The U. S. District Court found there was no coverage for breach of contract claims against the contractor who walked off the job before completing the project. Pa. Nat'l Mut. Cas. Ins. Co. v. Snider, 2014 U.S. Dist. LEXIS 16920 (M.D. Ala. Feb. 11, 2014).
The homeowners hired Jeff Beale to build their home for an approximate cost of $650,000. Beale said the job would take six to eight months and construction would be completed in early 2005. Construction did not begin, however, until April 2005. By 2005, the homeowners were becoming increasing displeased with Beale's progress. By March 2006, construction costs were approaching $800,000 and the home was not completed. The homeowners made progress payments on a monthly basis. Beale did not return to the home after April 2006 and another contractor was hired to complete the job.
When the homeowners moved in, they discovered several construction defects, including a cracked retaining wall and water intrusion in many areas of the home. They paid over $150,000 to repair the defects, to complete work Beale left unfinished, and remove mold.
The homeowners sued Beale on breach of contract and warranty. Although discovery responses from the homeowners asserted Beale's negligence based on alleged defects in the construction of the home, the complaint was never amended to include negligence. The jury returned a verdict for the homeowners for $700,000 in compensatory damages. The verdict form indicated that the jury awarded damages for claims of breach of contract, implied warranty, emotional distress, and mental anguish. But the jury did not itemize or otherwise apportion the total award among the four claims.
Penn National, Beale's insurer, sued Beale and the homeowners seeking a declaration that it had no duty to defend or indemnify. Penn National moved for summary judgment to establish it had no duty to indemnify the homeowners for the $700,000 judgment.
The court first considered whether there was an occurrence under Penn National's policy. Under Alabama law, there was no bright-line rule governing whether a contract dispute fell within the standard definition of an "occurrence" in a CGL policy. Here, however, the court agreed with Penn National that there was no coverage for the homeowner's breach of contract claim because it did not qualify as an "occurrence." A CGL policy protected contractors from true unintended accidents, not poor or substandard workmanship, which, although unexpected and certainly unwanted, was not unforeseeable. Therefore, Penn National was entitled to summary judgment and a declaration that it owed no indemnity to Beale.
The same conclusion was reached on the breach of implied warranty claim. A claim for breach of the implied warranty of habitability was simply a claim of faulty workmanship. There was no "occurrence" here because Beale's poor workmanship resulted in a poor final product (the residence) and not in damage to other unrelated parts of the home or the homeowners' personal property.
Finally, the homeowners argued there no separate coverage for "products-completed operations." The policy's coverage scheduled stated a $2,000,000 aggregate limit of insurance for "products-completed operations," which was simply a limit of insurance. The policy did not provide coverage for anything more than bodily injury and property damage (Coverage A), personal and advertising injury liability (Coverage B), and medical payments (Coverage C). Any claim falling under the definition of "products-completed operations hazard" was subject to the terms and limitations of the coverage portion to which it applied.