In its recent decision in Shane Traylor Cabinetmaker, L.L.C. v. American Resources Ins. Co., Inc., 2013 Ala. LEXIS 42 (Ala. May 3, 2013), the Supreme Court of Alabama had occasion to consider whether a general liability policy was triggered by an underlying claim arising out of alleged faulty workmanship.
The insured, Shane Traylor Cabinetmaker, L.L.C. (“STC”) was hired to perform cabinetry and woodworking on several homes. STC later sued the developer/owner of the homes for amounts due under the contract and the suit included a claim for foreclosure on a lien. The lawsuit also involved issues of whether the developer was a partner in STC. The developed counterclaimed on several theories, including breach of contract, slander of title, and mental-anguish arising out of the slander of title. Among other things, the counterclaim alleged that STC’s work was defective and had to be repaired or replaced. The counterclaim, however, contained no allegation of specific damage resulting from the defective work. STC’s general liability insurer, American Resources, denied coverage for the counterclaim on several grounds, including lack of bodily injury or property damage resulting from an occurrence.
Looking to its prior decisions concerning insurance coverage for faulty workmanship, in particular its decisions in Town & Country Property, LLC v. Amerisure Insurance Co., 2011 Ala. LEXIS 183, (Ala. 2011), United States Fidelity & Guarantee Co. v. Warwick Development Co., 446 So. 2d 1021 (Ala. 1984), and Moss v. Champion Insurance Co., 442 So. 2d 26 (Ala. 1983), the Alabama Supreme Court observed the general rule that faulty workmanship, in and of itself, is not an occurrence as that term is defined by a standard general liability policy. The court observed that faulty workmanship can lead to an occurrence if it “subjects personal property or other parts of the structure” to some form of damage. Applying this standard to the underlying counterclaim, the court agreed that there was no occurrence, because the counterclaimant alleged only defective work, but no physical damage or loss of use of property resulting from the defective work.
In reaching its holding, the court considered STC’s argument that loss of use could be reasonably inferred from the counterclaim. Specifically, STC argued that since the kitchen cabinets it installed had to be repaired, this aspect of the kitchens were rendered unusable to the claimant while the remedial work was underway. The court rejected this argument, explaining:
Barbee's counterclaim alleged that STC and Traylor's defective work "requir[ed] Robert L. Barbee to repair and/or replace the work performed by Traylor and STC." It did not allege damage to other property resulting from that work. … we decline to infer loss of use or other injuries based on speculation as to damage that was not alleged in the counterclaim or the amended counterclaim.
The court also considered STC’s argument that the counterclaim for mental anguish arising out of slander of title constituted a claim for bodily injury. Without ruling on whether a mental anguish claim constitutes bodily injury in the first instance, the court concluded that the claim for mental anguish did not arise out of an occurrence because the mental anguish did not arise out of the alleged faulty workmanship. Rather, the alleged anguish arose out of the business dispute between STC and the counterclaimant, and the intentional placement of a lien on the property which gave rise to the alleged slander of title. Such acts, concluded the court, did not qualify as an occurrence.