Alabama “property damage” caused by an “occurrence”

In Town & Country Property, LLC v. Amerisure Insurance Co., No. 1100009 (Ala. June 29, 2012), property owner Town & Country contracted with insured general contractor Jones-Williams for the construction of a car dealership.  All of the construction work was performed by Jones-Williams’ subcontractors.  After completion, Town & Country sued Jones-Williams for defective construction.  Jones-Williams’ CGL insurer Amerisure defended. The case was tried and a judgment was entered against Jones-Williams in favor of Town & Country.  After Amerisure denied any obligation to pay the judgment, Town & Country sued Amerisure in a statutory direct action.  The trial court entered judgment in favor of Amerisure and against Town & Country.  On appeal, on October 21, 2011, the Alabama Supreme Court affirmed in part.  Relying on its prior decisions in United States Fid. & Guar. Co. v. Warwick Development Co., Inc., 446 So.2d 1021 (Ala. 1984) and Moss v. Champion Ins. Co., 442 So.2d 26 (Ala. 1983), the court reaffirmed that, even under the 1986 revision of the ISO CGL form which gives back coverage for property damage caused by work performed by a subcontractor, faulty workmanship standing alone does not constitute an “occurrence.”  The court goes on to state that faulty  workmanship may  lead  to an occurrence if it subjects personal   property   or   other  parts  of  the  structure to “continuous  or  repeated  exposure”  to  some other  “general harmful  condition” (e.g. the rain in Moss) and, as a result of that   exposure,  personal  property or other  parts  of  the structure are damaged. Unable  to  determine on the record before it whether any part of the judgment  against  Jones-Williams was for damages other than the cost of repairing or replacing the defective work, such as property damage to furnishings or non-defective portions of the building, which would fall  within  the subcontractor work  exception  to the “your work” exclusion  and thus be covered, the court remanded to the trial court for that determination.

On  remand,  the  trial  court  determined  that  $257,500.00  of the $650,100.00  judgment  against Jones-Williams  was for the repair or replacement  of  defective  work,  subtracted  that  amount  from the judgment,  and entered judgment in the amount of $392,600 for Town & Country.   Amerisure appealed  that judgment.  On June 29, 2012, the Alabama  Supreme  Court, with its October 21, 2011 decision still not released  for  publication, reversed.  The court  determined that, except   for   non-defective   ceiling   tiles  damaged  by moisture penetrating   through   a defectively  constructed  roof  and other components,  all  of  the  other parts of the building which suffered moisture penetration damages were defectively constructed themselves. The court states:

Even  if  these  items  suffered  further damage as a result of other  defective  construction,  it would  be inappropriate to consider  that  damage  covered  under  the  CGL  policy if the inherent   defects   caused   by faulty  construction  already necessitated the repair or replacement of these items.

The court held that only the property damage to the non-defective ceiling tiles constituted “property damage” caused by an “occurrence.”   The court reversed and remanded back to the trial court for entry of judgment for Town & Country for $600.00 for the cost to replace the ceiling tiles.