They asserted claims of rescission, breach of contract, breach of express and implied warranties, negligence and wantonness, negligent supervision and training, misrepresentation and fraud, suppression, and “gross negligence,” and “incompetence.”

As a result of the purported defects in the house, the Shahs alleged that they “suffered and/or are continuing to suffer damages including, but without limitation[,] repair, and/or replacement costs, loss of the use and enjoyment of areas of their home, loss of market value in their home, mental anguish and emotional distress damages.”

Nationwide Mutual Fire Insurance Company, which had issued a commercial general liability (“CGL”) insurance policy to TDG, declined to provide a defense or indemnify TDG because, according to Nationwide, the damage the Shahs complained of did not constitute an “occurrence” so as to trigger coverage under the Nationwide policy.

In September 2008, TDG initiated an action against Nationwide seeking a judgment declaring that Nationwide was obligated to defend TDG in the Shahs' action and to indemnify TDG for any judgment entered against it. TDG also requested that all fees and expenses it incurred in defending against the Shahs' action be paid by Nationwide.

The Shahs' case against TDG proceeded to arbitration, and TDG's case against Nationwide was stayed pending the results of the arbitration proceeding. On October 20, 2009, the arbitrator issued an award in favor of the Shahs in the amount of $12,725.

In July 2011, Nationwide moved for summary judgment on TDG's claims, arguing that TDG's alleged faulty workmanship in constructing the Shahs' house did not constitute an “occurrence” so as to trigger coverage under the Nationwide policy.

The trial court held that, although the arbitrator's award was not “expressly clear” as to the basis for awarding damages, the Shahs' complaint “sufficiently allege[d] claims other than faulty workmanship and pray[ed] for damages on [those] claims” and that the arbitrator “had the opportunity to find [that] the Shahs suffered damages due to occurrences caused by faulty workmanship.”

The trial court then concluded that TDG was entitled to coverage and indemnification under the CGL policy not only for the damages awarded against it in the Shahs' action but also for its attorneys' fees and the expenses it had incurred in defending the Shahs' action.

The dispute reached the Supreme Court of Alabama.

The Alabama Supreme Court's Decision

The court reversed.

In its decision, the court explained that the Shahs' complaint alleged that there were “numerous and substantial construction defects” throughout their house and that it “clearly” alleged faulty workmanship. The court noted that it had “repeatedly held” that “faulty workmanship itself” was not an “occurrence” under a CGL policy such as the one issued to the Shahs.

At no point, the court added, did the Shahs allege additional or resulting damage to their house or to their personal property as a result of that faulty workmanship.

Moreover, the court continued, the arbitrator decided that the Shahs failed to prove faulty workmanship except for “minor damage.”

Under these circumstances, the court held, there was nothing in this case demonstrating that there was property damage or personal injury resulting from an “occurrence” that triggered coverage under the CGL policy.

The court concluded that the trial court had erred in finding that TDG was entitled to coverage and indemnification under its CGL policy with Nationwide.

The case is Nationwide Mutual Fire Ins. Co. v. David Group, Inc., No. 1170588 (Ala. May 24, 2019).