In this week’s Alabama Law Weekly Update, we report two cases from the Alabama Supreme Court, one regarding the scope of commercial general-liability insurance policies and one regarding the application of an indemnity clause to claims arising from the indemnified party’s wrongful acts.

Owners Insurance Co. v. Jim Carr Home Builder, LLC, et al.,_____So. 2d. _______ (Supreme Court of Alabama 2014) (Property damage and bodily injury claims covered by home builder’s commercial general-liability insurance policy).

The Johnsons contracted with JHC, a licensed homebuilder, for construction on a new house in Wilsonville.  Within a year of completion of the project, the Johnsons noted several problems with the house.  JHC made some unsuccessful attempts to fix the issues.  The Johnsons filed suit against JHC, alleging breach of contract, fraud, negligence and wantonness.  After receiving notice of the lawsuit, JHC filed a claim under its general-liability insurance policy, which was issued by Owners Insurance Company (the “Owners Policy”).

Pursuant to an arbitration provision contained in the Johnson-JHC contract, JHC moved the trial court to compel arbitration of the lawsuit; the court granted the motion.  The arbiter entered an award against JHC in the amount of $600,000, finding in part that the Johnsons had suffered “significant mental anguish.”  The trial court subsequently granted summary judgment on a motion filed by JHC, declaring that the Owners Policy covered the award entered against JHC.  Owners Insurance Company appealed.

On appeal, the Alabama Supreme Court addressed Owner Insurance Company’s contention that the property damage and bodily injury (i.e., the mental anguish) claims upon which the arbitration award was granted were not the result of an “occurrence” under the Owners Policy, and, by its terms, the Owners Policy only applied to bodily injury or property damage that was caused by an “occurrence.”  The Court, however, determined that the damage to the house was property damage resulting from an occurrence (i.e., poor workmanship) and any damages attributable thereto were covered by the Owners Policy.

Nationwide Retirement Solutions, Inc. v. PEBCO, Inc., _____ So. 2d. _______ (Supreme Court of Alabama 2014) (Party not permitted to be indemnified for defending against claims premised on its own alleged wrongful acts).

Participants in the State of Alabama Public Employees Deferred Compensation Plan (the “Plan”) filed a class action against Nationwide Retirement Solutions, Inc. (“NRS”), PEBCO, Inc. and others, alleging breach of fiduciary duty, conversion, and breach of contract in the administration of the Plan.  The parties settled the dispute by filing a “Stipulation of Settlement,” which the trial court approved.  Among other things, the Stipulation of Settlement barred all future claims by PEBCO against Nationwide, except for indemnification for attorney fees and costs based on a 2004 administrative services agreement (the “Agreement”), which contained the following indemnification clause: “NRS agrees to indemnify and hold harmless … PEBCO … for an action taken against [it] arising as a result of NRS’s failure to perform its duties under this agreement.”

The trial court ordered severance of PEBCO’s claim for fees, and subsequently found that the indemnification clause in the Agreement required NRS to pay the fees and costs incurred by PEBCO in defending the class action.  NRS timely filed a notice of appeal.

On appeal, the Alabama Supreme Court reversed the trial court.  The court based its decision, in part, on the fact that Alabama law does not permit a party to be indemnified for defending against claims premised on its own alleged wrongful acts.  Noting that the class-action claims “unquestionably” encompassed PEBCO’s own allegedly wrongful acts, the court reasoned that PEBCO could not seek indemnification for its cost of defense in the class action.