Alabama Supreme Court Reverses Course, Finds Insurance Coverage For Faulty Workmanship Claims

Companies such as homebuilders, construction companies and contractors face significant financial risk from bodily injury and property damage claims arising from allegedly faulty workmanship or construction defects. Although these companies purchase commercial general liability ("CGL") policies to manage those risks, they often face obstacles to recovery under policy terms and exclusions that purportedly preclude coverage for faulty workmanship when the damage is to the construction project itself. The Alabama Supreme Court's decision in Owners Ins. Co. v. Jim Carr Homebuilder, LLC, however, highlights a growing majority among courts nationwide which have held that damage to a construction or building project purportedly due to the policyholder's faulty workmanship can constitute a covered "occurrence" under the CGL policy. The decision may also signal a willingness by courts to adopt a pro-policyholder interpretation of the "Your Work" exclusion, a common barrier to coverage for bodily injury or property damage arising from faulty workmanship after the construction project is complete, holding that the exclusion is inapplicable where the policyholder purchases completed operations coverage.

Background

In Owners Ins. Co. v. Jim Carr Homebuilder, LLC, Thomas and Pat Johnson hired Jim Carr Homebuilders ("JCH") to construct a new $1.2 million home on Lay Lake in Wilsonville, Alabama. When the Johnsons moved into their new home, they discovered water leaking through the roof, walls and floors, which caused water damage throughout the home. After JCH was unable to fix the problem...