Even a Blind Monkey Can See an Alabama “Occurrence”


By: Michael Lord
The Alabama Supreme Court recently found that Alabama law is part of the growing number of jurisdictions finding coverage for property damage arising out of defective workmanship.  In  Owner’s Insurance Co. v. Jim Carr Home Builder LLC, S.E.3d, WL1270629 (Alabama, March 28, 2014),  the homeowners contracted with the builder to reconstruct a new home in Alabama for $1.2 Million.  Within a year of substantial completion, the homeowners found substantial leaking throughout the house causing water damage to floors and other areas.  The builder’s expert admitted “even a blind monkey” could see the damage.
Despite repair efforts by the builder, the homeowners were unsatisfied and sued.  The builder’s CGL carrier Owner’s Insurance (the “Carrier”) defended under a reservation of rights, then sought a declaratory judgment as to coverage.  After the claim against the builder was submitted to arbitration, the homeowners won an award of $600,000 and then won summary judgment on the Carrier’s prior declaratory judgment action.
The Court rejected the Carrier’s argument that the property damage issue could not be the result of an “occurrence” under the policy.  The Supreme Court noted that the policy defined an occurrence as “an accident, including continuance or repeated exposure to substantially the same general harmful conditions.”  The Carrier argued that the only scenario where faulty workmanship would cause an “occurrence” was where there was damage to property that was not part of the construction or repair project.  The Supreme Court held that the definition of “occurrence” does not exclude property damage caused by the insured’s faulty workmanship and that damage to other parts of a structure caused by the faulty workmanship can constitute “property damage caused by or arising out of an occurrence”.  Thus the Court held that the damages alleged in the case were not excluded by the term “occurrence”.  Simply put, if a contractor builds a house, and the roof leaks and damages the floor, even though both roof and floor were built by the same contractor, damage to the floor may be covered as caused by an “occurrence”.
The Georgia Supreme Court in Taylor Morrison Services, Inc. v. HDI-Gerling America Insurance Co., 293 Ga 456, 746 S.E.2d 587 (2013) made a similar analysis.  The Georgia Supreme Court analyzed the identical definition of “occurrence” as in Carr, and found that damages caused to a house by foundation issues could constitute an “occurrence” even though the house and foundation were built by the same contractor.
The decision in Carr clarifies Alabama law. Under standard CGL policies, Alabama now joins the majority of states in holding that an “occurrence” does not exclude property damage caused by defective workmanship. Damage to other parts of the structure, even if a blind monkey does not see it, can constitute “property damage” covered by the policy.