Pennsylvania National Mutual Casualty Insurance Company v. Snider et al

Filing 102

MEMORANDUM OPINION AND ORDER directing as follows: (1) Pennsylvania National Mutual Casualty Insurance Company's 85 Motion forSummary Judgment is GRANTED in PART and DENIED in PART; The motion is DENIED as MOOT to the extent it seeks summa ry judgment on the duty to defend counterclaims made by the Beale Defendants, and GRANTED in all other respects; (2) Pam and Howard Sniders' 86 Motion for Summary Judgment is DENIED; (3) the trial currently set March 10, 2014 is CANCELLED, as further set out in order. Signed by Honorable Judge Mark E. Fuller on 2/11/14. Furnished to calendar group & WR.(djy, )

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF ALABAMA
NORTHERN DIVISION
PENNSYLVANIA NATIONAL MUTUAL )
CASUALTY INSURANCE COMPANY, )
)
Plaintiff,
)
)
v.
)
)
HOWARD SNIDER, et al.,
)
)
Defendants.
)

CASE NO.: 2:11-cv-215-MEF
(WO -- Publish)

MEMORANDUM OPINION AND ORDER
This is a declaratory judgment action arising out of the construction of a new
residence. Before the Court are pending cross-motions for summary judgment filed by
Plaintiff and Counterclaim Defendant Pennsylvania National Mutual Casualty Insurance
Company (“Penn National”), and Defendants and Counterclaim/Crossclaim Plaintiffs
Howard and Pam Snider (collectively, the “Sniders”). (Docs. #85, 86.) Having reviewed the
submissions of the parties, the applicable case law, and having had the benefit of oral
argument, the Court finds that Penn National’s motion is due to be GRANTED in PART and
DENIED in PART, and the Sniders’ motion is due to be DENIED.
I. JURISDICTION
The Court has subject matter jurisdiction over the claims in this action under 28
U.S.C. § 1332 (diversity). The parties do not contest personal jurisdiction or venue, and the
Court finds adequate allegations in support of both.

II. STANDARD OF REVIEW
Under Rule 56 of the Federal Rules of Civil Procedure, summary judgment is
appropriate “if the pleadings, depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no genuine [dispute] as to any material
fact and that the moving party is entitled to a judgment as a matter of law.” Celotex Corp.
v. Catrett, 477 U.S. 317, 322 (1986). The party asking for summary judgment “always bears
the initial responsibility of informing the district court of the basis for its motion, and
identifying those portions of ‘the pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any,’ which it believes demonstrates the
absence of a genuine issue of material fact.” Id. at 323. The movant can meet this burden
by presenting evidence showing there is no dispute of material fact, or by showing the nonmoving party has failed to present evidence in support of some element of its case on which
it bears the ultimate burden of proof. Id. at 322–23.
Once the moving party has met its burden, the non-moving party must “go beyond the
pleadings and by . . . affidavits, or by the ‘depositions, answers to interrogatories, and
admissions on file,’ designate ‘specific facts showing that there is a genuine issue for trial.’”
Id. at 324. To avoid summary judgment, the non-moving party “must do more than simply
show that there is some metaphysical doubt as to the material facts.” Matsushita Elec. Indus.
Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). On the other hand, a district court
ruling on a motion for summary judgment must believe the evidence of the non-movant and
must draw all justifiable inferences from the evidence in the non-moving party’s favor.
2

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). After the non-moving party has
responded to the motion for summary judgment, the district court must grant summary
judgment if there is no genuine dispute of material fact and the moving party is entitled to
a judgment as a matter of law. See Fed. R. Civ. P. 56(a).
III. FACTS
The pertinent facts are largely undisputed. The Court will evaluate each motion on
its own merits and, to the extent inferences may be drawn from the undisputed facts, will
view all facts and inferences in the light most favorable to the non-moving party on each
motion.
1.

Construction of the Sniders’ Residence
In July 2004, the Sniders entered into an oral contract with Jeff Beale (“Beale”) and

Jeff Beale Homes (collectively, the “Beale Defendants”) for the construction of a new
residence. The Sniders verbally agreed to pay Beale the cost of construction plus a 15%
profit. Beale estimated that construction of the residence would cost approximately
$650,000, which Howard Snider (“Mr. Snider”) believed included Beale’s 15% profit. Beale
told Mr. Snider that construction of the residence would take six to eight months and that he
expected the home to be ready in early 2005.
Framing of the house, however, did not begin until April 2005. Beale was also
building and remodeling other homes at the same time he was constructing the Sniders’
residence. By 2005, the Sniders were becoming increasingly displeased with Beale’s
progress on the construction of their home. They complained to Beale about the slow
3

progress, as well as rental equipment that was often left unused for periods of time.
Beale faxed invoices to the Sniders on a monthly basis, and Pam Snider (“Mrs.
Snider”) would pay the invoices within three days. According to Mr. Snider, by March 24,
2006, construction costs for the Sniders’ residence were approaching $800,000, and the home
was not completed. Beale was last at the Sniders’ residence on April 6, 2006, when he came
to inspect a cracked retaining wall. Beale toured the home at that time, and Mrs. Snider gave
him a punch list that needed to be done to complete the house. Several days later, on April
11, 2006, Mr. Snider called Beale and demanded that he focus on finishing their home, but
Beale never returned to the Sniders’ job site after April 6, 2006. The Sniders hired another
contractor who completed the construction of their home.
2.

Construction Defects
The Sniders moved into their new home in the summer of 2006. The Sniders had no

written warranty with Beale. Instead, it was their understanding that if there was a problem
with construction, Beale would fix it. Upon moving into the home, the Sniders discovered
several construction defects, including a cracked retaining wall and water intrusion in
multiple areas of the home. According to Mr. Snider, this water intrusion caused mold to
accumulate in multiple areas of the home, the wood floors to buckle, the electrical system to
suffer damages, and the house to smell “musty.” Mr. Snider also claimed that the entrance
floor was unlevel, the home’s paint job was unsatisfactory, and the exterior stucco was
cracked. The Sniders paid over $150,000 to repair these defects, to complete certain work
that Beale had failed to perform, and to remove the mold. Mr. Snider did not expect the
4

moisture, mold, and other problems that later developed when he and his wife contracted
with Beale to construct the home.
3.

Insurance Policy
Penn National issued a commercial general liability (“CGL”) insurance policy to the

Beale Defendants during the relevant time period (the “Policy”), which included the
following insuring agreement:
SECTION I – COVERAGES
COVERAGE A BODILY INJURY AND PROPERTY DAMAGE
LIABILITY
1.

Insuring Agreement
a.

We will pay those sums that the insured becomes legally
obligated to pay as damages because of “bodily injury” or
“property damage” to which this insurance applies. We will
have the right and duty to defend the insured against any “suit”
seeking those damages. However, we will have no duty to
defend the insured against any “suit” seeking damages for
“bodily injury” or “property damage” to which this insurance
does not apply. . .
***

b.

This insurance applies to “bodily injury” and “property damage”
only if:
(1)

The “bodily injury” or “property damage” is caused by
an “occurrence” that takes place in the “coverage
territory”;

(2)

The “bodily injury” or “property damage” occurs during
the policy period; . . .

(Doc. #87-1.)
5

The Policy also contained the following definitions:
SECTION V – DEFINITIONS
3.

“Bodily injury” means bodily injury, sickness or disease sustained by
a person, including death resulting from any of these at any time.1
***

13.

“Occurrence” means an accident, including continuous or repeated
exposure to substantially the same general harmful conditions.
***

16.

“Products-completed operations hazard”:
a.

Includes all “bodily injury” and “property damage” occurring
away from premises you own or rent and arising out of “your
product” or “your work” except: . . .
(2)

Work that has not yet been completed or abandoned.
However, “your work” will be deemed completed at the
earliest of the following times:
(a)

When all of the work called for in your contract
has been completed.

(b)

When all of the work to be done at the job site has
been completed if your contract calls for work on
more than one job site.

1

Through an endorsement, the definition of “bodily injury” in DEFINITIONS
(Section V) was replaced by the following:
“Bodily injury” means bodily injury, sickness or disease
sustained by a person including mental anguish or death
resulting from any of these.
(Doc. #87-2.)
6

(c)

When that part of the work done at a job site has
been put to its intended use by any person or
organization other than another contractor or
subcontractor working on the same project.

Work that may need service, maintenance, correction,
repair or replacement, but which is otherwise complete,
will be treated as completed.
***
17.

“Property damage” means:
a.

Physical injury to tangible property, including all resulting loss
of use of that property. All such loss of use shall be deemed to
occur at the time of the physical injury that caused it; or

b.

Loss of use of tangible property that is not physically injured.
All such loss of use shall be deemed to occur at the time of the
“occurrence” that caused it.

(Doc. #87-1.)
4.

The Underlying Litigation
On April 30, 2007, the Sniders sued the Beale Defendants in the Circuit Court of

Montgomery County, Alabama,2 asserting claims for breach of contract and warranty only.
Beale provided notice of the lawsuit to Penn National. Penn National reviewed the claim
and, in June 2007, denied coverage on the basis that the Policy did not provide coverage to
the Beale Defendants for damages arising from a breach of contract or warranty.
In April 2010, the Sniders provided discovery responses in the underlying litigation

2

The case is styled Pam and Howard Snider v. Jeff Beale Homes, et al., Civil Action No.
CV-2007-900281 (Circuit Court of Montgomery County, Alabama), and will be referred to herein
as the underlying litigation or the Snider litigation.
7

that could have resulted in them asserting negligence claims based on alleged defects in the
construction of the Sniders’ home. As a result, the Beale Defendants resubmitted the claim
to Penn National for reconsideration, and Penn National subsequently agreed to defend the
Beale Defendants under a reservation of rights.
The Sniders, however, never amended the complaint in the underlying litigation to
include negligence claims and never submitted any such claims to the jury. Instead, the
Sniders submitted to the jury claims for breach of contract and warranty only. On October
2, 2012, the jury returned a verdict in favor of the Sniders for $700,000 in compensatory
damages.3 The verdict form indicates that the jury awarded this amount as damages for
claims of breach of contract, implied warranty, emotional distress, and mental anguish.
However, the verdict form did not specify what amount, if any, of the total damages were
awarded for breach of contract, implied warranty, or emotional distress/mental anguish.4
3

In the underlying litigation, the Beale Defendants also asserted third-party claims against
numerous subcontractors who worked on the Sniders’ home, including Performance Sealants and
Waterproofing, who handled the “waterproofing” of the home. The Beale Defendants alleged that
if they were liable to the Sniders for the waterproofing issues, then Performance Sealants was liable
to them. The jury, however, disagreed and returned a verdict in favor of Performance Sealants on
the Beale Defendants’ third-party claim.
4

More specifically, the jury verdict form in the underlying litigation reads as follows:

We the jury find in favor of the plaintiffs, Pam and Howard Snider, against
defendant Jeff Beale and Jeff Beale Homes, on the following claims:
Breach of Contract
Implied Warranty
Emotional Distress
8

IV. PROCEDURAL HISTORY
The underlying lawsuit was filed in April 2007. On March 25, 2011, Penn National
filed its complaint for declaratory judgment against the Beale Defendants and the Sniders
seeking a declaration that it (Penn National) owed no duty to defend or to indemnify Beale
or Jeff Beale Homes for the claims the Sniders made against them in the underlying
litigation. (Doc. #1.) On April 5, 2011, the Beale Defendants filed an answer to the
complaint and asserted counterclaims against Penn National for breach of contract and
quantum meruit, which stem from Penn National’s initial refusal to provide the Beale
Defendants with a defense in the underlying litigation. (Doc. #9.) On April 25, 2011, Penn
National filed an answer to the Beale Defendants’ counterclaims and denied that it was
responsible for providing a defense to the Beale Defendants prior to the time that Penn
National agreed to provide such a defense under a reservation of rights. (Doc. #16.)
On February 27, 2012, the Court dismissed, without prejudice, Penn National’s duty

Mental Anguish
and assess

as Compensatory Damages.

We the jury find in favor of the defendant, Jeff Beale and Jeff Beale Homes
against Pam and Howard Snider.
According to the verdict form, the jury in the underlying litigation checked the first blank on the
verdict form, indicating that they found in favor of the Sniders and against the Beale Defendants,
and also checked the lines by each “claim” (breach of contract, implied warranty, emotional distress,
and mental anguish). The jury then wrote $700,000 in the blank for the amount of compensatory
damages they were assessing against the Beale Defendants, but did not specify what amount, if any,
was awarded for emotional distress and mental anguish. (Doc. #56-2.) The verdict form was signed
and dated by the forewoman.
9

to indemnify claim as premature because a judgment had not yet been reached in the
underlying litigation. (Doc. #24.) The Court allowed Penn National to proceed with its duty
to defend claim.
On August 30, 2012, Penn National filed a summary judgment motion, its first of
many, as to its duty to defend. (Doc. #27.) However, on October 2, 2012, before either the
Sniders or the Beale Defendants responded to Penn National’s motion, a jury verdict in the
amount of $700,000 was entered in favor of the Sniders in the underlying state court
litigation. As a result, Penn National moved to amend its complaint to remove its duty to
defend claim, as it was moot, and to reassert its duty to indemnify claim. (Doc. #32.) Penn
National also withdrew its pending summary judgment motion on its duty to defend. (Docs.
#33, 41.)
On November 9, 2012, Penn National filed its amended complaint against the Beale
Defendants and the Sniders, this time seeking a declaration that it (Penn National) was not
liable for any portion of the $700,000 judgment awarded to the Sniders in the underlying
litigation. (Doc. #45.) A few weeks later, on November 26, 2012, Beale filed a notice of
bankruptcy with the Court. (Doc. #48.) As a result, this matter was stayed for a period of
time until the bankruptcy court lifted the automatic stay for the Sniders and Penn National,
which occurred in early 2013. With leave of Court, the Sniders then filed a late answer to
Penn National’s amended complaint and, under Ala. Code § 27-32-2, asserted a “direct
action” counterclaim and crossclaim against Penn National and the Beale Defendants,
respectively, for recovery of the $700,000 judgment they received in the underlying
10

litigation. (Doc. #79.) The Beale Defendants never responded to Penn National’s amended
complaint. Penn National answered the Sniders’ counterclaim on September 30, 2013. (Doc.
#81.)
Now before the Court are cross-motions for summary judgment filed by the Sniders
and Penn National.5 (Docs. #85, 86.) Penn National’s motion for summary judgment6 is
twofold.

First, Penn National seeks summary judgment on the Beale Defendants’

counterclaims against it for breach of contract and quantum meruit based on the duty to
defend. (Docs. #55, 56, 85.) Second, Penn National seeks summary judgment on the
Sniders’ direct action claim against it for indemnification of the $700,000 judgment they
obtained against the Beale Defendants in the underlying state court litigation. (Docs. #55,
56, 85.) The Sniders likewise seek summary judgment on the direct action indemnification
counterclaim they have asserted against Penn National.7 (Docs. #86, 87.) The Court will
5

The Beale Defendants have not moved for summary judgment as to the indemnification
issue in this matter.
6

Penn National has filed a number of motions for summary judgment in this action, which
have been denied with leave to refile for various reasons. For clarity’s sake, the Court notes that
Penn National’s pending motion for summary judgment (Doc. #85) is its third renewed motion for
summary judgment, and this motion simply renews Penn National’s renewed motion for summary
judgment (Doc. #55), its brief in support thereof (Doc. #56), and its supplemental statement of facts
and submission of evidence included in its second renewed motion for summary judgment (Doc.
#67). The Court will consider all of these filings when resolving the motions for summary judgment
currently pending before it.
7

Again, for clarity’s sake, the Court notes that although the Sniders have moved for
summary judgment on their direct action counterclaim against Penn National, they also have an
identical direct action crossclaim pending against the Beale Defendants, as they are indispensable
parties. (Doc. #79); Ala. Code § 27-23-2; Chicago Title Ins. Co. v. Am. Guarantee and Liab. Ins.
Co., 892 So. 2d 369, 371 (Ala. 2004). Thus, while the Sniders have not specifically sought summary
judgment on their crossclaim against the Beale Defendants, the Court’s resolution of their motion
11

discuss the parties’ arguments below.
IV. DISCUSSION8
In a declaratory judgment action, Alabama law9 places on the insured the burden of
establishing that a claim falls within the coverage of the policy, while the insurer bears the
burden to prove that any policy exclusion applies. Owners Ins. Co. v. Shep Jones Const.,
Inc., 2012 WL 1642169, at *3 (N.D. Ala. May 3, 2012) (citing Chandler v. Ala. Mut. Ins.
Co., 585 So. 2d 1365, 1367 (Ala. 1991)). The burden is also on the party seeking coverage
to prove that coverage existed within the terms of the policy. Id. (quoting Ala. Hosp. Ass’n
Trust v. MASA, 538 So. 2d 1209, 1216 (Ala. 1989)). Thus, in this case, the Sniders must
show that the judgment they obtained against the Beale Defendants in the underlying
litigation falls within the coverage provided under the Policy, such that Penn National must

for summary judgment as to Penn National will necessarily resolve this claim without any separate
analysis.
8

Penn National has moved for summary judgment on both the Sniders’ direct action
indemnification claim and the Beale Defendants’ duty to defend counterclaims. As previously
noted, the Beale Defendants asserted counterclaims for breach of contract and quantum meruit
arising from Penn National’s duty to defend in their answer to Penn National’s original complaint.
Since then, however, Penn National filed an amended complaint, and the Beale Defendants never
answered or otherwise responded. Because the Beale Defendants failed to answer Penn National’s
amended complaint, and therefore, never reasserted their counterclaims, the Court finds that the
Beale Defendants’ duty to defend counterclaims were abandoned. See Settlement Capital Corp., Inc.
v. Pagan, 649 F. Supp. 2d 545, 562 (N.D. Tex. 2009) (finding that counterclaims not reasserted in
an amended answer were abandoned). This conclusion is further supported by the Beale
Defendants’ failure to respond in any manner to Penn National’s motion for summary judgment on
their counterclaims. Thus, based on the foregoing, Penn National’s motion for summary judgment
as to the Beale Defendants’ counterclaims is DENIED as MOOT.
9

The parties and the Court agree that this coverage dispute is governed by Alabama law.
12

indemnify the Beale Defendants for some, if not all, of the $700,000 judgment.
At the trial in the underlying litigation, the Sniders submitted, and the jury was
instructed, on two causes of action based on the faulty construction of their home by the
Beale Defendants—breach of contract and breach of the implied warranty of habitability.
The Sniders sought as damages for these claims (1) the damages they incurred to complete
the work the Beale Defendants failed to perform, (2) overcharges they paid to the Beale
Defendants for their work, (3) the damages they incurred to correct the Beale Defendants’
faulty work, and (4) mental anguish and emotional distress resulting from the Beale
Defendants’ breaches. The jury was further instructed that the Sniders had the burden to
prove their claims for breach of contract and implied warranty, as well as the damages they
sought for those claims, including mental anguish and emotional distress. (Doc. #67-1.) At
the conclusion of the trial, the jury returned a verdict in favor of the Sniders for breach of
contract, breach of implied warranty, mental anguish, and emotional distress and awarded
them $700,000 in damages. The jury, however, did not itemize or otherwise apportion the
total award among the four “claims.”10
Based on this, Penn National now argues that it is not obligated to pay any of the
$700,000 judgment to the Sniders on the Beale Defendants’ behalf because there was no

10

The Court places the word claims in quotations above because the verdict form executed
by the jury in the underlying litigation found in favor of the Sniders on their “claims” of breach of
contract, breach of implied warranty, mental anguish, and emotional distress; however, the parties
note, and this Court agrees, that mental anguish and emotional distress are not independent claims
or causes of action but are a type of compensatory damages the Sniders sought for their claims in
the underlying litigation.
13

“occurrence” to trigger coverage under the Policy because breach of contract and implied
warranty are not “occurrences” under Alabama law. Penn National’s argument finds its
genesis in the Policy’s insuring agreement, which states that Penn National must pay the
sums that the insured becomes legally obligated to pay as damages because of “bodily
injury” or “property damage” caused by an “occurrence.”11 (Doc. #57.) Thus, the threshold
issue for this Court to resolve is whether there was an “occurrence” sufficient to trigger
coverage under the Policy. Only if there was such an “occurrence” would the Court then
consider whether any “property damage” or “bodily injury” resulted from that occurrence
and, if so, whether any exclusions apply that would except those damages from coverage.
See Town & Country Prop., L.L.C. v. Amerisure Ins. Co., 111 So. 3d 699, 705 (Ala. 2011)
(noting that, in a CGL policy similar to the one here, exclusions and exceptions under
Coverage A are implicated “only if there is first determined to be an ‘occurrence’”).

The policy defines “occurrence” as “an accident, including continuous or repeated
exposure to substantially the same general harmful conditions.” (Doc. #57-1.) The Alabama
Supreme Court has further defined “accident” in the context of an “occurrence” in a CGL
policy, like the one at issue here, as “an unintended and unforseen injurious occurrence;
something that does not occur in the usual course of events or that could be reasonably

11

The insuring agreement in the Policy also requires that the “occurrence” take place in the
“coverage territory” during the policy period. In this case, there is no dispute that if there was an
“occurrence,” it would have taken place in the “coverage territory” during the policy period.
14

anticipated” or “something unforseen, unexpected or unusual.” Shep Jones, 2012 WL
1642169 at *3 (citing Hartford Cas. Ins. Co. v. Merchs. & Farmers Bank, 928 So. 2d 1006,
1011 (Ala. 2005)); see also U.S. Liab. Ins. Co. v. Sternenberg Const., 2011 WL 3585261, at
*4 (M.D. Ala. Aug. 16, 2011). Indeed, “‘[a] result, though unexpected, is not an accident;
the means or cause must be accidental.’” Emp’rs Mut. Cas. Co. v. Smith Const. & Dev.,
LLC, 2013 WL 26356749, at *9 (N.D. Ala. June 12, 2013) (quoting Am. Safety Indem. Co.
v. T.H. Taylor, Inc., 2011 WL 1188433, at *4 (M.D. Ala. Mar. 29, 2011)) (applying Alabama
law). The Court will first address indemnification with respect to the Sniders’ breach of
contract claim. In Alabama, there is no bright-line rule governing whether a contract dispute
falls within the standard definition of an “occurrence” in a CGL policy. See Auto-Owners
Inc. Co. v. Toole, 947 F. Supp. 1557, 1563–64 (M.D. Ala. 1996) (discussing and applying
Alabama law). Rather, “in determining whether there is coverage, the court should look to
the specific ‘kind of . . . claim’ being asserted” and “the purpose of the general liability
policy from which coverage is sought.” Id. (quoting City of Burlington v. Nat’l Union Fire
Ins. Co., 655 A.2d 719, 722 (Vt. 1994)); Smith Const., 2013 WL 2635649 at *11. Having
considered the undisputed facts in this case, the Court agrees with Penn National that there
is no coverage under the Policy for the Sniders’ breach of contract claim because it does not
qualify as an “occurrence” within the meaning of the Policy.
The Court looks to two particular cases in reaching this decision. The first case is
Owners Insurance Company v. Shep Jones Construction, 2012 WL 1642169, at *1 (N.D.
Ala. May 3, 2012), wherein a district court in the Northern District of Alabama considered
15

facts and issues markedly similar to the ones here. Shep Jones involved a dispute over the
insurer’s duty to indemnify a general contractor from a judgment entered against it and in
favor of the homeowners following a jury trial in state court.

The only claim the

homeowners submitted to the jury was breach of contract based on a failed renovation of
their home. The homeowners sought both property damages and mental anguish damages
from the contractor. At the conclusion of the trial, the jury returned a general verdict in the
homeowners’ favor; however, the verdict form awarded general damages only and did not
specify whether the jury was awarding damages for property damage, mental anguish, or
both. Id. at *1–3.
In the related declaratory judgment action, both the insurer and the homeowners
moved for summary judgment on the issue of indemnification under a CGL policy that the
insurer issued to the contractor during the relevant time period, a policy which is nearly
identical to the Policy here.12 The insurer’s primary argument on summary judgment was
that it had no duty to indemnify the contractor from the state court judgment because there
was no “occurrence” to trigger coverage, as breach of contract is not an “occurrence” under
a CGL policy under Alabama law. Judge Acker, in a thorough and well-reasoned opinion,
agreed with the insurer and found that the insurer was not obligated to indemnify the
contractor under the policy because the homeowners’ breach of contract claim was not an
“occurrence” under the policy. Relying on the Alabama Supreme Court case of Reliance

12

This assessment is based on the policy language quoted within the Shep Jones opinion and
the excerpts of the Policy provided to the Court on summary judgment.
16

Insurance Company v. Gary C. Wyatt, Inc., 540 So. 2d 688 (Ala. 1988), which held that a
breach of contract claim was not an “occurrence” under a CGL policy similar to the one at
issue in Shep Jones as well as in this case, the Shep Jones Court found that a faulty home
renovation did not equate to an “accident” sufficient to qualify as an “occurrence” because:
The purpose of Owners’s commercial general liability policy is to protect Shep
Jones Construction from liability for essentially accidental injury to person or
property, not to be a guarantee or a warranty that Owners stands behind the
timeliness and quality of work Shep Jones Construction contracted to perform.
To hold otherwise would improperly expand the scope of Owners’s liability
to Shep Jones Construction at great risk to Owners.
Shep Jones, 2012 WL 1642169 at *5. In other words, a CGL policy protects contractors
from true unintended accidents, not poor or substandard workmanship, which, although
unexpected and certainly unwanted, is not unforeseeable.
The second case that persuaded the Court in reaching its decision that the Sniders’
breach of contract claim is not an “occurrence” under the Policy is Employers Mutual
Casualty Company v. Smith Construction & Development, LLC, 2013 WL 2635649, at *1
(N.D. Ala. June 12, 2013). Smith Construction involved a declaratory judgment action
brought by an insurer to determine whether it had a duty to defend and indemnify a general
contractor under a CGL policy it issued to the contractor in an underlying state court action
brought against the contractor by homeowners after the contractor abandoned the
construction of their new home. The insurer moved for summary judgment and argued that
it had no duty to defend or to indemnify the contractor on the homeowners’ breach of
contract claim because that claim did not qualify as an “occurrence” under Alabama law.

17

Like in Shep Jones, the district court agreed with the insurer and for similar reasons. Id. at
*12.
Specifically, the district court in Smith Construction found that the homeowners’
breach of contract claim, which was based on the contractor’s failure to complete
construction of their new home in a good and workmanlike manner, was not a “particularly
unusual claim” or one “that could not have been reasonably anticipated when the parties
formed the contract.” Id. at *12. Thus, it could not be considered an “accident” under
Alabama law, and, therefore, it could not qualify as an “occurrence” under the policy.
Relying on Shep Jones, the district court in Smith Construction concluded that “[t]he purpose
of EMC’s Policy was to protect the Smith Defendants from ‘liability for essentially
accidental injury to person or property.’ It was not meant to be a ‘guarantee or a warranty’
that EMC certified the ‘timeliness and quality’ of the Smith Defendants’ work. Treating a
standard contract breach as an ‘accident’ triggering CGL policy coverage would radically
alter such insurance agreements.” Id. (quoting Shep Jones, 2012 WL 1642169 at *5).
Although the district court in Smith Construction analyzed whether a breach of
contract constitutes an “occurrence” in the duty to defend context, this does not make the
reasoning of Smith Construction any less applicable in the duty to indemnify context.
Indeed, the same considerations and reasoning in Shep Jones and Smith Construction are
persuasive here. The Sniders sought, and were awarded damages by a jury, for the Beale
Defendants’ breach of their construction contract to build the Sniders’ residence in a good
and workmanlike manner in accordance with the specifications given. The fact that the Beale
18

Defendants did not live up to their end of the bargain, although unexpected and certainly
unwanted by the Sniders, was not an unforeseeable or unusual result. “Some of the most
foreseeable incidents in the performance of a residential construction contract are that the
builders will have cost overruns, use inadequate materials, fail to meet deadlines, or
otherwise execute the project improperly.” Smith Constr., 2013 WL 2635649 at *12. In
short, although the Court recognizes the unfortunate predicament the Sniders’ have faced in
connection with the construction of their home, the Beale Defendants’ breach of the
construction contract they had with the Sniders “is simply the opposite of an ‘accident’ under
Alabama law” and, therefore, cannot qualify as an “occurrence” under the Policy. Id.
Accordingly, Penn National is entitled to a summary judgment and a declaration that it owes
no indemnity to the Beale Defendants with respect to the judgment entered in favor of the
Sniders on their breach of contract claim.
The same conclusion is warranted with respect to the Sniders’ breach of implied
warranty claim. The trial court instructed the jury in the underlying litigation that the
Sniders’ breach of warranty claim was based on the implied warranty of habitability. This
is a concept in the law that “implies that the builder warrants that the [newly built] house
would be of sound workmanship and proper construction.” (Doc. #67-1) (alteration to
original). In other words, a claim for breach of the implied warranty of habitability is simply
a claim of faulty workmanship.
While the law in Alabama is not always clear as to whether a breach of contract
qualifies as an “occurrence” under a CGL policy, it is with respect to claims for faulty
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workmanship. The Alabama Supreme Court has repeatedly held that faulty workmanship
itself is not an occurrence for purposes of a CGL policy. See U.S. Fid. & Guar. Co. v.
Warwick, 446 So. 2d 1021 (Ala. 1984); Town & Country, 111 So. 3d at 707. However, as
the Sniders discuss in great detail, Alabama law has qualified this general rule. In Moss v.
Champion Insurance Company, 442 So. 2d 26 (Ala. 1983), the Alabama Supreme Court
found that there had been an “occurrence” for CGL policy purposes when the contractor’s
faulty workmanship resulted in not only a poorly constructed roof—the only job the
contractor had been hired to perform—but damage to other parts of the plaintiff’s home. Id.
at 29. Given the seemingly conflicting decisions in Warwick and Moss, the Alabama
Supreme Court went on to clarify in Town & Country, holding:
We may conclude that faulty workmanship itself is not an occurrence but that
faulty workmanship may lead to an occurrence if it subjects personal property
or other parts of the structure to ‘continuous or repeated exposure’ to some
other ‘general harmful condition’ (e.g., the rain in Moss) and, as a result of that
exposure, personal property or other parts of the structure are damaged.
Town & Country, 111 So. 3d at 707.
The Sniders rely significantly on Town & Country to support their argument that the
underlying state court judgment is covered under the Policy. According to the Sniders,
because the Beale Defendants’ faulty workmanship caused damage to something other than
the Beale Defendants’ work—in this case, the mental anguish suffered by the Sniders—
Town & Country dictates the conclusion that the Beale Defendants’ faulty workmanship
qualifies as an “occurrence” under the Policy. The Court understands the connection the
Sniders are attempting to make between other damage in Town & Country (to personal
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property or other parts of the structure which were not part of the contractor’s work) and
other damage here (bodily injury suffered by the Sniders that was not part of the Beale
Defendants’ work). However, the cases that rely on Moss and Town & Country to find that
faulty workmanship may be an “occurrence” are when that faulty workmanship subjects
personal property or other parts of the actual physical structure to damage, such as floors
or an attic or interior furnishings. See Moss, 442 So. 2d at 29; U.S. Fid. & Guar. Co. v.
Bonitz Insulation Co. of Ala., 424 So. 2d 569, 573 (Ala. 1982). The Sniders have not cited,
nor has the Court found, a case that extends Town & Country to find an “occurrence” when
faulty workmanship causes damages to something other than tangible property outside the
scope of the contractor’s work (such as bodily injury claims).
Moreover, the Alabama Supreme Court recently cautioned against “latch[ing] onto
the statement in . . . Town & Country indicating that ‘faulty workmanship may lead to an
occurrence if it subjects personal property or other parts of the structure to continuous or
repeated exposure to some other ‘general harmful condition[.]’” Owners Ins. Co. v. Jim Carr
Homebuilders, LLC, 2013 WL 5298575, at *5 (Ala. Sept. 20, 2013) (quoting Town &
Country, 111 So. 3d at 706) (internal quotations omitted). Instead, this “isolated statement
. . . must be considered in the context in which it was made—a discussion of Moss . . . and
Warwick . . . .”
That discussion makes it clear that faulty workmanship performed as part of
a construction or repair project may lead to an occurrence if that faulty
workmanship subjects personal property or other parts of the structure outside
the scope of that construction or repair project “to ‘continuous or repeated
exposure’ to some other ‘general harmful condition’” and if, as a result of that
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exposure, that personal property or other unrelated parts of the structure are
damaged. Hence, there was no occurrence in Warwick, where the builder’s
poor workmanship resulted in just a poor final product (the house itself), but
there was an occurrence in Moss because the contractor’s poor work
performance resulted not just in a poor final product (the new roof), but also
in damage to the homeowner’s personal property and other parts of the house
outside the scope of the contractor’s project—the attic and interior ceilings.
Id. In this case, there is no “occurrence” because the Beale Defendants’ poor workmanship
resulted in just a poor final product (the Sniders’ residence itself) and not in damage to other
unrelated parts of the Sniders’ home or their personal property. Because there was no
“occurrence” in this case to trigger coverage under the Policy, Penn National is entitled to
a summary judgment and a declaration that it owes no indemnity to the Beale Defendants
with respect to the judgment entered in favor of the Sniders on their breach of implied
warranty claim.
Although the Court’s analysis could end here, there is an additional point the Court
must address.13 Irrespective of whether there was an “occurrence” in this case, the Sniders
go to great lengths to establish that their judgment should fall under coverage purportedly
provided through the Policy’s “Products-Completed Operations.” The Sniders point to the
declarations page and coverage schedule of the Policy to support this proposition. After
review, the Court agrees with the Sniders that the Policy’s coverage schedule states a
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Because the Court has found that there was no “occurrence” here sufficient to trigger
coverage under the Policy, it is unnecessary for the Court to discuss the parties’ arguments as to
exclusions from coverage, exceptions to those exclusions, and whether the verdict was specific
enough for the Sniders’ to prove whether any of the damages awarded were for covered claims.
Moreover, because the Court did not rely on any of the “evidence” or arguments Penn National
moved to strike in reaching its decision that there is no “occurrence” in this case, and thus, no
coverage, Penn National’s motion to strike (Doc. #90) is DENIED as MOOT.
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$2,000,000 aggregate limit of insurance for “Products–Completed Operations,” which is just
what it is—an applicable limit of insurance. What the Sniders have failed to do is persuade
the Court that the Policy provides coverage for anything other than bodily injury and
property damage (Coverage A), personal and advertising injury liability (Coverage B), and
medical payments (Coverage C). (Doc. #87-1.)
An opinion from the Southern District of Florida recently addressed the very argument
that the Sniders are making with respect to “additional” coverage provided under the
“Products Completed Operations Hazard” of a CGL policy similar to the one at issue here,
finding that “the products-completed operations hazard provision does not create distinct
coverage separate and apart from the delineated coverage portions of the policy.” Sparta Ins.
Co. v. Colareta, 2014 WL 31986, at *6 (S.D. Fla. Jan. 6, 2014). The district court explained:
The CGL lists only three coverages, which are each set forth in Section
I of the policy: Coverage A (Bodily Injury and Property Damage Liability),
Coverage B (Personal and Advertising Injury Liability[)], and Coverage C
(Medical Payments). Each of these coverages contain its own insuring
agreement and exclusions. By contrast, “products-completed operations
hazard” is listed only in the “Definitions” section of the policy and is not
designated as a type of coverage. As a result, any claim falling under the
definition of “products-completed operations hazard” is subject to the terms
and limitations of the coverage portion to which it applies. Because “productscompleted operations hazard” is defined as applying to bodily injury and
property damage, it necessarily falls under Coverage A of the CGL.
Moreover, Section II, which lists the policy’s limits of insurance, states
as follows: “The Products-Completed Operations Aggregate Limit is the most
we will pay under Coverage A for damages because of ‘bodily injury’ and
‘property damage’ included in the ‘products-completed operations hazard.’”
The fact that the policy sets a limit on Sparta’s liability under Coverage A with
respect to products-completed operations hazards makes clear that the
products-completed operations hazard clause falls under the terms of Coverage
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A and is not a free-standing form of coverage. As a result, any determination
on Sparta’s liability under the CGL in the underlying litigation must
necessarily be predicated upon an interpretation of the coverage afforded under
Coverage A as a whole, not merely the products-completed operations hazard
portion.
Id. at *6.
The same can be said here. “Products-completed operations hazard” is listed in the
Definitions section of the Policy only and is not designated as a separate type of coverage.
(Doc. #87-1.) Moreover, the Limits of Insurance section in the Policy states that the
products-completed operations aggregate limit is the most Penn National will pay under
Coverage A for damages because of “bodily injury” and “property damage” included in the
“products-completed operations hazard.” (Doc. #87-1.) Thus, Penn National’s indemnity
liability is predicated on the coverage afforded under Coverage A and not a separate form
of coverage provided through the “products-completed operations hazard.” In short, the
Sniders’ argument regarding the “products-completed operations hazard” section of the
Policy does not change the end result in this case—that being that Penn National is not
obligated to indemnify the Beale Defendants for the $700,000 judgment entered in the
Sniders’ favor in the underlying litigation.
V. CONCLUSION
Based on the foregoing, it is hereby ORDERED as follows:
1.

Pennsylvania National Mutual Casualty Insurance Company’s Motion for

Summary Judgment (Doc. #85) is GRANTED in PART and DENIED in PART. The motion
is DENIED as MOOT to the extent it seeks summary judgment on the duty to defend
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counterclaims made by the Beale Defendants, and GRANTED in all other respects.
2.

Pam and Howard Sniders’ Motion for Summary Judgment (Doc. #86 ) is

DENIED.
3.

The trial currently set March 10, 2014 is CANCELLED.

A separate final judgment consistent with this Memorandum Opinion and Order will
be entered.
DONE this the 11th day of February, 2014.
/s/ Mark E. Fuller
UNITED STATES DISTRICT JUDGE

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