No Coverage for Damages Caused by Contractor’s ‘Wanton’ Negligence, 11th Circuit Rules

An Alabama judge awarded Robert and Mindy Barton $900,000 for actual damages and emotional distress caused by the botched construction of their custom home, but they won’t be able to collect that judgment from the homebuilder’s general liability insurer.

The Barton’s own pleadings in the lawsuit against their contractor doomed their effort to win a payout from Nationwide Mutual Fire Insurance Co., a panel of the 11th Circuit Court of Appeals ruled Monday.

The civil complaint alleged that Stacy Alliston Design and Building was “wanton” in its negligence, which means the company knew its actions or omissions would cause damage. While there was one exception that might have applied, the policy issued by Nationwide excluded damages unless they were caused by an accident, the court decided in an unpublished decision.

“The Bartons had the burden to establish that coverage applied,” the panel opinion says. “And coverage applied only if the damages resulted from an accident — from something unusual that Alliston didn’t foresee or expect — and not from something that Alliston was ‘fully aware’ was ‘likely to result.'”

The Bartons hired Alliston to build a home in Hoover, Alabama, an upscale suburb of Birmingham. They paid $697,125 when they closed on the transaction on Oct. 27, 2006.

The Bartons handed Alliston a punch list of items that needed repair when they finalized the purchase, but other problems emerged after they moved in. Water leaked through the roof and windows, staining the drywall and providing sustenance for molds. Doors were askew. Flashing was missing. Windows weren’t sealed. Downspouts pointed in the wrong direction.

The Alabama Builders Recovery Fund, which pays compensation to homeowners who are damaged by a homebuilder’s misconduct, paid the Bartons $20,000 toward repairs. They replaced part of the roof, but that did not solve all of their problems.

In 2011, the couple filed suit against the company claiming $450,000 in property damage and $450,000 in damage caused by emotional distress. They filed a motion for summary judgment. Alliston did not oppose the motion. A Jefferson County Circuit Court judge awarded the Bartons everything they asked for in a short judgment that did not delineate the specific damages.

Next, the Bartons filed a lawsuit against Nationwide, using Alabama’s direct action statute. The law allows parties who have been awarded damages to file suit directly against the tortfeasor’s insurer.

A US District Court Judge found that the Alliston’s general liability policy did not provide coverage for the company’s “own work,” with one exception: property damage caused by work done by subcontractors. The Alabama Supreme Court has ruled that defective construction in itself is not an “occurrence” — or accident — that merits insurance coverage, unless the faulty workmanship causes damage elsewhere, such as when flooring is ruined because of a leaky roof.

That left a door open for coverage for some of the damages to the Barton’s house under the Nationwide policy. The Bartons had alleged some damage was caused by subcontractors’ shoddy work. But the county judge’s terse judgment closed that door: It did not specify which damages were caused by the subcontractors and which were caused by Alliston’s wanton negligence, or how much of the award was for property damage and how much was for emotional distress.

The District Court found that it was the Bartons’ burden to prove that coverage was available for their claims. Damages caused by the contractor’s “wanton negligence” were clearly not covered, but no concrete evidence was presented to show which damages were caused by subcontractors.

The appellate panel said the trial court made the right call when it granted summary judgment in Nationwide’s favor and affirmed the ruling.

“Like the district court, we cannot determine how much the state court awarded the Bartons damages for Alliston’s negligence (potentially covered) versus its wantonness (not covered),” the opinion says.

Top photo is for illustrative purposes only.