Title: Owners Insurance Company v. Jim Carr Homebuilder, LLC et al.

State: alabama

Issuer: Alabama Supreme Court

Document:

REL: 09/20/2013
Notice: This opinion is subject to formal revision before publication in the advance
sheets of Southern Reporter.  Readers are requested to notify the Reporter of Decisions,
Alabama Appellate Courts, 300 Dexter Avenue, Montgomery, Alabama 36104-3741 ((334) 229-
0649), of any typographical or other errors, in order that corrections may be made before
the opinion is printed in Southern Reporter.
SUPREME COURT OF ALABAMA
SPECIAL TERM, 2013
____________________
1120764
____________________
Owners Insurance Company
v.
Jim Carr Homebuilder, LLC, et al.
Appeal from Shelby Circuit Court
(CV-09-900247)
STUART, Justice.
Owners Insurance Company ("Owners") appeals a judgment
entered by the Shelby Circuit Court declaring that Owners was
obligated to pay an arbitration award entered against Jim Carr
Homebuilder, LLC ("JCH"), under the terms of a commercial
1120764
general-liability ("CGL") insurance policy Owners had issued
JCH.  We reverse and remand.
I.
In January 2006, Thomas Johnson and Pat Johnson
contracted with JCH, a licensed homebuilder, for the
construction of a new house on Lay Lake in Wilsonville.   The
1
Johnsons paid approximately $1.2 million for the design and
construction of the house and took possession of the
substantially finished house in early February 2007.   Within
a year, the Johnsons noted several problems with the house
related to water leaking through the roof, walls, and floors,
resulting in water damage to those and other areas of the
house.  The Johnsons notified JCH of the problems, and JCH
apparently made some efforts to remedy them; however, the
Johnsons were not satisfied with those efforts, and, on May
13, 2008, the Johnsons sued JCH, alleging breach of contract,
fraud, and negligence and wantonness.2
JCH acted as the general contractor on the project; it
1
employed 
subcontractors 
to 
perform 
all 
the 
actual 
construction
work. 
The Johnsons also sued the architectural firm that
2
designed the house; however, their claims against that firm
are not relevant to this appeal.
2
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The Johnsons' contract with JCH required JCH to maintain
general-liability insurance, and, during the relevant period,
JCH held a CGL policy issued by Owners ("the Owners policy"). 
After receiving notice of the Johnsons' lawsuit, JCH filed a
claim with Owners requesting that it provide a defense and
indemnification for the Johnsons' claims.  On July 21, 2008,
Owners hired counsel to defend JCH while reserving its right
to withdraw the defense if it later determined that the
Johnsons' claims were not covered under the Owners policy. 
Subsequently, on September 12, 2008, Owners moved the trial
court to allow it to intervene in the case for the limited
purpose of determining whether there was in fact coverage for
the Johnsons' claims.
On December 19, 2008, the trial court issued an order
declining to rule on Owners' motion to intervene at that time
but inviting Owners to reapply to intervene at "the
appropriate time."  On March 23, 2009, Owners instead filed
the 
instant 
declaratory-judgment 
action 
asking 
the 
trial 
court
to determine whether Owners had a duty to defend and indemnify
JCH with regard to the Johnsons' claims.  This action was
assigned to the same trial judge presiding over the Johnsons'
3
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action against JCH, and JCH and the Johnsons thereafter filed
separate answers to Owners' complaint, asserting their own
counterclaims and taking the position that Owners 
was 
required
to defend and indemnify JCH for the Johnsons' claims.   
3
During this same time, the Johnsons' underlying action
against JCH proceeded.  On July 30, 2008, JCH, through its
Owners-provided counsel, moved the trial court to compel
arbitration of the Johnsons' claims pursuant to 
an 
arbitration
provision in the construction contract entered into by the
parties.  The trial court granted that motion in the same
December 19, 2008, order in which it had declined to grant
Owners' petition to intervene.  The Johnsons thereafter moved
the 
trial 
court 
to 
reconsider 
its 
order 
compelling
arbitration, and there was thereafter some delay, presumably
related to the parties' reaching an agreement on the mechanics
of arbitration.  On September 24, 2010, the trial court
entered an order noting that the parties had reached an
agreement regarding arbitration and staying the case pending
completion of the arbitration proceedings.  On August 22,
In 
its 
answer, 
JCH 
also 
asserted 
additional 
counterclaims
3
against new parties, 
and 
those parties subsequently brought in
additional parties.  Those parties and claims are not relevant
to the instant appeal.
4
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2011, the trial court also stayed the instant case until the
underlying case resolving the Johnsons' claims against 
JCH 
was
completed.
The Johnsons' case against JCH proceeded to a final
arbitration hearing on March 6, 2012, and, on March 13, 2012,
the arbitrator entered an award in favor of the Johnsons in
the amount of $600,000 based on the following findings:
"a.  That flashing was either not installed or
was improperly installed by [JCH's] subcontractor in
certain areas and has subjected other parts of the
completed house to leaks, moisture, water intrusion,
and damage resulting therefrom;
"b.  That the mortar and brick used on the house
was not defective, but rather the brick was
improperly prepared for installation by [JCH's]
subcontractor, 
which 
resulted 
in 
excessive
absorption of water from the mortar which thereby
damaged the completed mortar and requires its
replacement;
"c.  That the damaged mortar has subjected other
parts of the completed house to leaks, moisture,
water intrusion, and damage resulting therefrom;
"d.  That sufficient weep holes were not
installed in the brick or else were covered by
mortar by [JCH's] subcontractor, which has subjected
other parts of the completed house to leaks,
moisture, water intrusion, and damage resulting
therefrom;
"e.  That certain windows and doors were not
properly installed by [JCH's] subcontractor and have
subjected other parts of the completed house to
5
1120764
leaks, 
moisture, 
water 
intrusion, 
and 
damage
resulting therefrom;
"f.  That certain windows and doors either were
not caulked or were not properly caulked by [JCH's]
subcontractor, which has subjected other parts of
the completed house to leaks, moisture, water
intrusion, and damages resulting therefrom;
"g.  That the exposed upper porches on the house
were not properly installed and waterproofed by
[JCH's] subcontractor, subjecting the completed
porch ceilings and areas of the completed dining
room to damage from leaks, moisture and water
intrusion ...;
"h.  That part of the roofing was not properly
installed by [JCH's] subcontractor, resulting in a
small hole in the attic through which daylight is
visible and in water damage to the completed roof
decking;
"i.  That the completed window sill on the large
'great room' window has suffered visible water
damage from water leaks;
"j.  That certain areas of the completed
hardwood floors have suffered visible water damage
from water leaks (to quote [JCH's] expert, even a
'blind monkey' could see this);
"k.  That a downstairs bathtub was not properly
installed by [JCH's] subcontractor, resulting in
leaks and resulting water damage to the completed
wood subfloor below ...."
The arbitrator also found that the Johnsons had suffered
"significant mental anguish."  The trial court thereafter
6
1120764
entered a judgment in the underlying case consistent with the
arbitrator's award.  That judgment was not appealed.
On March 14, 2012, the day after the arbitrator returned
its award in the underlying case, the Johnsons moved for a
summary judgment in Owners' declaratory-judgment action,
asking the trial court to enter a judgment declaring that the
Owners policy did in fact cover the award entered against JCH. 
JCH thereafter filed its own summary-judgment motion seeking
the same relief.  On April 6, 2012, Owners filed its response
to 
the 
motions filed by 
the 
Johnsons 
and 
JCH and
simultaneously moved the trial court to enter a summary
judgment in its favor.  The trial court heard arguments on the
outstanding summary-judgment motions on April 19, 2012, and,
on May 25, 2012, granted the summary-judgment motions filed by
the Johnsons and JCH, stating, in part:
"It is hereby declared that the entire arbitrator
award is covered by the Owners' policy and that
Owners' duty to indemnify its insured is triggered. 
This court hereby orders [Owners] to fully indemnify
[JCH] for the arbitrator award plus post-judgment
interest running from the date of the arbitrator
award."
Some additional claims among these and other parties remained
outstanding until March 25, 2013, when the last of those
7
1120764
claims was dismissed, and on March 26, 2013, Owners filed this
appeal.
II.
We review Owners' arguments on appeal pursuant to the
following standard:  
"This Court's review of a summary judgment is de
novo.  Williams v. State Farm Mut. Auto. Ins. Co.,
886 So. 2d 72, 74 (Ala. 2003).  We apply the same
standard of review as the trial court applied.
Specifically, we must determine whether the movant
has made a prima facie showing that no genuine issue
of material fact exists and that the movant is
entitled to a judgment as a matter of law. Rule
56(c), Ala. R. Civ. P.; Blue Cross & Blue Shield of
Alabama v. Hodurski, 899 So. 2d 949, 952-53 (Ala.
2004).  In making such a determination, we must
review the evidence in the light most favorable to
the nonmovant.  Wilson v. Brown, 496 So. 2d 756, 758
(Ala. 1986).  Once the movant makes a prima facie
showing that there is no genuine issue of material
fact, the burden then shifts to the nonmovant to
produce 'substantial evidence' as to the existence
of a genuine issue of material fact.  Bass v.
SouthTrust Bank of Baldwin County, 538 So. 2d 794,
797-98 (Ala. 1989); Ala. Code 1975, § 12-21-12."
Dow v. Alabama Democratic Party, 897 So. 2d 1035, 1038-39
(Ala. 2004).
III.
Owners first argues that the trial court erred by holding
that Owners was required to indemnify JCH for the award
entered against it 
because, 
Owners argues, the property damage
8
1120764
and bodily injury (i.e., mental anguish) upon which the award
was based was not the result of an "occurrence" under the
Owners policy and, by its terms, the Owners policy applies
only if "[t]he 'bodily injury' or 'property damage' is caused
by an 'occurrence' ...."  The Owners policy further defines an
"occurrence" 
as 
"an 
accident, 
including 
continuous 
or 
repeated
exposure 
to 
substantially 
the 
same 
general 
harmful
conditions."  We have previously considered the issue whether
poor workmanship constitutes an occurrence and have held that,
in each case, it depends "on the nature of the damage caused
by the faulty workmanship."  Town & Country Prop., L.L.C. v.
Amerisure Ins. Co., 111 So. 3d 699, 705 (Ala. 2011).  We
explained this principle in further detail by comparing two
cases involving claims based on faulty workmanship:
"In [United States Fidelity & Guaranty Co. v.]
Warwick [Development Co., 446 So. 2d 1021 (Ala.
1984)], the purchasers of a newly built house sued
the builder, stating claims of faulty construction
and misrepresentation, after taking possession of
the house and discovering extensive defects in its
construction.  The builder then alleged a third-
party claim against its insurer after it sought
coverage for the purchasers' claims pursuant to a
CGL policy, and its request for coverage was denied. 
At the conclusion of a trial on all those claims,
the trial court awarded damages to the purchasers
and held that the insurer was required to indemnify
the builder for the purchasers' claims.  On appeal,
9
1120764
however, this Court reversed the judgment against
the insurer, stating:
"'The first issue is whether [the
insurer's] policy provided coverage for
alleged 
faulty 
workmanship 
and 
noncomplying
materials 
in 
the 
construction 
of
plaintiffs' residence when the alleged
damage was confined to the residence
itself.  [The insurer] contends that the
policy affords no coverage because (1) no
insurable loss occurred with the policy
period and (2) damages to the work of the
insured attributable to faulty workmanship
are expressly excluded from coverage. 
After a review of the record and the policy
involved, we conclude that the trial court
incorrectly held that [the insurer] was
bound under its policy of insurance to [the
builder].  In our view, there was no
"occurrence" within the definition of
"occurrence" found in the pertinent policy
provisions.  The policy clearly states that
the company will pay damages for: "A.
bodily injury or B. property damage to
which this insurance applies caused by an
occurrence." 
 
The 
[insurer's] 
policy
defines "occurrence" as "an accident,
including continuous or repeated exposure
to conditions, which results in bodily
injury or property damage neither expected
nor intended from the standpoint of the
Insured."  For a contrary holding under
circumstances 
amounting 
to 
"an 
occurrence,"
see Moss v. Champion Ins. Co., 442 So. 2d
26 (Ala. 1983).'
"Warwick, 446 So. 2d at 1023.  Thus, Warwick held
that 
faulty 
workmanship 
itself 
is 
not 
an
'occurrence.'
10
1120764
"In Moss [v. Champion Insurance Co., 442 So. 2d
26 (Ala. 1983)], however, a homeowner sued a
contractor she had hired to reroof her house in
order 'to recover for damage she allegedly incurred
due to rain which fell into her attic and ceilings
because, as she claimed, the roof was uncovered much
of the time that the re-roofing job was being
performed.'  442 So. 2d at 26.  The contractor's
insurer argued that it was not required to provide
a defense or to pay any judgment against the
contractor because, it argued, the damage was not
the result of an occurrence and was therefore not
covered 
under 
the 
contractor's 
CGL 
policy. 
Following a bench trial limited to deciding the
insurance-coverage issue, the trial court ruled in
the insurer's favor, holding that the damage to the
homeowner's house was not the result of an
occurrence.  On appeal, we reversed the trial
court's judgment, stating:
"'That the attempt was made to keep the
roof covered as the work progressed was
established by the testimony of [the
homeowner] herself.  That it became
insufficient was not attributable to [the
contractor], who, for aught that appears
from the evidence, did not intend the
damage, and who by his personal efforts
could not have reasonably foreseen the
negligence of his crews in their failure to
follow 
his 
instructions. 
 
[The 
homeowner's]
complaint against him charged him with
negligence (and breach of contract), not
conscious acts made with intent to cause
damage.  His instructions establish his
definite steps taken to prevent damage. 
And finally, after the "repeated exposure
to conditions," the roof leaked.  Thus,
there was an "occurrence" under the policy,
and the [insurer] is obligated by the terms
of the policy to defend the [homeowner's]
11
1120764
action and perform other duties contracted
for thereunder.'
"Moss, 442 So. 2d at 29.  Thus, in Moss we held that
there had been an occurrence for CGL policy purposes
when the contractor's poor workmanship resulted in
not merely a poorly constructed roof but damage to
the plaintiff's attic, interior ceilings, and at
least some furnishings.  Reading Moss and Warwick
together, we may conclude that faulty workmanship
itself is not an occurrence but 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."
  
Town & Country, 111 So. 3d at 705-06.
JCH and the Johnsons latch onto the statement in the
final paragraph of the above excerpt from Town & Country
indicating 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,'" 111 So. 3d at 706, to argue that
there was an occurrence in this case because faulty
workmanship related to the roof, windows, doors, brick, and
mortar, etc., led to damage to other parts of the house such
as the floor.  However, this isolated statement from Town &
Country must be considered in the context in which it was made
12
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–– a discussion of Moss v. Champion Insurance Co., 442 So. 2d
26 (Ala. 1983), and United States Fidelity & Guaranty Co. v.
Warwick Development Co., 446 So. 2d 1021 (Ala. 1984).  That
discussion makes it clear that faulty workmanship 
performed as
part of a construction or repair project may lead to an
occurrence if that faulty workmanship subjects personal
property or other parts of the structure outside the scope of
that construction or repair project "to 'continuous or
repeated exposure' to some other 'general harmful condition'"
and if, as a result of that exposure, that personal property
or other unrelated parts of the structure are damaged.  Hence,
there was no occurrence in Warwick, where the builder's poor
workmanship resulted in just a poor final product (the house
itself), but there was an occurrence in Moss because the
contractor's poor workmanship resulted not just in a poor
final product (the new roof), but also in damage to the
homeowner's personal property and other parts of the house
outside the scope of the contractor's project –– the attic and
interior ceilings.  See also United States Fid. & Guar. Co. v.
Bonitz Insulation Co. of Alabama, 424 So. 2d 569, 573 (Ala.
1982) ("If damage to the roof itself were the only damage
13
1120764
claimed by the [plaintiff], the exclusions would work to deny
[the roofing contractor] any coverage under the [CGL] policy. 
The [plaintiff], however, also claims damage to ceilings,
walls, carpets, and the gym floor.  We think there can be no
doubt that, if the occurrence or accident causes damage to
some other property than the insured's product, the insured's
liability for such damage becomes the liability of the insurer
under the policy.").
In this case, it is evident that the facts are
substantially identical to those in Warwick, in which we held
that an insurer was not required to indemnify its insured
homebuilder for damages stemming from an action alleging that
a new house had been poorly constructed, because "there was no
'occurrence' within the definition of 'occurrence' found in
the pertinent policy provisions."  446 So. 2d at 1023. 
Importantly, this case is not akin to Moss –– JCH was not
hired to construct only a part of a house (such as a roof) and
JCH's poor workmanship did not thereafter result in damage to
other parts of the house outside the scope of the work JCH was
hired to complete.  Rather, the Johnsons contracted with JCH
for JCH to build them a house, and any damage that resulted
14
1120764
from poor workmanship was damage to JCH's own product.  
4
Accordingly, there was no occurrence, and the trial court
erred by entering a summary judgment in favor of the Johnsons
and JCH holding that Owners was required to indemnify JCH for
the judgment entered against it in the underlying action.
IV.
Owners initiated a declaratory-judgment action against
JCH and the Johnsons seeking a declaration that it was not
obligated to indemnify its insured JCH for any judgment
entered against it in the Johnsons' separate action alleging
that the house JCH constructed for them was poorly built. 
After the Johnsons prevailed in their action against JCH, the
trial court in the declaratory-judgment action entered a
summary judgment holding that Owners was required to pay the
judgment entered against JCH pursuant to the terms of the
Owners policy.  However, because JCH's faulty workmanship was
not an occurrence, the trial court's judgment was in error,
and it is hereby reversed.  All other arguments raised by the
We note also that the Owners policy differs from the CGL
4
policy issued by Amerisure in Town & Country inasmuch as the
Owners policy does not contain the "subcontractor exception"
described in Town & Country, 111 So. 3d at 705.
15
1120764
parties on appeal are accordingly pretermitted and the cause
remanded 
for 
further 
proceedings 
consistent 
with 
this 
opinion.
REVERSED AND REMANDED.
Moore, C.J., and Parker, Shaw, and Wise, JJ., concur.
16