Alabama no subcontractor work exception means no “property damage” caused by an “occurrence”

In Owners Insurance Co. v. Jim Carr Homebuilder, LLC, No. 1120764 (Ala. Sept. 20, 2013)(application for rehearing pending), insured general contractor JCH, utilizing subcontractors, built a home for the Johnsons.  Following completion, the Johnsons sued JCH for breach of contract, fraud, negligence and wantonness, alleging defective construction resulted in moisture penetration property damage to the home.  JCH was defended under reservation of rights by its CGL insurer Owners which also filed a declaratory judgment action.   The underlying action resulted in a judgment in favor of the Johnsons against JCH, based on findings that defective work of JCH subcontractors resulted in property damage to other components of the home.  In the declaratory judgment action, the Supreme Court of Alabama held that, absent damage to property other than JCH’s work—here the entire home—there was no “property damage” caused by an “occurrence.”   The significance, or lack thereof, of the court’s decision is buried in footnote 4 where the court distinguishes its prior decision in Town & Country Property, LLC v. Amerisure Insurance Co., on the basis that the Owners CGL policy did not include the subcontractor work exception to exclusion l.   Thus, under Town & Country, if the CGL insurer has not removed the subcontractor work exception to exclusion l., damage to non-defective work resulting from defective subcontractor work constitutes “property damage” caused by an “occurrence.”