states remain in the minority: Illinois, Iowa, Kentucky, Nebraska, New Hampshire, New Jersey, North Carolina, Ohio and Pennsylvania.
Arkansas, Colorado, Hawaii and North Carolina have laws defining "occurrence."