Alabama “occurrence” and contractual liability, earth movement/subsidence, and your completed work exclusions.

In Hermitage Ins. Co. v. Champion, No. 2:09cv398-MHT (M.D. Ala. April 27, 2010), Champion hired Gallops to build a house.  Gallops in turn hired subcontractors to do all of the work.  After completion of the house, Champion sued Gallops for breach of contract, negligence, breach of warranty of habitability, breach of warranty, and fraud, seeking damages because earth-movement related physical injury to the house resulting from high moisture content in the soil beneath the house.  Gallops tendered defense of the suit to its CGL insurer, Hermitage, which denied a defense.  After a default judgment was entered against Gallops, Hermitage filed suit seeking a declaratory judgment of no coverage.  On cross-motions for summary judgment, the federal district trial court, applying Alabama law, held that the Champion complaint did not give rise to a duty to defend and granted Hermitage’s motion for summary judgment.  Without any discussion as to whether “property damage” caused by an “occurrence” was alleged, the court first held that any duty to defend the breach of contract, warranty, and negligence causes of action was precluded by the exclusions for contractual liability (without discussion of the assumption of liability requirement), earth subsidence, and damage to your completed work (without discussion of the subcontractor work exception).  Then, as to the fraud cause of action, the court held that, whether intentional or negligent, fraud arising out of a business dispute, even in the context of a consumer transaction, does not constitute an “occurrence.”  Notice of Appeal was filed with the U.S. Court of Appeals for the Eleventh Circuit on June 1, 2010; no. 10-12474).