Owners Insurance Company v. Shep Jones Construction, Inc. et al

Filing 81

MEMORANDUM OPINION. Signed by Judge William M Acker, Jr on 5/3/12. (KGE, )

FILED
2012 May-03 PM 02:55
U.S. DISTRICT COURT
N.D. OF ALABAMA

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
OWNERS INSURANCE COMPANY,
Plaintiff,
v.
SHEP JONES CONSTRUCTION,
INC., et al.,
Defendants.

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CIVIL ACTION NO.
08-AR-514-S

MEMORANDUM OPINION
The court has before it cross motions for summary judgment,
filed by plaintiff, Owners Insurance Company (“Owners”), doc. 72,
and defendant, Elise Durbin (“Durbin”), doc. 73. Owners filed this
declaratory judgment action to determine whether a policy of
commercial general liability insurance it issued requires it to
defend and/or indemnify defendants, F. Sheppard Jones and Shep
Jones Construction, Inc. (collectively, “Shep Jones Construction”),
from the claims asserted by Durbin in an underlying case then
pending in the Circuit Court of Jefferson County, Alabama, styled
Elise Durbin v. F. Sheppard Jones d/b/a Shep Jones Construction, et
al., CV-07-900051.

For the reasons that follow, Owners’s motion

for summary judgment will be granted, and Durbin’s motion for
summary judgment will be denied.
FACTS1
1

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

Shep Jones Construction is a general contractor, and in
December

2004,

it

entered

into

a

contract

with

Durbin

to

extensively remodel her home located in Mountain Brook, Alabama,
including adding a second story.
On January 17, 2005, Owners issued a commercial general
liability policy, numbered 38168193, to Shep Jones Construction.
Owners’s said policy contains a bodily injury general aggregate
limit of $500,000.00 and a property damage general aggregate limit
of $500,000.00.

The policy was in effect from February 3, 2005 to

February 3, 2006, and was re-issued with a policy term of February
3, 2006 to February 3, 2007.

The policy was ultimately cancelled

on December 9, 2006.
When Shep Jones Construction completed the renovation, Durbin
moved back into her home in May or June 2006.

A dispute then arose

about whether the quality of the services performed by Shep Jones
Construction met the requirements of the parties’ contract. Durbin
requested two inspections to find evidence of faulty workmanship,
one in January 2007 and another in May 2008.
On January 16, 2007, Durbin filed suit in the Circuit Court of
Jefferson County, Alabama, alleging she suffered damages arising
from breach of contract, negligence, and negligent supervision by
F. Sheppard Jones d/b/a Shep Jones Construction and/or Shep Jones

facts and inferences in the light most favorable to the nonmoving party on each motion.
2

Construction, Inc., styled Elise Durbin v. F. Sheppard Jones d/b/a
Shep Jones Construction, et al., CV-07-900051. During the pendency
of that action, on March 6, 2007, F. Sheppard Jones filed for
voluntary Chapter 7 bankruptcy, resulting in a stay of Durbin’s
claims against him individually.

Several months later, Durbin

sought and obtained leave from the bankruptcy court to prosecute
the lawsuit against F. Sheppard Jones to the extent of available
insurance proceeds.

On November 28, 2007, Owners filed a request

for permissive intervention in the lawsuit, requesting to submit
special verdict forms or special interrogatories, through the
court, to the jury, should the case go to trial.
denied Owners’s motion.

The trial court

Owners provided a defense to Shep Jones

Construction in the underlying lawsuit under a reservation of
rights.
party

In February 2009, Shep Jones Construction filed third

complaints

against

several

performed work on Durbin’s home.

of

the

subcontractors

that

Shep Jones Construction settled

with all of these subcontractors before trial of the underlying
lawsuit.

The amounts paid in settlement are not reflected in the

record.
The lawsuit was tried February 22, 2010 to February 26, 2010,
in

the

Circuit

Court

of

Jefferson

County,

subcontractors did not participate in the trial.

Alabama.

The

At trial, there

was evidence presented, and counsel for Durbin argued, that Durbin
suffered both property damage and mental anguish as a result of

3

Shep

Jones

negligence.

Construction’s

alleged

breach

of

contract

and

At the close of Durbin’s evidence and at the close of

all the evidence, defendants F. Sheppard Jones d/b/a Shep Jones
Construction and Shep Jones Construction, Inc. filed a motion for
judgment as a matter of law.
motion

and

dismissed

F.

The court partially granted the

Sheppard

Jones

d/b/a

Shep

Jones

Construction from the suit, and further granted the motion as to
Durbin’s claims for negligence against Shep Jones Construction,
Inc.

The only cause of action the court allowed the jury to

consider was breach of contract, and the court’s jury charge
included instructions to the jury on breach of contract alone.
However, the court did instruct the jury on damages for both
property damage and mental anguish.

Durbin requested that the

court submit the case to the jury using a special verdict form,
separating out the damages recovered for mental anguish.

Counsel

for Shep Jones Construction, Inc., retained by Owners, did not
independently request a special verdict form, but counsel did not
voice any objection to Durbin’s request for one.

The court denied

Durbin’s request, and the jury was provided with a general verdict
form.

The verdict form stated: “We, the jury, find in favor of the

plaintiff

Elise

Durbin

and

against

the

defendant

Shep

Jones

Construction, Incorporated and assess plaintiff’s damage in the
amount of three hundred three thousand, five hundred dollars
[$303,500.00].”

The verdict form awarded general damages only and

4

did not set out whether the jury was awarding damages for property
damage, mental anguish, or both.
Durbin appealed the trial court’s decision to grant judgment
as a matter of law on her claims of negligence against Shep Jones
Construction, Inc.

After the parties fully briefed the issue of

whether negligence should have been submitted to the jury, the
Supreme Court of Alabama affirmed the trial court’s decision
without opinion on October 7, 2011, and denied rehearing on January
13, 2012.
PROCEDURAL HISTORY
After the trial court in the underlying action denied Owners’s
motion for permissive intervention, Owners filed this complaint
against Shep Jones Construction, Inc., F. Sheppard Jones, and
Durbin on March 26, 2008, seeking a declaration that it owes no
duty to defend or indemnify Shep Jones Construction, Inc. or F.
Sheppard Jones from the complaint filed by Durbin in the Circuit
Court of Jefferson County, Alabama.
2008.

Durbin answered on May 27,

Shep Jones Construction, Inc. was served on April 28, 2008,

and F. Sheppard Jones was served on April 24, 2008.

After neither

defendant answered within the required time, on June 6, 2008,
Owners filed an application for an entry of default as to Shep
Jones Construction, Inc. and F. Sheppard Jones for failure to
answer, plead, or otherwise defend.

5

An entry of default was taken

by the Clerk on June 10, 2008.2

On joint motion of Owners and

Durbin, the court ordered the declaratory judgment action stayed
until final determination by the Alabama Supreme Court of issues
arising from trial of the underlying lawsuit, and ordered the
parties to file joint status reports on a monthly basis.
January

31,

2012,

the

parties

informed

the

court

that

On
the

underlying lawsuit had been adjudicated to a final judgment and
requested a status conference.

During a conference held February

7, 2012, the court stated that the case was ripe for cross motions
for summary judgment. Owners and Durbin subsequently filed motions
for summary judgment, docs. 72 and 73, to which Durbin and Owners
responded, docs. 77 and 78, and Owners and Durbin replied, docs. 79
and 80.
DISCUSSION
In its motion, Owners seeks a declaration that it is not
obligated to indemnify Shep Jones Construction3 from the judgment

2

Durbin argued to this court that Owners’s filing this suit
against F. Sheppard Jones and the entry of default against him
was a violation of 11 U.S.C. § 362, because he filed Chapter 7
bankruptcy. However, the court found that F. Sheppard Jones had
been discharged in bankruptcy on June 12, 2007, meaning that
there was no bankruptcy stay when this declaratory judgment
action was filed and when the default was entered.
3

The Owners policy was issued to “Shep Jones Construction.”
Owners initially contended that because the policy was issued to
F. Sheppard Jones individually, and doing business as, Shep
Jones Construction, and the underlying judgment was obtained
against “Shep Jones Construction, Inc.,” there is no coverage.
Owners has abandoned this argument and now concedes that the
insured under its policy is properly named “Shep Jones
6

entered by jury verdict in the underlying lawsuit in that it is not
obligated to pay to Durbin any amount of the $303,500.00 judgment.4
In her motion, Durbin requests that Owners’s motion be denied and
seeks a ruling that the entire jury verdict in the underlying
lawsuit, or at least a portion of it as will be fully explained
herein,

is

covered

under

the

policy

issued

to

Shep

Jones

Construction and that Owners be directed to pay Durbin the sum of
the jury verdict plus interest.

Both parties base their arguments

on the undisputed facts and the unambiguous language of the Owners
policy.
Under

law,5

Alabama

the

insured

bears

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.

Chandler v. Alabama Mut. Ins. Co., 585 So. 2d

1365, 1367 (Ala. 1991). However, in this case, an entry of default
was

taken

in

this

court

against

the

insured,

Shep

Jones

Construction, for failure to answer, plead or otherwise defend.
The Supreme Court of Alabama has also held that the burden is on
the party seeking coverage to prove that coverage existed within

Construction, Inc.” The court will refer to the insured in this
opinion as “Shep Jones Construction.”
4

Owners no longer seeks a declaration that it was not
obligated to defend Shep Jones Construction, as it initially
requested in its complaint.
5

The parties agree that this coverage dispute is governed by
Alabama law.
7

the terms of the policy.

Alabama Hosp. Ass’n Trust v. MASA, 538

So. 2d 1209, 1216 (Ala. 1989).

It is thus Durbin’s burden to show

that the jury verdict in the underlying lawsuit falls within the
coverage of Owners’s policy issued to Shep Jones Construction, such
that Owners must pay her the sum of the verdict.
Though it is Durbin’s burden to prove coverage, Owners’s
primary argument is that there is no “occurrence” to support
coverage under its policy because, under Alabama law, breach of
contract

is

not

an

“occurrence”

liability insurance policy.

under

a

commercial

general

Owners’s policy covers only “bodily

injury” or “property damage” that is caused by an “occurrence,” as
follows:
COMMERCIAL GENERAL LIABILITY COVERAGE FORM
SECTION I- COVERAGES
COVERAGE A.
LIABILITY

BODILY

INJURY

AND

PROPERTY

DAMAGE

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
damages” to which this insurance applies.
b. This insurance applies to “bodily injury”
and “property damages” only if:
(1) The “bodily injury” or “property damage”
is caused by an “occurrence” that takes place
in the “coverage territory”; and
(2) The “bodily injury” or “property damage”
occurs during the policy period.

8

The

policy

defines

“occurrence”

as

“an

accident,

including

continuous or repeated exposure to substantially the same general
harmful

conditions.”

The

Alabama

Supreme

Court

has

defined

“accident” in the context of an “occurrence” in a commercial
general liability policy as “an unintended and unforseen injurious
occurrence; something that does not occur in the usual course of
events or that could be reasonably anticipated” or “something
unforseen, unexpected or unusual.”

Harford Cas. Ins. Co. v.

Merchants & Farmers Bank, 928 So. 2d 1006, 1011 (Ala. 2005).
The trial court in the underlying lawsuit charged the jury on
breach of contract only.

Owners cites several Alabama cases for

the proposition that commercial general liability policies are not
designed to provide coverage for business disputes arising out of
breach of contract.

In Reliance Insurance Company v. Gary C.

Wyatt, Inc., 540 So. 2d 688, 691 (Ala. 1988), the Alabama Supreme
Court held that breach of contract is not an “occurrence” under a
commercial general liability policy, explaining:
The portion of Essex’s complaint with which we
are concerned in this appeal is predicated
upon the following alleged breach of contract:
“Wyatt failed to procure liability insurance
as required ... [and this] failure constitutes
a breach of the lease agreement, and Essex
has, and will, suffer damages as a direct,
foreseeable, and proximate result of said
breach.” The breach of contract was the
failure to procure liability insurance. This
is not an “occurrence” that results in bodily
injury or property damage.
Batson’s injury
may go to the issue of damages sustained by
this breach of contract, but it is not the
9

“occurrence” that causes the breach of
contract.
The contract had been breached,
with
or
without
Batson’s
injury.
The
“occurrence” in this case is the breach of
contract rather than the bodily injury to
Batson. We conclude that no coverage exists
for the breach of contract, because the breach
did not constitute an “occurrence” that
resulted in bodily injury or property damage
under the definitions within the policy, which
was necessary to bring such claim within the
policy coverage.
Perhaps a more instructive case is Auto-Owners Insurance Company v.
Toole, 947 F. Supp. 1557 (M.D. Ala. 1996), in which the insurer
argued that because the claims asserted against its insured, an
auto salesman, arose out of contractual disputes, they are not
“occurrences” under its commercial general liability policy, whose
definition of “occurrence” mirrored the one in the Owners policy
here.

Id. at 1563.

The federal court discussed the extent to

which Alabama law addressed if and when events giving rise to a
contract

dispute

fall

within

the

standard

definition

of

“occurrence,” quoting the above language in Reliance, 540 So.2d at
691, but stating that it was unable to “lift from these comments
any overall principle or principles that might guide the court in
resolving the issue presented in the instant case.”

Auto-Owners,

947 F. Supp. at 1563.

Instead, the court declined to “adopt any

broad

claims

holding

that

sounding

in

contract

are

not

occurrences,” and reasoned that in determining whether there is
coverage, it should look to the “specific kind of claim being
asserted,” regardless of whether it is labeled a contract claim or
10

a tort claim, and look to “the purpose of the general liability
policy from which coverage is sought.”

Id. at 1563-64 (quoting

City of Burlington v. Nat’l Union Fire Ins. Co., 655 A.2d 719, 722
(Vt. 1994)). The court’s analysis of why the plaintiff’s breach of
contract claim is not an “occurrence” under its commercial general
liability policy is also applicable here:
The court believes the following comments best
explain why the events giving rise to the
[breach of contract] counts should not be
viewed
as
occurrences:
“To
allow
indemnification under the facts presented here
would have the effect of making the insurer a
sort of silent business partner subject to
great risk in the economic venture without any
prospects of sharing in the economic benefit.
The expansion of the scope of the insurer’s
liability
would
be
enormous
without
corresponding compensation. There is simply
no reason to expect that such a liability
would be covered under a comprehensive
liability policy which has, as its genesis,
the purpose of protecting an individual or
entity
from
liability
for
essentially
accidental injury to another individual, or
property damage to another’s possessions, even
if, perhaps, the coverage of the policy has
been expanded to cover other non-bodily
injuries that sound in tort.” [quoting
Burlington, 655 A.2d at 722].
Similarly here, this court would distort the
purpose of the liability insurance policies in
this case by applying them to the consumer
transactions
underlying
the
[breach
of
contract] claims . . . against Toole. It is
apparent from a reading of the policies
between Auto–Owners and Toole that they were
not intended to cover business transactions
and business ventures, of a consumer nature or
of a another kind.

11

Id. at 1564.

As in Auto-Owners, Durbin’s breach of contract claim

against Shep Jones Construction is not an “occurrence” under
Owners’s policy, which defines an “occurrence” as an “accident.”
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.
In response to Owners’s primary argument that a breach of
contract is not an “occurrence,” Durbin does not argue that the
term “occurrence” in the Owners policy is ambiguous.

She does not

cite any Alabama cases directly supporting her contention that
Alabama law allows coverage for breach of contract actions under a
commercial general liability policy, but merely points to treatises
such as INSURANCE CLAIMS AND DISPUTES as well as case law from other
jurisdictions that criticize a legal position that a breach of
contract is not an “occurrence.”

See Am. Family Mut. Ins. Co. v.

Am. Girl, Inc., 673 N.W.2d 65, 76-77 (Wis. 2004) (“We agree that
CGL policies generally do not cover contract claims arising out of
the insured’s defective work or product, but this is by operation
of

the

CGL’s

actionable

business

only

in

risk

contract

exclusions,
can

12

never

not
be

because

the

result

a

loss
of

an

‘occurrence.’. . . This distinction is sometimes overlooked, and
has resulted in some regrettably overbroad generalizations about
CGL policies in our case law.”).

Nor does Durbin address the

aforementioned Alabama cases explaining why a breach of contract
should not be considered a covered “occurrence” under commercial
general liability policies such as this one.
In sum, Durbin has not met her burden of proving that the
judgment

she

obtained,

which

was

solely

based

on

breach

of

contract, is an “occurrence” under Owners’s commercial general
liability policy.

Because there is no “occurrence” causing either

“property damage” or “bodily injury,” no damages are recoverable
under Owners’s policy, and Owners is entitled to summary judgment
and

a

declaration

that

it

owes

no

indemnity

to

Shep

Jones

Construction.
There is an alternative reason why there is no coverage for
Durbin’s judgment that was based solely on breach of contract:
Owners’s policy contains a contractual liability exclusion, as
follows:
2. Exclusions.
This insurance does not apply to:
***
b. “Bodily injury” or “property damage” for
which the insured is obligated to pay damages
by reason of the assumption of liability in a
contract or agreement.
This exclusion does
not apply to liability for damages:

13

(1) Assumed in a contract or agreement that is
an “insured contract”, provided the “bodily
injury” or “property damage” occurs subsequent
to the execution of the contract or agreement;
or
(2) That the insured would have in the absence
of a contract or agreement.
In Alabama, the effect of this kind of exclusion is that, unless a
contract is specifically covered by it, an insurer is not liable
for damages assumed by the insured under a contract.

ALLEN’S ALABAMA

LIABILITY INSURANCE HANDBOOK, § 10.02, at 214 (2d ed. 2008).
courts

have

recognized

that

contractual

liability

Alabama

exclusions

identical to the one here operate to deny liability for “property
damage” and “bodily injury” resulting from breach of contract. See
Carter v. Cincinnati Ins. Co., 435 So. 2d 42, 45
(holding

that

there

is

no

insurance

coverage

(Ala. 1983)

pursuant

to

a

commercial general liability policy with a contractual liability
exclusion, when the plaintiff only sought to recover for breach of
an implied contract, because the claim “falls squarely within the
clear and unambiguous terms of the exclusionary provision[]”); Am.
Nat. Prop. & Cas. Co. v. Blocker, 165 F. Supp. 2d 1288, 1296-97
(S.D. Ala. 2001) (discussing Carter and holding same); Ajdarondinni
v. State Auto Mut. Ins. Co., 628 So. 2d 312, 313 (Ala. 1993)
(equivalent contractual liability exclusion in commercial general
liability policy; jury in underlying suit returned verdict solely
on the claims for breach of contract; court held that because the
14

policy

“clearly

excludes

breach

of

contract

claims

from

its

coverage, insurer has no duty to pay the judgment”).
Even if there was an “occurrence,” the contractual liability
exclusion in the Owners policy clearly operates to bar coverage,
and Durbin’s argument in opposition is unavailing. Durbin cites an
Alabama Supreme Court case holding that an equivalent contractual
liability exclusion did not exclude coverage for claims of breach
of an express warranty, Townsend Ford Inc. v. Auto-Owners Insurance
Co., 656 So. 2d 360, 364-65 (Ala. 1995).

But Townsend Ford, a

declaratory action arising out of the sale of used automobiles, is
distinguishable from the present case.

In Townsend Ford, the

complaint in the underlying lawsuit alleged that “[Townsend Ford,
the insured] warrant[ed] that said automobile had in fact only been
driven by a Ford Manager” and that “[Townsend Ford] breached said
warranty by failing to deliver a conforming automobile.”

Id.

In

contrast here, the trial of the underlying lawsuit was based on
breach of contract, not breach of express warranty.

Durbin’s

complaint against Shep Jones Construction did not contain a breach
of express warranty claim.

No argument was made by counsel for

Durbin to the jury based upon breach of express warranty. The jury
was not instructed on breach of express warranty.

ALLEN’S ALABAMA

LIABILITY INSURANCE HANDBOOK notes that the court in Townsend Ford did
not cite any authority for its refusal to extend the contractual
liability exclusion to claims for breach of express warranty.

15

§

10.02 at 215.

No other Alabama case has cited Townsend Ford for

its interpretation of the contractual liability exclusion. In sum,
even if a breach of contract constituted an “occurrence” under
Owners’s policy, Owners has met its burden of proving that the
contractual liability exclusion bars coverage for “bodily injury”
or “property damage” for which Shep Jones Construction is obligated
to pay damages by reason of its construction contract with Durbin.
Owners is thus entitled to summary judgment and a declaration that
it owes no indemnity.
The court could end its analysis here.

However, the court

will address Owners’s alternative argument as to why its policy
affords no coverage to show that even if there was an “occurrence”
triggering

coverage

under

the

Owners

policy,

other

policy

provisions bar coverage such that Durbin is not owed payment of the
jury’s damages award.
Even if the fact that Durbin obtained a judgment premised on
breach of contract did not preclude coverage, Owners argues in the
alternative that the activity underlying the breach of contract
claim - Shep Jones Construction’s alleged faulty workmanship – does
not constitute an “occurrence” under a commercial general liability
policy under Alabama law.

In Town & Country Property, LLC v.

Amerisure Insurance Company, __ So. 3d __, 2011 WL 5009777 (Ala.
October 21, 2011) (not yet released for publication), the Alabama
Supreme Court held that a general contractor’s faulty workmanship

16

is not an “occurrence” under a general liability policy, explaining
that “a CGL policy is intended to protect an insured from bearing
financial responsibility for unexpected and accidental damage to
people or property while a performance bond is intended to insure
the contractor against claims for the cost of repair or replacement
of faulty work.” Id. at *6 (internal quotation marks and citation
omitted).

In so holding, the court relied heavily on U. S.

Fidelity & Guaranty Company v. Warwick Development Company, Inc.,
446 So. 2d 1021, 1023-24 (Ala. 1984), in which the court held that
a comprehensive general liability policy does not provide insurance
coverage to an insured contractor for faulty workmanship or noncomplying materials because there was no “occurrence” as that term
is defined by the policy.

See also Berry v. South Carolina Ins.

Co., 495 So. 2d 511, 512-13 (Ala. 1985) (roofing contractor’s
failure to complete construction job not “occurrence” under a
general

liability

policy

because

it

did

not

result

from

an

accident, including continuous or repeated exposure to conditions,
but “[r]ather, all of the ‘damages’ are related to the work done
pursuant to the contract . . . there is not even a scintilla of
evidence to support the Berrys’ assertion that an occurrence
leading to property damage took place”).
Even if a general contractor’s faulty work could be considered
an

“occurrence,”

the

Owners

policy

exclusion, as follows:
17

contains

a

“your

work”

2. Exclusions.
This insurance does not apply to:
***
k. “Property damage” to “your product” arising
out of it or any part of it.
l. “Property damage” to “your work” arising
out of it or any part of it and including in
the “products-completed operations hazard.
In the first Owners policy, effective February 2005 to February
2006, the “your work” exclusion contains an exception making it
inapplicable to work performed by subcontractors, as follows: “This
exclusion does not apply if the damaged work or the work out of
which

the

damage

subcontractor.”

arises

was

performed

on

your

behalf

by

a

However, the renewed Owners policy, effective

February 2006 to February 2007, contains an endorsement that
removes

this

“subcontractor

exception”

from

the

“your

work”

exclusion.
Durbin agrees that faulty workmanship by a general contractor
is not an “occurrence” under a commercial general liability policy,
but argues that if the faulty work caused property damage to
something that was not part of the contractor’s work, then an
“occurrence” may exist.

Indeed, in Moss v. Champion Insurance

Company, 442 So. 2d 26 (Ala. 1983), the Alabama Supreme Court held
that there was an occurrence under an equivalent commercial general
liability policy because the contractor’s faulty roofing work ended
up damaging areas of the house that were not involved in the
18

contractor’s scope of the work (the ceiling, insulation, and
furniture got wet when it rained).

Id. at 29.

Thus, areas of the

building that were not being worked on by the contractor were
damaged due to the contractor’s faulty work and were covered under
the commercial general liability policy.

Id.

This conclusion is

reasonable in light of the fact that an “occurrence” is defined by
the policy as an “accident,” or something neither expected nor
intended by the insured.

See Harford, 928 So. 2d at 1011.

The

court emphasized in Moss that the rain damage to the existing
property was an accident because the contractor did not expect or
intend for it to happen.

Moss, 442 So. 2d at 29.

See also United

States Fed. & Guar. Co. v. Armstrong, 479 So. 2d 1164, 1167 (Ala.
1985) (holding that insurer was required to provide coverage to
sewer-system contractor under the terms of the commercial general
liability policy where contractor was sued for damage resulting
from raw sewage flowing onto an adjacent landowner’s property
during construction).
In Town & Country, supra, the Alabama Supreme Court explained
that its decisions on whether damage alleged to be the result of
faulty workmanship is covered under a general liability policy have
hinged

on

the

nature

of

the

damage

caused

by

the

faulty

workmanship, and that this is illustrated by the different results
reached in Warwick and Moss, despite the fact that the court was
interpreting nearly identical commercial general liability contract
19

provisions.

2011

WL

5009777,

at

*4.

At

bottom,

“faulty

workmanship itself is not an occurrence but [] 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.”

Id. at *5.

The foregoing establishes that to prove an “occurrence,”
Durbin must prove that Shep Jones Construction’s faulty work caused
something to happen causing property damage to existing portions of
her home outside of the scope of Shep Jones Construction’s work.
Durbin says that evidence was presented at trial in the underlying
lawsuit that a stucco subcontractor damaged some windows and doors
that already existed when the construction began, and she had to
replace

them.

An

examination

of

the

portions

of

the

trial

transcript cited by Durbin indicates that Durbin did have to pay to
replace several existing doors damaged by the stucco subcontractor
that were not a part of her renovation under her contract with Shep
Jones Construction.

See trial transcript at 1019-20.

However,

Durbin’s counsel later told the jury that the damaged doors that
had

to

be

replaced

were

doors

that

Shep

Jones

Construction

installed pursuant to the contract, not doors that already existed

20

before the renovation.6

Because the trial transcript is unclear,

Durbin has at least created an issue of fact as to whether there
was damage to the existing structure outside of the scope of Shep
Jones Construction’s work that could constitute an “occurrence”
under the court’s analysis in Moss and other cases like it.
Assuming only for the sake of argument that the court is incorrect
that breach of contract is not an “occurrence” and is not otherwise
excluded by the policy, Durbin has presented a jury question
whether there was an “occurrence” that triggered coverage under the
policy based on faulty workmanship that caused accidental damage to
existing portions of her home.

However, Durbin cannot establish

that any property damage occurred within the appropriate policy
periods, as required for coverage under the policy.

As noted, the

“your work” exclusion excludes coverage for property damage to Shep
Jones Construction’s work, but the “subcontractor exception” to the
“your work” exclusion in the first policy provides coverage for
property damage to subcontractors’ work. Based on this, Durbin now
says that not Shep Jones Construction, but three subcontractors
6

Durbin’s counsel told the jury: “Other examples of shoddy
work had to do with failure of the homebuilder to protect the
windows and exterior doors from the stucco man. . . . Again,
we’ve showed them to you. The frames and the metal pieces of the
exterior windows and doors were scratched, dented, have nail
holes and have stucco and grout splatter on them. Now, they
weren’t replaced with items that were more expensive than Mr.
Jones put in the house. They were replaced with the exact same
types of doors and windows that Mr. Jones put in the house. . . .
What we did was we went and bought the ones to match the ones
that Mr. Jones put in the house.” Trial transcript at 1165-66.
21

(the framing contractor, the roofing contractor, and the HVAC
subcontractor), performed all of the work that caused the property
damage to her home, and that because they performed their work
during the first policy period when the subcontractor exception was
in effect (February 2005 to February 2006), the property damage is
covered under the policy.

As an initial matter, this position is

contrary to what Durbin argued to the jury at trial in the
underlying lawsuit, i.e., that Shep Jones Construction’s “shoddy
work” caused all of her property damage.7

Indeed, the trial

involved only a breach of contract action against Shep Jones
Construction, because the subcontractors settled before trial.
any

event,

the

property

damage

allegedly

caused

by

In

these

subcontractors did not “occur” within the policy periods.

In

Alabama, “[a]s a general rule the time of an ‘occurrence’ of an
accident within the meaning of an indemnity policy is not the time
the wrongful act is committed but the time the complaining party
was actually damaged.” American States Ins. Co. v. Martin, 662 So.
2d 245, 250 (Ala. 1995) (emphasis added).

The items of faulty

workmanship by these three subcontractors went undetected until
7

Durbin’s counsel told the jury: “Another position they
take is, we didn’t do it, we didn’t do it, the subs did it, it
was the sub’s problem, they did all that stuff, we didn’t do it.
. . . Well, it doesn’t matter as between Ms. Durbin and Mr. Jones
whether the problem was the subs. That’s his problem. Ms.
Durbin has a contract with Mr. Jones to build this house, and if
a sub screwed up, it’s his problem. And if a sub is out of
business, it’s his problem, not Ms. Durbin’s problem.” Trial
transcript at 1168-69.
22

Durbin

requested

inspections

to

uncover

areas

of

faulty

workmanship. Indeed, the undisputed evidence shows that the damage
caused by the roofing subcontractor was first discovered during the
January 2007 inspection, which was during the effective dates of
the second Owners policy that did not contain the subcontractor
exception.
HVAC

The damage caused by the framing subcontractor and the

subcontractor

was

first

discovered

during

the

May

2008

inspection, which was after the second Owners policy expired. From
this, Owners argues that Durbin could not have been damaged until,
at the earliest, the second policy was in effect, which did not
provide coverage for damage to subcontractors’ work, because Durbin
did not know about the issues until the inspections revealed them.
As such, even if there was an “occurrence,” the Owners policy
contains an exclusion for damage to the insured’s “work.”

The

policy also contains an exception to that exclusion for work
performed by subcontractors, but that exception was removed during
the second policy period. Based on the undisputed evidence, if any
initially covered damages were suffered, they fall within the
second policy period (if within Owners’s policy period at all) and
are excluded by the “your work” exclusion.
As a final matter, and again assuming the court is incorrect
and there is some “accident” that constitutes an “occurrence” under
the policy, and coverage is not otherwise excluded by the express
terms of the policy, the court must address Durbin’s argument that

23

even if she cannot recover on the claim for “property damage,” the
Owners

policy

also

provides

coverage

for

sums

Shep

Jones

Construction becomes legally obligated to pay as damages because of
“bodily injury,” and the damages awarded in the underlying lawsuit
fall within this coverage because some or all of the jury’s award
was for her mental anguish.8
Durbin testified at trial in the underlying lawsuit that she
suffered mental anguish shortly after she moved back into her home
in May or June 2006.

Owners’s renewed policy to Shep Jones

Construction was in effect during that period (February 2006 to
February 2007).

The jury in the underlying lawsuit was instructed

on both “property damage” and “mental anguish” with regard to
damages

to

be

awarded,

if

any,

to

Durbin

Construction’s alleged breach of contract.

for

Shep

Jones

Durbin requested a

special verdict form separating out the mental anguish damages.
Counsel for Shep Jones Construction, retained by Owners, did not
independently request a special verdict form, but did not voice an
objection to Durbin’s request for one.

The trial court denied

Durbin’s request, and the jury was provided only with a general
verdict form, which did not separate out mental anguish damages

8

The policy defines “bodily injury” as “bodily injury,
sickness or disease sustained by a person, including death
resulting from any of these at any one time.” Under Alabama law,
mental anguish qualifies as “bodily injury” for purposes of a
commercial general liability policy. Am. States Ins. Co. v.
Cooper, 518 So. 2d 708, 710 (Ala. 1987).
24

from property damage.

The jury awarded Durbin $303,550.00 in

general damages for Shep Jones Construction’s breach of contract.
There is no way to know what portion, if any, of this amount the
jury intended to allocate for mental anguish.
The

question

thus

arises

which

party

has

the

burden

of

allocating the verdict, and in what court, in order to ascertain
the amount of the damages for which the insurer may be responsible.
In line with the majority of courts, the Alabama Supreme Court has
required the party seeking to recover under the policy to prove the
apportionment of the verdict in order to show that some or all of
it was for covered damages.
at 1209.

Alabama Hosp. Ass’n Trust, 538 So. 2d

Durbin attempts to meet this burden to allocate the

jury’s verdict, but her attempts fail.

She argues that since the

trial court submitted mental anguish to the jury, “some or all of
the jury verdict included damages for mental anguish, suffered
during the policy period and therefore, are covered under the
second liability policy issued by Owners.”
conjecture.

This statement is pure

Simply because the jury was instructed on mental

anguish does not mean the jury awarded anything whatsoever for
mental anguish.

In the alternative, Durbin points out that Shep

Jones Construction argued in closing arguments that the most it
should have cost Durbin to repair the construction defects to her
home was $50,000.00. From this, Durbin argues that the $253,550.00
remaining jury verdict ($303,550.00 minus $50,000.00) must have

25

been for mental anguish. This statement is also guesswork, because
the jury was under no obligation to accept any amount of damages
suggested by counsel during closing arguments.
At bottom, even if there was an occurrence giving rise to
coverage, Durbin cannot meet an “impossible burden of proof”
because there is no way to know if any or all of the jury’s general
verdict was for covered “bodily injury” damages. See Duke v. Hoch,
468 F.2d 973, 980 (5th Cir. 1972).

Relying on Duke v. Hoch, which

is a Fifth Circuit case applying Florida law, Durbin argues that
because counsel for Shep Jones Construction – retained by Owners –
did not request a special verdict form specifying which types of
damages were being awarded, Durbin is relieved of this burden and
is automatically entitled to the entire damages award.
Duke were controlling law, it is distinguishable.

Even if

In Duke, the

court stated that the burden of apportioning the damages award is
normally on the party seeking to recover from the insurer, unless
that party is for some reason relieved of this burden.

Id. at 978.

The court held that the insured is relieved of this burden when
“the insurer fail[s] to fully advise its insureds of the divergence
of interest between it and them with respect to the [use of an
allocated] verdict.” Id. at 979-80.

The court further held that

the

known

insurer

is

“required

to

make

to

the

insured

the

availability of a special verdict and the divergence of interest”
between the insurer and insured “springing from whether damages

26

[a]re or [a]re not allocated.” Id.
There is no evidence here that the burden of persuasion should
have shifted or now shifts to Owners.

Owners tried to intervene in

the underlying lawsuit for the specific purpose of submitting a
special verdict form or interrogatories to the jury, serving its
motion to intervene on counsel for Shep Jones Construction, but the
trial court denied its motion.

Owners then filed this declaratory

judgment action against Shep Jones Construction and Durbin after
being denied the right to intervene.

Shep Jones Construction, the

insured, was fully informed and aware of the coverage issues in the
this

matter

during

the

pendency

of

the

underlying

lawsuit.

Although counsel for Shep Jones Construction – retained by Owners
– did not join in Durbin’s request for a special verdict form, it
also did not oppose it.

If Duke is persuasive authority, under

these circumstances, Owners fulfilled any duty required by Duke to
make known to Shep Jones Construction the availability and purpose
of a special verdict form.

There is no reason why Durbin should be

relieved of her burden, as the one seeking coverage, to prove the
apportionment of the damages award into covered and uncovered
damages.

As such, even if there was otherwise an “occurrence”

giving rise to coverage for damages Shep Jones Construction had to
pay for “bodily injury,” Durbin has failed to establish that any
part of the jury’s verdict was for covered damages.

27

CONCLUSION
The dispositive issue in this action is whether a jury verdict
based

solely

on

breach

of

contract

commercial general liability policy.

is

covered

by

a

general

A breach of contract is not

an “occurrence” (defined as an accident by the policy).

Every

other matter discussed above is unnecessary to the decision, but
the court chose not to ignore them.
Owners is entitled to summary judgment and a declaration that
it owes no indemnity to Shep Jones Construction in that it owes no
payment of the jury’s damages award to Durbin.

It follows that

Durbin’s motion for summary judgment is due to be denied.

A

separate order effectuating this opinion will be entered.
DONE this 3rd day of May, 2012.

_____________________________
WILLIAM M. ACKER, JR.
UNITED STATES DISTRICT JUDGE

28