Dallas National Insurance Company v. Calitex Corp., Elshir Enterprises, L.P. and Thomas, L.P.
2015 WL 968308
Tex. App.2015Background
- DNIC issued CGL policies to Turnkey for 2006–2008. Turnkey built a 12‑unit townhome project for Calitex. Construction ran into water‑infiltration and defective stone veneer issues.
- Calitex sued Turnkey, Integrated (subcontractor), and owner Hurst; a jury awarded Calitex $500,000 against Turnkey (plus $193,500 attorney’s fees) and $500,000 against Integrated. Turnkey had tendered the claim to DNIC, which denied coverage.
- Calitex sued DNIC seeking declaratory relief and indemnity as a third‑party beneficiary; cross‑motions for summary judgment were filed. Trial court awarded Calitex the underlying judgment amounts and later trial awarded Calitex additional attorney’s fees in this suit.
- DNIC moved for summary judgment arguing business‑risk exclusions (notably exclusion j(5) — damage to the part of real property on which the insured is performing operations) precluded coverage and Calitex failed to segregate covered from noncovered damages.
- The trial court granted Calitex’s cross‑motion in part and denied DNIC’s motion in part; on appeal the Court of Appeals reviewed whether exclusion j(5) excluded some of the underlying damages and whether Calitex had properly allocated covered damages.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether exclusion j(5) (damage to that part of real property on which insured is performing operations) applies | Calitex: damage was discovered after completion; j(5) excludes only damage "while" operations are ongoing, so it doesn’t apply | DNIC: some physical damage occurred during construction (e.g., leaks discovered and investigated while work ongoing), so j(5) excludes those losses | Held: j(5) applies to at least some of the damages (DNIC met burden to show exclusion applies) |
| Whether Calitex must segregate covered from noncovered damages before recovering | Calitex: entire underlying judgment was for covered property damage; insurer cannot collaterally attack the judgment | DNIC: insured bears burden to segregate covered from noncovered damages; failure is fatal | Held: Calitex must segregate; it failed to provide a reasonable basis to allocate covered vs. excluded damage, so recovery fails |
| Whether the insurer is bound by the underlying judgment as to coverage (collateral‑attack argument) | Calitex: DNIC’s challenge to coverage is a collateral attack on the underlying judgment and is barred | DNIC: coverage is a separate issue; insurer may challenge coverage despite liability determination | Held: Coverage question is separate and not a collateral attack; DNIC may litigate coverage |
| Whether Calitex was entitled to attorney’s fees in this suit based on prevailing‑party status | Calitex: if it prevails on coverage, statutory fee recovery is required | DNIC: Calitex did not prevail on coverage after allocation failure | Held: Because Calitex did not prevail on the coverage/indemnity claims, it was not entitled to attorney’s fees; trial court’s awards reversed and take‑nothing judgment rendered for DNIC |
Key Cases Cited
- Castagna v. Mid‑Continent Cas. Co., 410 S.W.3d 445 (Tex. App.—Dallas 2013) (distinguishes duty to defend from duty to indemnify; indemnity depends on facts proven in underlying suit)
- Burlington N. & Santa Fe Ry. Co. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 334 S.W.3d 217 (Tex. 2011) (duty to indemnify determined by facts established in underlying litigation)
- D.R. Horton Tex., Ltd. v. Markel Int’l Ins. Co. Ltd., 300 S.W.3d 740 (Tex. 2009) (indemnity depends on whether proven damages fall within policy terms)
- Evanston Ins. Co. v. ATOFINA Petrochemicals, Inc., 256 S.W.3d 660 (Tex. 2008) (insurer’s denial of defense does not bar insurer from contesting coverage; distinguishes challenges to reasonableness vs coverage)
- Don’s Bldg. Supply, Inc. v. OneBeacon Ins. Co., 267 S.W.3d 20 (Tex. 2008) (property damage occurs when physical injury occurs, not upon discovery)
- JHP Dev., Inc. v. Mid‑Continent Cas. Co., 557 F.3d 207 (5th Cir. 2009) (use of present tense in j(5) indicates exclusion applies to damage occurring during performance of operations)
- Comsys Info. Tech. Servs., Inc. v. Twin City Fire Ins. Co., 130 S.W.3d 181 (Tex. App.—Houston [14th Dist.] 2004) (failure to segregate covered and noncovered perils is fatal to recovery)
- Travelers Indem. Co. v. McKillip, 469 S.W.2d 160 (Tex. 1971) (insured must produce evidence affording reasonable basis to estimate damages attributable to covered peril)