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The Alabama Supreme Court has overturned a lower court ruling and unanimously held that Nationwide Mutual Fire Insurance Co. is not obligated to indemnify a construction company because the alleged damage in one of its homes was not an occurrence under its policy.
In January 2004, the Birmingham, Alabama-based David Group, which specializes in custom-built houses, remodeling and other construction services, purchased a commercial general liability policy from Columbus, Ohio-based Nationwide, in which it agreed to pay for bodily injury and property damage caused by an “occurrence,” according to Friday’s ruling by the court in Nationwide Mutual Fire Insurance Co. v. David Group Inc.
In October 2007, Saurin and Valerie Shah purchased a newly built house from the company and began experiencing problems with it. They filed suit against the company in February 2008.
That dispute eventually led to a 2011 ruling by the 11th U.S. Circuit Court of Appeals in Atlanta, in Isaac David v. Saurin Shah, M.D., Valerie Shah, in which the court upheld a lower court ruling and held the couple had probable cause to sue The David Group’s owner, Isaac David, individually in their dispute.
Meanwhile, in September 2008, after the insurer refused to provide coverage, the David Group filed suit against Nationwide, seeking a judgment the insurer was obligated to defend and indemnify the company in the litigation. In 2009, an arbitrator issued an award in favor of the Shahs for $12,725, according to the ruling.
In January 2015, a state court held the David Group was entitled to coverage under its CGL policy. On appeal, citing an earlier ruling, the Supreme Court said it has “repeatedly held” that “’faulty workmanship itself is not an occurrence’ under a CGL policy like this one here.”
“This concept is consistent with the idea that the purpose of a CGL policy is to protect the insured contractor from tort liability, not to insulate it from its own faulty work,” the ruling said.
“This means that, although, there is no coverage for replacing poor work, there may be coverage for repairing resulting damage caused by the poor work. This necessarily depends on the ‘nature of the damage’ that results from the faulty work,” said the ruling, in quoting an earlier opinion.
The Shahs’ complaint “clearly alleges faulty workmanship, but at no point do the Shahs allege additional or resulting damage to their house or to their personal property as a result of that faulty workmanship,” the ruling said.
“The record before us does not support the conclusion that the arbitrator found the Shahs to have ‘suffered damages’ because of an occurrence caused by faulty workmanship. Under these circumstances, there is nothing in the case demonstrating that there was property damage or personal injury resulting from an ‘occurrence’ that triggered coverage under the CGL policy,” the ruling said, in overturning the lower court’s judgment and remanding the case for further proceedings.
Spokesmen for Nationwide and the David Group did not immediately respond to a request for comment.
Earlier this month, the West Virginia Supreme Court unanimously upheld a lower court ruling in favor of six insurers in litigation filed by a construction company in connection with a troubled shopping center development.
A Nationwide Mutual Insurance Co. unit has prevailed in a dispute with another insurer in litigation over liability in connection with the delivery of contaminated milk.