Alabama stems the tide: construction defect claims do not constitute an “occurrence” under commercial general liability policies

Source:, October 2, 2013
By: Martha P. Brown and David L. Brown, Nelson Levine de Luca & Hamilton LLC

A hotly debated topic in construction defect litigation is whether faulty construction is covered under standard commercial general liability policies. The Alabama Supreme Court weighed in on this debate inOwners Insurance Company v. Jim Carr Homebuilders. The court held that liability for defective construction resulting in water intrusion damage to otherwise properly constructed component parts is not covered under a general contractor’s commercial general liability (CGL) policy because such damages are not caused by an “occurrence.” In finding that these damages do not trigger coverage under a CGL policy, Alabama stems the tide of recent court decisions and legislative changes that have broadened the scope of coverage for construction related claims.
In Jim Carr Homebuilders, a contractor was hired to build a residence. Most of the work was subcontracted and, once the house was built, evidence of defective construction began to appear. The court held that there was no coverage under the general contractor’s CGL policy for these claims and damages because it stemmed from defective construction by the subcontractors, even though the faulty work resulted in damages to otherwise properly constructed components of the same project. In doing so, the court stopped short of finding that defective construction could never result in an “occurrence.” It distinguished the present case from a situation where the insured’s work results in damages to other property outside the scope of the insured’s work. In such a situation, there could be an “occurrence” triggering coverage under the insured’s CGL policy.
In its decision, the Alabama Supreme Court went beyond finding that repairing or replacing the faulty work was not covered under a CGL policy. Instead, it held that damages caused by the faulty work, as long as those damages are to other components of the same project, are not covered under a CGL policy. As a result, there would be no duty to defend a contractor under a CGL policy when the claims alleged and damages sought are to the insured’s own product.

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