Doug Crownover v. Mid-Continent Casualty Co
772 F.3d 197
5th Cir.2014Background
- Doug and Karen Crownover contracted with Arrow Development to build a house; the contract included an express warranty (¶23.1) that Arrow would "promptly correct work . . . failing to conform to the requirements of the Contract Documents."
- After completion (Nov 2002) cracks and HVAC failures appeared; Crownovers spent substantial sums to repair foundation and replace HVAC units; arbitration found Arrow breached the express repair warranty and awarded damages.
- Arrow later filed bankruptcy; Crownovers were limited to recovery from Arrow’s insurance and sued Arrow’s insurer, Mid-Continent, for indemnity under CGL policies covering Arrow.
- Mid-Continent denied coverage, invoking the contractual-liability exclusion and other exclusions ("your work," j(5)/j(6)); Crownovers moved for summary judgment and the district court granted Mid-Continent summary judgment based on the contractual-liability exclusion.
- On appeal, the Fifth Circuit considered whether the contractual-liability exclusion applied (i.e., whether Arrow "assumed liability" beyond general law), and whether alternative exclusions barred coverage; the court reversed and rendered judgment for the Crownovers.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Applicability of contractual-liability exclusion | Crownovers: Arrow’s adjudicated liability was no greater than liability under Texas general law, so exclusion does not apply | Mid-Continent: Arbitration award was based on contractually assumed liability (express repair warranty), triggering the exclusion | Held: Exclusion does not apply—insurer failed to show the contract expanded liability beyond general law (applying Gilbert and Ewing) |
| Whether defective work constituted an "occurrence" causing "property damage" | Crownovers: Cracks and failed HVAC units are physical damage from an occurrence and thus covered | Mid-Continent: Faulty work merely diminished value or was expected from clay soils; HVAC replacement is economic loss, not property damage | Held: Defective construction caused physical damage (cracks, HVAC wear) that qualifies as property damage from an occurrence; initial coverage established |
| "Your work" exclusion and subcontractor exception timing | Crownovers: Damage manifested within a year after completion (pre-August 2003), when subcontractor exception still applied | Mid-Continent: Significant damage occurred later, after subcontractor exception was removed | Held: Evidence shows damage first appeared before Aug 2003; subcontractor exception applied, so "your work" exclusion does not bar coverage |
| Exclusions j(5)/j(6) (damage occurring while work in progress) | Crownovers: Damage (cracks, HVAC failure) occurred after completion—key date is when injury happened | Mid-Continent: Damage arose at installation while work ongoing, so exclusions apply | Held: Cracks and HVAC failure manifested after substantial completion; j(5)/j(6) do not bar coverage |
Key Cases Cited
- Gilbert Texas Construction, L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118 (Tex. 2010) (framework for contractual-liability exclusion; exclusion applies only where contractually assumed liability exceeds liability under general law)
- Ewing Construction Co. v. Amerisure Insurance Co., 420 S.W.3d 30 (Tex. 2014) (a contractor’s promise to perform in a good and workmanlike manner does not, without more, enlarge liability for purposes of the contractual-liability exclusion)
- Lamar Homes, Inc. v. Mid-Continent Casualty Co., 242 S.W.3d 1 (Tex. 2007) (defective construction that causes physical damage can constitute an "occurrence" and "property damage")
- Don’s Building Supply, Inc. v. OneBeacon Ins. Co., 267 S.W.3d 20 (Tex. 2008) (insurer’s duty is triggered when injury happens; definition of occurrence limits coverage)
- Lennar Corp. v. Markel American Ins. Co., 413 S.W.3d 750 (Tex. 2013) (costs to locate and repair property damage are incurred "because of" property damage under CGL coverage)
- Wilshire Ins. Co. v. RJT Construction, LLC, 581 F.3d 222 (5th Cir. 2009) (cracks are physical damage itself and can trigger CGL coverage)