The Alabama Supreme Court reversed its own recent decision, finding that insurance carriers must cover damages in a lawsuit against a general contractor for water leaks. About a year after they purchased their $1.2 million home, Pat and Thomas Johnson began to experience water leaks through the roof, walls and floors. They ended up suing the general contractor, Jim Carr Homebuilder (JCH). JCH's insurance carrier, Owners Insurance Company, disclaimed, saying that the damage was not the result of an "occurrence", in that the faulty workmanship only damaged JCH's own product, i.e. the entire project. The original opinion agreed with Owners Insurance. However, the revised Alabama Supreme Court opinion found that Owners relied too heavily on the term "occurrence."
The Court stated that in order to "read into the term 'occurrence' the limitations urged by Owners would mean that, in a case like this one, where the insured contractor is engaged in constructing an entirely new building... coverage for accidents resulting from some generally harmful condition would be illusory..." There would "be no portion of the project that, if damaged as a result of exposure to such a condition arising out of faulty workmanship of the insured, would be covered under the policy." Liability policies such as the one identified here do not cover damage solely to a contractors own work. However, when the court defines the work of the general contractor as the entire project, coverage under the policy is non-existent. Unless the building falls over and damages an unrelated building on another project, the carriers will never have to pay out, despite collecting tens of thousands of dollars in premiums. Such a broad definition of "occurrence" harms not only the policy holder (the General Contractor who paid all of those premiums) but the ultimate owner of the home, who may not have any mean of recovery other than insurance policies taken out by contractors and subcontractors.
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