366 F. Supp. 3d 836
S.D. Tex.2018Background
- Milestone (subcontractor) welded a steel plate on the 18th floor of a building under construction; welding slag fell and damaged windows several floors below.
- Trammell Crow (developer) procured a builder's risk policy from Liberty Mutual naming Balfour Beatty (general contractor) and subcontractors; Energy Center 5 was covered.
- Plaintiffs (Balfour Beatty and Milestone) tendered a claim; Liberty Mutual denied coverage based on a "Defects, Errors, and Omissions" exclusion in the policy.
- The exclusion disclaims coverage for loss "caused by, or resulting from an act... relating to... construction, materials, or workmanship," but contains an exception: if such an act "results in a covered peril," the insurer covers the loss caused by that covered peril.
- Plaintiffs argued the exclusion applies only to damage to the insured’s own work and that the exception restores coverage; Liberty Mutual argued the exclusion, read plainly, bars the claim and the exception does not apply.
- The court granted Liberty Mutual summary judgment on the breach-of-contract claim, holding the exclusion unambiguously bars coverage and the exception does not reinstate it; statutory claims under the Texas Insurance Code remain pending.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Defects/Errors/Omissions exclusion bars coverage for window damage caused by welding slag | Exclusion applies only to damage to the insured’s own work (cost to make good); slag damage to other work is covered | Exclusion plainly covers loss "caused by... relating to... construction," which includes Milestone's welding and thus excludes the window damage | Exclusion is plain and excludes the claim; coverage denied |
| Whether the exception ("if an act... results in a covered peril") restores coverage for the window damage | Exception reinstitutes coverage for damage caused by slag (would swallow the exclusion) | Exception requires two distinct perils—an excluded peril that subsequently "results in" a separately covered peril—so it does not apply here | Exception does not apply because there is only the excluded loss, not a separate resulting covered peril |
| Whether concurrent causation (e.g., wind plus welding) saves coverage | Wind was a concurrent, significant contributing cause, so coverage should apply | If wind is concurrent with the excluded construction-related act, the exclusion is still triggered under Texas law | Concurrent-causation doctrine does not help plaintiffs; exclusion still triggered when causes are concurrent |
| Whether policy interpretation should favor insureds because exclusion renders builder's risk coverage illusory | Interpretation that denies coverage makes policy effectively a "no-risk" policy for construction activities, so ambiguity should be resolved for insureds | Policy still covers other risks (e.g., acts of God); Texas law requires enforcing plain policy language and will not rewrite terms | Court rejects illusory-coverage argument; policy is not illusory and plain language controls |
Key Cases Cited
- Gilbert Tex. Constr., L.P. v. Underwriters at Lloyd's London, 327 S.W.3d 118 (Tex. 2010) (insurer and insured intent governed by plain policy language; ambiguity required for contra-insurer interpretation)
- Fiess v. State Farm Lloyds, 202 S.W.3d 744 (Tex. 2006) (courts must enforce clear policy language; ensuing-loss clause cannot be read to negate an express exclusion)
- Am. Home Assurance Co. v. Cat Tech L.L.C., 660 F.3d 216 (5th Cir. 2011) (insurance-policy interpretation is question of law)
- Utica Nat'l Ins. Co. of Tex. v. Am. Indem. Co., 141 S.W.3d 198 (Tex. 2004) (distinguishes separate-and-independent causation from concurrent causation for exclusions)
- Mid-Continent Cas. Co. v. JHP Dev., Inc., 557 F.3d 207 (5th Cir. 2009) (coverage depends on the specific policy language, not general category of policy)
- Bartram, LLC v. Landmark Am. Ins. Co., 864 F. Supp. 2d 1229 (N.D. Fla. 2012) (example where faulty workmanship exclusion applied but ensuing-loss clause covered resulting water damage)