Lead Opinion
SUBSTITUTE MAJORITY OPINION
We overrule appellees’ motions for rehearing. We withdraw our opinion dated June 2, 2005 and issue this substitute majority opinion.
This case involves an insurance coverage dispute over whether the insured home-builders are covered under six commercial general liability (“CGL”) policies for damages resulting from their application of defective stucco material to numerous homes. Appellants, Lennar Corporation, Lennar Homes of Texas Land and Construction, Limited, and Lennar Homes of Texas Sales and Marketing, Limited, d/b/a Village Builders (collectively “Lennar”) are the insureds.
We affirm the denial of Lennar’s motion for summary judgment as to all carriers. We affirm the summary judgments in favor of Gerling, RLI, ICSOP, and West-chester. We reverse and remand the summary judgment on coverage issues in favor of Great American/American Dynasty. We reverse and remand the summary judgment in favor of Markel. We affirm the summary judgment in favor of Great
I. Background
From early 1996 through late 1999, Len-nar built more than 400 homes in the Houston area with a synthetic stucco called Exterior Insulation and Finish System (“EIFS”). According to Lennar, the manufacturers of EIFS marketed it as an ideal product for wood-framed homes. However, Lennar contends it later discovered that EIFS is defectively designed such that it traps water behind it and does not allow the water to drain. Consequently, the trapped water can cause damage, such as wood rot, mold, and termite infestation, among other problems, to other parts of the home.
Through the spring of 1999, Lennar had received a few complaints from homeowners about EIFS-related problems. In the spring of 1999, the complaints increased after television programs regarding EIFS aired. According to Lennar, it initially accepted the manufacturer’s position that the problems were caused by installation error and/or were typical of wood-framed homes. Therefore, Lennar addressed these complaints on an individual basis. However, by September 1999, after spending the summer responding to complaints, Lennar became convinced EIFS is a defective product.
Thereafter, Lennar removed the EIFS from all the homes and replaced it with a traditional stucco.
Lennar sued the carriers requesting a declaratory judgment that they have a duty to indemnify Lennar for the EIFS claims and alleging breach of contract and violations of former article 21.55 of the Texas Insurance Code based on the carriers’ refusal to indemnify. In addition, Lennar asserted extra-contractual claims against American Dynasty only. Lennar and each carrier filed a motion for summary judgment on the coverage issues. The trial court denied Lennar’s motion and granted all the carriers’ motions. American Dynasty also filed a motion for summary judgment on Lennar’s extra-contractual claims, and the trial court granted the motion.
II. The Issues and Our Review
In its first issue, Lennar contends the trial court erred by denying Lennar’s motion for summary judgment because Len-nar established coverage under all the policies. Alternatively, in its second issue,
Well-settled principles govern review of summary judgments in insurance coverage disputes. See State Farm Fire & Cas. Co. v. Vaughan,
Lennar filed one motion for summary judgment as to all the carriers. However, each of the six carriers filed its own motion for summary judgment and response to Lennar’s motion for summary judgment. Therefore, in effect, we have six separate cross-motions for summary judgment to review on the coverage issues. However, the dispute with respect to each cross-motion follows a typical framework for insurance coverage litigation.
Interpretation of insurance contracts is governed by the same rules as interpretation of other contracts. Trinity Universal Ins. Co. v. Cowan,
First, we will address the “occurrence” and “property damage” issues because they are common to all carriers.
III. “Occurrence” Under Texas Law
“Occurrence” is defined in the policies as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” “Accident” is not defined in the policies. However, the Texas Supreme Court has stated that an injury is accidental if “ ‘from the viewpoint of the insured, [it is] not the natural and probable consequence of the action or occurrence which produced the injury; or in other words, if the injury could not reasonably be anticipated by insured, or would not ordinarily follow from the action or occurrence which caused the injury.’ ” See Mid-Century Ins. Co. v. Lindsey,
Within this framework, the Texas Supreme Court has construed “accident” to include the negligent acts of the insured causing damage which is undesigned and unexpected. Cowan,
Here, Lennar contends its defective construction constitutes an “occurrence” because the uncontroverted evidence shows the resulting “property damage” was unintended and unexpected. In response, the carriers primarily contend that under Texas law, defective construction cannot constitute an “occurrence” as a matter of law. The carriers point out that any “property damage” was solely to Lennar’s own work — the homes. The carriers reason that damage to an insured’s own work is economic loss sounding in contract only, and a breach of contract is not an “occurrence.” In an interrelated argument, they assert that a CGL policy is not meant to function as a performance bond and indemnify an insured for the costs to repair and replace its own work caused by its failure to properly perform its construction contract.
We find that Texas law is unsettled on whether defective construction can constitute an “occurrence.” We conclude that under the standard CGL policy, negligently created, or inadvertent, defective construction resulting in damage to the insured’s own work which is unintended and unexpected can constitute an “occurrence.” We further conclude that Lennar’s defective construction constitutes an “occurrence” in this case.
A. Texas Law Is Unsettled On Whether Defective Construction Resulting In Damage To The Insured’s Work Can Constitute An “Occurrence.”
Several Texas appellate courts and federal courts applying Texas law have rendered seemingly conflicting decisions on whether defective construction resulting in damage to the insured’s work can constitute an “occurrence” under a CGL policy.
The carriers cite several cases applying Texas law in support of their contention that defective construction cannot constitute an “occurrence” as a matter of law. For example, in Hartrick v. Great American Lloyds Insurance Co., the court held that the insured’s defective construction of a home’s foundation, which resulted in structural problems and damage to the home, did not constitute an “occurrence.”
On one hand, Hartrick, Malone, and Devoe seem somewhat limited to their facts because the insureds engaged in substandard construction practices or failed to follow architectural or engineering specifications, from which it could be inferred that they intended or expected the resulting damage. See generally, Hartrick,
However, the carriers also cite Jim Johnson Homes, Inc. v. Mid-Continent Casualty Co., in which the court did seem to make a blanket holding that defective construction resulting in damage to the insured’s work cannot constitute an “occurrence” as a matter of law.
Recently, another federal court expanded on the Jim Johnson Homes court’s theory that an insured’s defective construction resulting in damage to its work cannot constitute an “occurrence” because the claim sounds in contract only. See Lamar Homes, Inc. v. Mid-Continent Cas. Co.,
2. Lennar’s Cases
In contrast, several courts applying Texas law have concluded that defective construction resulting in damage to the insured’s own work can constitute an “occurrence” if the resulting damage is unintended and unexpected. For example, Lennar cites Great Am. Insurance Co. v. Calli Homes, Inc., in which the court found that the insured’s improper construction of the claimants’ home, including the improper installation of EIFS, that caused various damages to the home alleged an “occurrence.”
More recently, a Texas appellate court held that an insured builder’s negligence resulting in damage to its work can constitute an “occurrence.” See Gehan Homes, Ltd. v. Employers Mut. Cas. Co.,
B. Defective Construction Resulting In Damage To The Insured’s Work Can Constitute An “Occurrence.”
The principle that a CGL policy does not generally cover the insured’s defective construction resulting in damage to its own work is commonly known as the “business risk” doctrine. See O’Shaughnessy v.
The risk intended to be insured [by the CGL policy] is the possibility that the goods, products or work of the insured, once relinquished or completed, will cause bodily injury or damage to property other than to the product or completed work itself, and for which the insured may be found liable. The insured, as a source of goods or services, may be liable as a matter of contract law to make good on products or work which is defective or otherwise unsuitable because it is lacking in some capacity. This may even extend to an obligation to completely replace or rebuild the deficient product or work. This liability, however, is not what the coverages in question are designed to protect against. The coverage is for tort liability for physical damages to others and not for contractual liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained.
Weedo v. Stone-E-Brick, Inc.,
Here, the carriers generally rely on the “business risk” doctrine to argue that defective construction cannot constitute an “occurrence.” However, we conclude that defective construction can constitute an “occurrence” under the standard CGL policy because (1) coverage for “business risks” is ordinarily eliminated through exclusions — not through the “occurrence” requirement in the initial “insuring agreement”; and (2) coverage for some “business risks” is not eliminated when the damaged work, or the work out of which the damage arose, was performed by subcontractors.
1. The “Insuring Agreement” and the “Business Risk” Exclusions
First, coverage for “business risks” is ordinarily eliminated through exclusions— not through the “occurrence” requirement in the initial “insuring agreement.” The initial “insuring agreement” is a broad statement of coverage. See Am. Family Mut. Ins. Co. v. Am. Girl, Inc.,
The Texas Supreme Court has not held that a claim sounding in contract cannot constitute an accident under the initial “insuring agreement.” The court has applied the economic loss doctrine to determine what damages a claimant is entitled to recover. See Jim Walter Homes,
Rather, the court has instructed that we examine the insured’s intent and the reasonably foreseeable effect of its conduct. See Lindsey,
However, the standard CGL policy contains certain “business risk” exclusions. See Am. Girl,
In the cases cited here by the carriers, the courts did not consider the effect of the “business risk” exclusions on the “occurrence” analysis. See, e.g., Lamar Homes,
Instead, we must read all parts of an insurance policy together to ascertain the parties’ intent and give effect to all parts, so that none will be rendered superfluous or meaningless. See King v. Dallas Fire Ins. Co.,
Similarly, finding no “occurrence” when the insured’s defective construction damages its own work would render the “business risk” exclusions, particularly the “your work” exclusion, superfluous and meaningless.
If ... losses actionable in contract are never CGL “occurrences” for purposes of the initial coverage grant, then the business risk exclusions are entirely unnecessary. The business risk exclusions eliminate coverage for liability for property damage to the insured’s own work or product — liability that is typically actionable between the parties pursuant to the terms of their contract, not in tort. If the insuring agreement never confers coverage for this type of liability as an original definitional matter, then there is no need to specifically exclude it. Why would the insurance industry exclude damage to the insured’s own work or product if the damage could never be considered to have arisen from a covered “occurrence” in the first place?
Am. Girl,
Accordingly, we agree with the cases cited by Lennar because the courts recognized that the “occurrence” requirement can encompass damage to the insured’s own work, and coverage then depends upon the exclusions. See, e.g., Calli Homes,
2. The Subcontractor Exception
More significantly, coverage for some “business risks” is not eliminated when the damaged work, or the work out of which the damage arose, was performed by subcontractors. See Am. Girl,
It is important to understand the evolution of the subcontractor exception. In the past, the “business risk” exclusions operated collectively to preclude coverage for any damage to construction projects, including damage to the work of subcontractors, or damage arising out of the work of subcontractors. See Am. Girl,
In T.C. Bateson and Weedo, the courts recited the “business risk” doctrine based on a “your work” exclusion in the earlier version of the CGL policy, which did not contain a subcontractor exception. See T.C. Bateson,
Instead, the subcontractor exception demonstrates insurers intended to cover some defective construction resulting in damage to the insured’s work. See O’Shaughnessy,
Finally, we reject the carriers’ argument that allowing defective construction to constitute an “occurrence” will transform a CGL policy into a performance bond. As we will discuss, the “insuring agreement” covers “damages because of ... ‘property damage’ ... caused by an ‘occurrence.’ ” Therefore, although defective construction may constitute an “occurrence,” the insur
However, to the extent our holding does give a CGL policy some aspects of a performance bond, we are, nonetheless, bound by the language of the current policy. The carriers’ “performance bond” rationale is a rehash of the “business risk” doctrine, which is enforced through the exclusions, when applicable. See Colony Devel. Corp.,
[T]he [insurance] industry chose to add the [subcontractor] exception to the [“your work”] exclusion in 1986.... We realize that under our holding a general contractor who contracts out all the work to subcontractors ... can ensure complete coverage for faulty workmanship. However, it is not our holding that creates this result: it is the addition of the new language to the policy. We have not made the policy closer to a performance bond for general contractors, the insurance industry has.
Kalchthaler v. Keller Constr. Co.,
In sum, reading the standard CGL policy as a whole, we hold that negligently created, or inadvertent, defective construction resulting in damage to the insured’s own work that is unintended and unexpected can constitute an “occurrence.” Nonetheless, the “your work” or other “business risk” exclusions may preclude coverage for the damage. However, in some instances, coverage will be restored if the damaged work, or the work out of which the damage arose, was performed by subcontractors.
C. Lennar’s Defective Construction Constitutes an “Occurrence.”
Although the carriers primarily contend that defective construction cannot constitute an “occurrence” as a matter of law, they also suggest that Lennar’s defective construction is not an “occurrence” in this case. They assert there is no accident because Lennar voluntarily and intentionally constructed the homes with EIFS even if the resulting damage was unintended and unexpected. The carriers cite Har-trick and Devoe in which the courts found there was no occurrence because the insured’s construction was voluntary and intentional even if the resulting damage was unintended and unexpected. See Hartrick,
The Texas Supreme Court has stated that an injury caused by voluntary and intentional conduct is not an accident just because “the result or injury may have been unexpected, unforeseen, and unintended”; however, the court has made this statement with respect to intentional torts. See Lindsey,
Here, the uncontroverted evidence demonstrates Lennar did not intend to build the homes with a defective product and did not intend or expect the resulting damage. Daris Horn, Lennar’s Customer Care Specialist who handled the EIFS claims, averred by affidavit that when Len-nar decided to use EIFS in the early 1990’s, the EIFS manufacturers marketed it as an improved form of stucco that was easy to install, “low maintenance,” and ideal for residential, wood-framed homes. Horn further averred that Lennar was unaware EIFS was defective while Lennar was constructing the EIFS homes; instead, Lennar first recognized EIFS was defective in September 1999, approximately the same time it stopped using EIFS. Consequently, Lennar’s construction of the homes with a defective product was inadvertent or, at most, negligent because it was unaware of the defect. Further, the damage was not the intended or expected resulted had the homes been properly constructed, i.e. without a defective product. Accordingly, Lennar’s defective construction constitutes an “occurrence” under Texas law.
IV. “OCCURRENCE” UNDER FLORIDA LAW
American Dynasty argues that Florida law applies to the “occurrence” issue under its policy. The party asserting application of foreign law bears the burden to first show a true conflict of laws and then demonstrate which law should apply. Weatherly v. Deloitte & Touche,
American Dynasty cites LaMarche v. Shelby Mutual Insurance Co., in which the Florida Supreme Court stated that a CGL policy does not cover a insured contractor’s costs to replace or repair defective workmanship and materials.
However, recently, another intermediate Florida appellate court held that a builder’s CGL policy did cover defective construction performed by a subcontractor. See J.S.U.B., Inc. v. United States Fire Ins. Co.,
Consequently, the same conflict exists among Florida courts as in Texas. Therefore, American Dynasty has not shown that Florida law differs from Texas law on the “occurrence” issue, and we need not engage in a choice of law analysis.
V. “Property Damage”
Although we have held that Lennar’s defective construction constitutes an “occurrence,” Lennar must also establish that it paid “damages because of ... property damage” caused by the defective construction. “Property damage” is defined in the policies as “[p]hysical injury to tangible property, including all resulting loss of use of that property.”
Lennar contends all its costs are “damages because of ... property damage.” We disagree. We distinguish between three distinct categories of damages: (A) the costs to repair water damage to the homes, which constitute “damages because of ... property damage”; (B) the costs to remove and replace EIFS as a preventative measure, which do not constitute “damages because of ... property damage”; and (C) overhead costs, inspection costs, personnel costs, and attorneys’ fees, which do not constitute “damages because of ... property damage.”
A. Costs To Repair Water Damage
According to the summary judgment evidence, the EIFS’s entrapment of moisture caused water damage to at least some of the homes. Depending on the home, the water damage included wood rot, damage to substrate, sheathing, framing, insulation, sheetrock, wallpaper, paint, carpet, carpet padding, wooden trim, and baseboards, mold damage, and termite infestation. These damages constitute “physical injury to tangible property.” See Am. Girl,
Nonetheless, the carriers claim that Lennar has not satisfied the “property damage” requirement because it did not prove all the homes sustained water damage. Lennar’s own evidence is somewhat conflicting on whether all homes sustained water damage.
B. Removal And Replacement Of EIFS
Lennar also contends it is entitled to indemnification for its costs to remove and replace EIFS on all the homes. In contrast, the carriers contend that these costs are not covered because replacement of an initially defective product is not “property damage.”
The carriers cite North American Shipbuilding, Inc. v. Southern Marine & Aviation Underwriting, Inc., in which the court held that the insured shipbuilder’s replacement of initially defective welds did not constitute “physical loss ... or damage” as required for coverage under a builder’s risk policy.
Nonetheless, Lennar suggests that because all the homes sustained water damage, all its costs to fully remove and replace EIFS are “damages because of ... property damage.” We disagree. Even if all the homes experienced water damage, we cannot conclude Lennar’s costs to remove and replace all EIFS on the homes are “damages because of ... property damage.” To the contrary, the evidence reflects that in early 2000, Lennar implemented a plan to remove EIFS and replace it with a traditional stucco on all the homes regardless of whether the EIFS had caused any damage. During the process of replacing the EIFS, Lennar repaired some water damage on at least some of the homes. Nevertheless, the evidence demonstrates Lennar’s intent was to fully remove and replace the EIFS as a preventative measure because it is defective.
Fidelity & Deposit Co. involved the dichotomy between damages resulting from physical injury'to property and costs incurred to prevent physical injury to property. See
The court acknowledged there was physical injury to the project including cracked walls, blocks, joints, floor slabs, and lintels. Id. at 1183. The costs to repair these problems unquestionably constituted covered “property damage.” Id. However, there were other problems which had not resulted in “property damage” but would likely have caused damage in the future. Id. For instance, most of the walls had discontinuous rebar which rendered them susceptible to cracking in the future. Id. The court believed that Fidelity made a good business decision to demolish and rebuild the project due to the potential for extensive damage in the future. Id. at 1180, 1184. However, the court was not persuaded that such a decision would have been necessary to repair only the physically injured property that currently existed. Id. The court held that the proper measure of damages was the amount it would have cost to repair the physically injured property. Id. at 1184. Therefore, Fidelity’s total damages had to be apportioned between its consequential costs to repair physically injured property and its costs to prevent future damage. See id. at 1183-84.
Similarly, here, Lennar arguably made a good business decision to remove and replace all the EIFS to prevent further damage. Nonetheless, considering the summary judgment evidence, we cannot conclude that it was necessary for Lennar to remove and replace all the EIFS in order to repair the water damage, if any, to each home. Therefore, the costs incurred by Lennar to remove and replace EIFS as a preventative measure are not “damages because of ... property damage.” Accordingly, Lennar must appor
C. Overhead Costs, Inspection Costs, Personnel Costs, and Attorneys’ Fees
Lennar also seeks indemnification for various costs it incurred in addressing the EIFS claims, including overhead costs, inspection costs, personnel costs, and attorneys’ fees. Lennar argues that the carriers must indemnify Lennar for these costs under the “insuring agreement” portion of the policy. Lennar cites Missouri Terrazzo Co. v. Iowa Nat’l Mut. Ins. Co., in which the court held that the insured’s liability policy covered a building owner’s claim for diminution in value caused by damaged floors installed by the insured.
Lennar ignores the “legally obligated to pay” language in the “insuring agreement.” The “insuring agreement” provides that the carrier will pay those sums that Lennar “becomes legally obligated to pay as damages because of ... property damage.” (emphasis added). The policies do not include a definition of “legally obligated to pay.” However, giving the phrase its ordinary meaning, it means an obligation imposed by law, such as an obligation to pay pursuant to a judgment, settlement, contract, or statute. See Comsys,
In sum, Lennar’s costs to remove and replace EIFS as a preventative measure and its overhead costs, inspection costs, personnel costs, and attorneys’ fees are not “damages because of ... property damage.” Consequently, the carriers have no duty to indemnify Lennar for these costs. However, Lennar’s costs to repair water damage to the homes are “damages because of ... property damage.” Accordingly, there remains a genuine issue of material fact on the “property damage” issue because Lennar must apportion its damages between covered damages and non-covered damages.
Having resolved the “occurrence” and “property damage” issues common to all the carriers, we will next consider each cross-motion for summary judgment.
VI. Gekling
Gerling is one of Lennar’s primary carriers. Gerling issued a CGL policy, effective June 1, 1997 to June 1, 1999, with a policy limit of $1 million per “occurrence” and a self-insured retention (“SIR”) of $250,000 per “occurrence.”
Lennar moved for summary judgment asserting that the EIFS claims are covered under the Gerling policy because they constitute “property damage” caused by an “occurrence.” We have already concluded that there is no coverage for Lennar’s costs to replace EIFS as a preventative measure. Therefore, because there is no coverage for a portion of Lennar’s costs, the trial court properly denied Lennar’s motion for summary judgment as to Ger-ling. However, we have determined that Lennar’s costs to repair water damage constitute “property damage” caused by an “occurrence.” Therefore, we will consider Gerling’s other summary judgment grounds for defeating coverage. We find one ground dispositive.
In particular, Gerling contends that it has no duty to indemnify Lennar because Lennar cannot satisfy the SIR contained in the policy. The policy provides that its coverage limits apply only in excess of the $250,000 SIR. SIR is defined as “the limit of insurance that the insured agrees to assume responsibility for in attempting settlement and/or in payment of all claims resulting from any ‘occurrence.’ ” In short, Lennar must satisfy a $250,000 “deductible” per “occurrence” before coverage is triggered under the Gerling policy. However, we conclude that the EIFS claim for each home constitutes a separate “occurrence,” and Lennar has not incurred damages exceeding $250,000 for any one home.
A. Sepakate “Occurrences”
Lennar contends that all the EIFS claims constitute one “occurrence.”
For example, in Maurice Pincoffs, the insured imported and then sold contaminated bird seed to eight different dealers.
Here, Lennar contends there was only one “occurrence” because there was only one cause of damage to the EIFS homes— EIFS’s repeated and continuous entrapment of water. We disagree. Examining the number of events resulting in Lennar's liability, we conclude the EIFS claim for each home constitutes a separate “occurrence.” The fact that EIFS is generally a defective product that traps water would not have resulted in Lennar’s liability to each homeowner absent application of EIFS to each home. Lennar was not the designer or the manufacturer of EIFS. Rather, Lennar’s liability stemmed from the fact that it built and sold homes with EIFS. Thus, Lennar’s liability to a particular homeowner stemmed from the application of EIFS, and the resulting damage, if any, to his or her particular home. Further, there was not one entrapment of water that caused damage to all the
Lennar cites several cases from other jurisdictions purporting to show that courts have found only one “occurrence” in similar situations; however, none of these cases applied Texas law.
B. No Damages Exceeding The SIR For Any Home
Because the EIFS claim for each home constitutes a separate “occurrence,” Lennar must satisfy a $250,000 SIR for each home before coverage is triggered under the Gerling policy. However, the summary judgment evidence demonstrates Lennar has not paid damages exceeding $250,000 for any one home. Gerling attached to its motion for summary judgment a chart prepared by Lennar reflecting the costs it has incurred for each
VIL RLI, ICSOP, AND WESTCHESTER
RLI, ICSOP, and Westchester each issued an umbrella liability policy.
Specifically, these excess carriers assert that they have no duty to indemnify Len-nar because Lennar has not exhausted the underlying policy limits. Each excess carrier asserts that the underlying carrier must pay its policy limits before the excess carrier has a duty to indemnify Lennar. According to Lennar, the policies do not require the underlying carrier to pay its policy limits before the excess carrier has a duty to indemnify Lennar; instead, the excess carrier has a duty to indemnify Lennar whether the underlying carrier or Lennar has paid the primary policy limits.
We need not decide whether RLI, ICSOP, or Westchester have a duty to indemnify Lennar as long as either the underlying carrier or Lennar has paid the primary policy limits because we have concluded that the primary policy limits will not be paid by either the underlying carrier or Lennar. Lennar must satisfy a $250,000 SIR per “occurrence” before the amounts of the underlying policy limits are triggered. As we have already determined, the EIFS claim for each home is a separate “occurrence,” and Lennar has not
In fact, Lennar acknowledges in its brief that if each EIFS claim constitutes a separate “occurrence,” Lennar would “be without any insurance except as to [American Dynasty] and Markel.”
VIII. AmeRican Dynasty
American Dynasty is Lennar’s other primary carrier. American Dynasty issued a CGL policy, effective June 1, 1999 to June 1, 2001, with a policy limit of $1 million per “occurrence.” As it did with all carriers, Lennar moved for summary judgment asserting that it established coverage under the American Dynasty policy because the EIFS claims constitute “property damage” caused by an “occurrence.” American Dynasty moved for summary judgment on the following grounds: (A) there is no “occurrence” and no “property damage”; (B) Lennar failed to exhaust the $1 million annual aggregate SIR; (C) certain exclusions preclude coverage; (D) the “known loss” and “loss in progress” doctrines preclude coverage; and (E) Lennar failed to comply with a policy condition.
A. “Occurrence” and “Property Damage”
We have already concluded that there is no coverage for Lennar’s costs to replace EIFS as a preventative measure. Therefore, because there is no coverage for a portion of Lennar’s costs, the trial court properly denied Lennar’s motion for summary judgment as to American Dynasty. However, we have determined that Len-nar’s costs to repair water damage constitute “property damage” caused by an “occurrence.” Therefore, the trial court erred if it granted American Dynasty’s motion for summary judgment on the ground that there was no “occurrence” and no “property damage.” Accordingly, we will consider American Dynasty’s other summary judgment grounds.
B. Satisfaction of SIR
American Dynasty contends it has no duty to indemnify Lennar because Lennar has not satisfied the SIR contained in the policy. The policy includes an SIR of $250,000 per “occurrence” with a $1 million annual aggregate for the SIR. Therefore, to the extent coverage otherwise exists, there is an annual $1 million
C. Exclusions
American Dynasty contends that its exclusions J(5), M, and N preclude coverage for the EIFS claims.
1. Exclusion J(5)
Exclusion J(5) excludes coverage for “property damage” to:
that particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the “property damage” arises out of those operations;
(emphasis added). American Dynasty contends that this exclusion precludes coverage because the “property damage,” if any, arose out of Lennar’s operations. We disagree.
Giving the exclusion its plain meaning, the use of the present tense indicates the exclusion applies only to “property damage” arising while Lennar is currently working on a project. See Main Street Homes,
American Dynasty cites no evidence that the water damage to the homes occurred while Lennar was building the homes. To the contrary, the evidence reflects that the damage began shortly after the homes were completed.
2. Exclusion M
Exclusion M excludes coverage for:
“Property damage” to “impaired property” or property that has not been physically injured, arising out of:
(1) A defect, deficiency, inadequacy or dangerous condition in “your product” or “your work”; or
(2) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms.
American Dynasty contends exclusion M precludes coverage for the replacement of EIFS because the EIFS was not physically injured but was, instead, replaced because it was defective. While exclusion M might arguably apply to the replacement of EIFS, it does not apply to the costs incurred by Lennar to repair physical injury — water damage — to the homes.
3. Exclusion N
Exclusion N, commonly known as the “sistership” exclusion, precludes coverage for:
Damages claimed for any loss, cost or expense incurred by you or others for the loss of use, withdrawal, recall, inspection, repair, replacement, adjustment, removal or disposal of:
(1) “your product”;
(2) “your work”; or
(3) “impaired property”;
if such product, work, or property is withdrawn or recalled from the market or from use by any person or organization because of a known or suspected defect, deficiency, inadequacy or dangerous condition in it.
American Dynasty contends exclusion N precludes coverage for replacement of EIFS because it is inherently defective. While this exclusion might also arguably apply to replacement of EIFS as a preventative measure, it clearly does not apply to Lennar’s costs to repair water damage to the homes. Accordingly, the trial court erred if it granted summary judgment for American Dynasty based on exclusion N.
D. “Known Loss” and “Loss in Progress” Doctrines
American Dynasty also moved for summary judgment on the ground that the “known loss” and “loss in progress” doctrines preclude coverage for the EIFS claims
American Dynasty argues that when Lennar purchased the American Dynasty policy on June 1, 1999,
1. Claims For Which Coverage Precluded
American Dynasty has proved that the “known loss” and “loss in progress” doctrines preclude coverage for some of the EIFS claims as a matter of law. In particular, Lennar knew of the EIFS-re-lated damage to a few homes as of June 1, 1999. Daris Horn testified that beginning in 1995, Lennar had repaired EIFS-relat-ed problems on several homes. Further, Lennar was still working on some of these homes in June 1999. Therefore, Lennar clearly knew of these “losses” when it purchased the American Dynasty policy. See Travis,
Horn also testified that Lennar received additional homeowner “inquiries” in the spring of 1999. The record is not clear on whether Lennar discovered and/or repaired EIFS-related “property damage” to these homes in the spring of 1999 or merely fielded inquiries from these homeowners. To the extent that Lennar had discovered and/or repaired EIFS-related “property damage” to a home, then Len-nar clearly knew of the “loss” when it purchased the American Dynasty policy.
Nonetheless, Lennar asserts that it did not know EIFS was a defective product until September 1999. Regardless, Len-nar knew of some EIFS-related “losses” by June 1, 1999 although it may not have known the underlying cause of the problems or the extent of the problems. Therefore, the “known loss” and “loss in progress” doctrines preclude coverage for homes on which Lennar was aware of damage and/or had made repairs when it purchased the American Dynasty policy.
2. Fact Issue On Remaining Claims
There is a genuine issue of material fact on whether the “known loss” and “loss in progress” doctrines preclude coverage for the remaining EIFS claims. The evidence is conflicting on whether Lennar should have known about the ongoing “property damage,” if any, to these homes as of June 1,1999.
American Dynasty cites evidence to establish that Lennar knew, or should have known, of the magnitude of the EIFS-related problems as of June 1, 1999. As far back as 1995, Lennar had begun repairing EIFS-related damage to a few homes. In 1997, Lennar was named as a defendant in a lawsuit alleging EIFS is a
On the other hand, Lennar presented evidence negating that it should have realized the magnitude of the EIFS-related problems as of June 1, 1999. According to Horn, through the spring of 1999, Lennar had received only a few EIFS complaints. However, Lennar did not suspect an inherent defect in EIFS. Instead, the EIFS manufacturers assured Lennar that any problems were due to installation error.
Taking Lennar’s evidence as true and resolving all doubts in its favor, see Reese,
E. Policy Condition
American Dynasty also moved for summary judgment on the ground that there is no coverage for certain EIFS claims because Lennar violated a policy condition. Specifically, the policy requires Lennar to promptly notify American Dynasty of any claim, suit, or “occurrence” that may result in a claim. Lennar did not notify American Dynasty of any EIFS claims until January 28, 2000. However, by that time, Lennar had already settled some of the claims. Therefore, American Dynasty contends there is no coverage for the claims Lennar settled before notifying American Dynasty.
In response, Lennar contends that American Dynasty failed to prove that it was prejudiced by the lack of notice. Compliance with a notice provision is a condition precedent to coverage under a policy. Struna v. Concord Ins. Servs., Inc.,
American Dynasty asserts that it was prejudiced as a matter of law by Lennar’s settling certain EIFS claims before notifying American Dynasty of the claims. American Dynasty cites C.M.S. v. State Farm Lloyds, in which the court seemed to find prejudice as a matter of law based solely on the fact that the insured settled the suit before notifying the insurer. No. Civ. A. 3:97CV3202H,
Texas law does not presume prejudice from “settlement without consent” or lack of notice. Hanson Prod. Co. v. Americas Ins. Co.,
Instead, American Dynasty has presented no evidence it was prejudiced by the lack of notice. See Comsys,
In sum, because American Dynasty was not entitled to summary judgment on any of the grounds raised in its motion, the trial court erred in granting summary judgment in favor of American Dynasty.
IX. Markel
Markel issued a commercial umbrella liability policy, effective June 1, 1999 to June 1, 2001 with a policy limit of $25,000,000 per “occurrence.” The Markel policy is excess to the American Dynasty policy.
As it did with all the carriers, Lennar moved for summary judgment asserting there is coverage under the Markel policy because the EIFS claims constitute “property damage” caused by an “occurrence.” Markel asserted several summary judgment grounds: (A) there is no “occurrence” and no “property damage”; (B) several exclusions preclude coverage; (C) the “known loss” and “loss in progress” doctrines preclude coverage; (D) Lennar failed to comply with certain policy conditions; and (E) the EIFS claim for each home constitutes a separate “occurrence,” the underlying SIR has not been exhausted, and/or the underlying policy limits have not been exhausted.
A. “Occurrence” and “Property Damage”
We have already concluded that there is no coverage for Lennar’s costs to replace EIFS as a preventative measure. Therefore, because there is no coverage for a portion of Lennar’s costs, the trial court properly denied Lennar’s motion for summary judgment as to Markel. However, we have determined that Lennar’s costs to repair water damage constitute “property damage” caused by an “occurrence.” Therefore, the trial court erred if it granted Markel’s motion for summary judgment on the ground that there was no “occurrence” and no “property damage.” Accordingly, we will consider Markel’s other grounds for defeating coverage.
B. Exclusions
Markel contends that its Endorsement 2, Exclusion B(2), Exclusion B(10), and Exclusion B(6)(e) preclude coverage for the EIFS claims.
1. Endorsement 2
Considering the plain meaning of Endorsement 2, it applies only to damage arising while the property is occupied, used, or owned by Lennar. This exclusion has been interpreted to preclude coverage for damage limited exclusively to the insured’s property. See Am. States Ins. Co. v. Hanson Indus.,
Nonetheless, Markel refers us to another exclusion, B(6)(a), in its policy. Although Markel does not rely on Exclusion B(6)(a) to defeat coverage, Markel urges that exclusion B(6)(a) supports its interpretation of Endorsement 2. Exclusion B(6)(a) excludes coverage for damage to “property you own, rent, or occupy.” According to Markel, because Exclusion B(6)(a) is in the present tense, then Endorsement 2 must refer to the past tense. Specifically, Markel stresses that the words “leased, occupied, or owned” in Endorsement 2 refer to the past tense; thus, Endorsement 2 applies to damage to property that was ever occupied, used, or owned by Lennar.
Despite Exclusion B(6)(a), we read Endorsement 2 in the present tense. Clearly, the words “occupied by, used by, or owned by,” instead of “occupy, use, or own,” are included because Endorsement 2 is in the passive voice—not because Endorsement 2 refers to the past tense. Further, Endorsement 2 is entitled “Care, Custody, and Control Exclusion.” This title indicates Endorsement 2 excludes coverage for damage arising while the property is in Lennar’s “care, custody, and control”—not damage to property that was ever in Len-nar’s “care, custody, and control.”
Finally, Markel cites two cases in which courts held that coverage was precluded by the “owned or leased property” exclusions although the insureds no longer owned or leased the property. See Dryden Oil Co. of New England, Inc. v. Travelers Indem. Co.,
2. Exclusion B(2)
With certain exceptions, Exclusion B(2) excludes coverage for “ ‘property damage’ for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement.” Markel contends Lennar’s voluntary agreements to repair the EIFS homes constitute contracts under which Lennar
Exclusion B(2) precludes coverage when the insured contractually assumes liability for the conduct of a third party such as through an indemnity or hold harmless agreement. See Federated Mut. Ins. Co. v. Grapevine Excavation, Inc.,
3. Exclusion B(10)
Exclusion B(10) is Markel’s “sis-tership” exclusion. It is virtually identical to American Dynasty’s sistership exclusion. We have already concluded that the sistership exclusion does not apply to Len-nar’s costs to repair water damage. Accordingly, the trial court erred if it granted summary judgment for Markel based on Exclusion B(10).
4. Exclusion B(6)(e)
Markel’s Exclusion B(6)(e) is virtually identical to American Dynasty’s exclusion J(5). Exclusion B(6)(e) precludes coverage for “property damage” to “[t]hat particular part of real property on which you or a contractor or subcontractor working directly or indirectly for you are performing operations, if the ‘property damage’ is due to those operations.” We have already rejected application of this exclusion. Accordingly, the trial court erred if it granted summary judgment for Markel based on Exclusion B(6)(e).
C. “Known Loss” and “Loss in Progress” Doctrines
Markel also contends that the “known loss” and “loss in progress” doctrines preclude coverage for the EIFS claims. Our analysis is similar to the “known loss” and “loss in progress” analysis under the American Dynasty policy. However, we evaluate Markel’s “known loss” and “loss in progress” defenses using a different date because MarkeFs policy was purchased on July 21, 1999—almost two months after the American Dynasty policy.
1. Claims For Which Coverage Precluded
Markel has proved that the “known loss” and “loss in progress” doctrines preclude coverage for some of the EIFS
Further, Horn’s testimony established that Lennar had received further “inquiries” by July 21, 1999. Again, it is not clear whether Lennar had discovered and/or repaired EIFS-related “property damage” to some or all of these homes by July 21, 1999 or merely fielded inquiries from these homeowners. To the extent that Lennar had discovered and/or repaired EIFS-related “property damage” to a home by July 21, 1999, then Lennar clearly knew of the “loss” when it purchased the Markel policy. Therefore, the “known loss” and “loss in progress” doctrines preclude coverage for homes on which Lennar was aware of and/or had repaired EIFS-related “property damage” when it purchased the Markel policy.
2. Fact Issue On The Remaining Claims
There is a genuine issue of material fact on whether the “known loss” and “loss in progress” doctrines preclude coverage for the remainder of the EIFS claims. The evidence is conflicting on whether Lennar should have known of the ongoing “property damage,” if any, to these homes as of July 21, 1999. Markel cites the same evidence cited by American Dynasty to argue that Lennar should have known of the magnitude of the EIFS-relat-ed problems by July 21, 1999. However, Markel cites some additional evidence because its policy was purchased later.
In particular, by July 21, 1999, Horn and other Lennar employees had actually attended the EIFS remediation seminar for which they were previously approved. Further, by July 21, 1999, Lennar had formulated a plan to address EIFS complaints. In addition, Lennar spent the summer of 1999 responding to EIFS claims, so presumably Lennar was becoming increasingly aware of EIFS’s potential to cause damage by July 21, 1999. This evidence strongly suggests Lennar should have realized the magnitude of the EIFS problems by that date.
On the other hand, Lennar presented evidence negating that it should have realized the magnitude of the EIFS problems by July 12, 1999. Although Lennar had formulated a plan to address EIFS complaints by that date, the plan was to address the complaints on an individual basis as they were received. Thus, this plan raises the inference that Lennar had not yet decided that all EIFS homes had experienced damage and must be addressed regardless of whether the homeowner made a complaint. Again, Lennar averred that it did not know until September 1999 that EIFS was defective and would likely damage hundreds of homes.
Taking Lennar’s evidence as true and resolving all doubts in its favor, there is a genuine issue of material fact on whether Lennar should have known when it purchased the Markel policy that EIFS had
D. Policy Conditions
Markel further contends that coverage for the EIFS claims is precluded because Lennar violated condition E of the policy. Condition E provides that Lennar must notify Markel of any claim, suit, or occurrence that may result in a claim or suit. Condition E also provides that Len-nar shall not, except at its own cost, voluntarily make any payment, assume any obligation, or incur any expense without Markel’s consent. Markel contends that Lennar violated these conditions by failing to timely give Markel notice of the EIFS claims and by voluntarily settling the claims without Markel’s consent.
With respect to Lennar’s late notice, Markel offered only one reason that it was prejudiced in its motion for summary judgment: “Lennar’s inability to parse its damages any finer than rough allocations for inspection and repair, and accompanying administrative and legal costs.” Markel does not elaborate on how this difficulty constitutes prejudice. Nonetheless, we cannot conclude that any difficulty Lennar may have in proving the exact amount of various components of its costs has prejudiced Markel as a matter of law. At the least, whether any such difficulty has prejudiced Markel is a question of fact. With respect to Lennar’s settlement without consent, Markel presented no evidence that it was prejudiced in its motion for summary judgment. Accordingly, the trial court erred if it granted summary judgment for Markel based on Lennar’s violation of policy conditions.
E. SEPARATE Occurrences/Exhaustion of Underlying SIR or Policy Limits
Finally, Markel asserts it was entitled to summary judgment because each home constitutes a separate “occurrence,” Len-nar has not exhausted the underlying SIR, and/or Lennar has not exhausted the underlying policy limits. Markel’s argument is unclear because it makes several different arguments in its brief and motion for summary judgment.
In its brief, Markel adopts Gerling’s argument that each home is a separate “occurrence,” and “There Is No Coverage Because All Of The Settlements Are Within The Policy’s [SIR] Of $250,000 Per Occurrence.” However, Markel’s policy is excess to the American Dynasty policy— not the Gerling policy. Therefore, Mark-el’s argument that none of the settlements exceeds the Gerling $250,000 SIR is inapplicable.
Further, Markel’s argument in its brief is different than the grounds raised in its motion for summary judgment. When outlining its summary judgment grounds at the beginning of its motion, Markel acknowledges that the underlying policy is the American Dynasty policy.
Finally, in the body of its summary judgment motion, Markel seems to make a different argument. Instead of referring to the American Dynasty SIR, Markel asserts that the underlying American Dynasty policy limits have not been exhausted, and, thus, the Markel policy has not been triggered. Again, it is premature to determine whether Lennar has exhausted the American Dynasty policy limits, and thus, whether Lennar will trigger the Markel policy.
In sum, because Markel was not entitled to summary judgment on any of the grounds raised in its motion, the trial court erred by granting summary judgment in favor of Markel.
X. American Dynasty’s Motion for Summary Judgment On Lennar’s Extra-Contractual Claims
In a separate motion, American Dynasty moved for summary judgment on Lennar’s extra-contractual claims. Lennar pleaded three extra-contractual claims: (A) common-law negligent misrepresentation; (B) violations of former article 21.21 of the Texas Insurance Code; and (C) violations of former article 21.55 of the Texas Insurance Code.
A. Common-Law Negligent Misrepresentation
The elements of a negligent misrepresentation claim are as follows: (1) the defendant made a representation in the course of its business, or in a transaction in which it had a pecuniary interest; (2) the defendant supplied false information for the guidance of others in their business; (3) the defendant did not exercise reasonable care or competence in obtaining or communicating the information; and (4) the plaintiff suffered pecuniary loss by justifiably relying on the representation. Roof Sys., Inc. v. Johns Manville Corp.,
American Dynasty moved for summary judgment on no-evidence grounds as to Lennar’s negligent misrepresentation claim. In response, Lennar alleged that American Dynasty made (1) misrepresen
1. Misrepresentations During Underwriting Process
Lennar alleges that American Dynasty made misrepresentations during the underwriting process by failing to inform Lennar that it did not intend to insure Lennar for EIFS claims. Lennar cites two letters written by Karen Ral-ston, the American Dynasty underwriter for the Lennar policy. During the underwriting process, Ralston communicated with Mary Pulley, an employee of the “wholesale broker.” Pulley, in turn, communicated with the “retail broker.” Therefore, the “retail broker” communicated with Lennar. Ralston sent a “quotation letter” and a “binder letter” to Pulley. In the letters, Ralston did not affirmatively state that American Dynasty would insure EIFS claims. However, Ralston did not state that American Dynasty would not insure EIFS claims. Lennar argues that Ralston’s failure to state that EIFS claims would not be covered was, in effect, a misrepresentation that EIFS claims would be covered. We disagree.
The letters do not constitute misrepresentations by omission. In the letters, Ralston outlined the conditions under which American Dynasty would bind the policy. Lennar emphasizes that none of these conditions mention EIFS. However, Ralston did not purport to set forth the conditions under which claims would be covered once the policy was issued. Rather, Ralston set forth five conditions under which American Dynasty would bind the policy in the first place.
Lennar also asserts that American Dynasty’s failure to include an EIFS exclusion in the policy amounted to a misrepresentation that EIFS claims would be covered. However, as we have discussed, American Dynasty relies on several portions of the policy to dispute coverage even though the policy does not contain an EIFS exclusion. Therefore, the absence of an EIFS exclusion is not a representation that the policy would cover EIFS claims. Accordingly, Lennar has failed to present any evidence of misrepresentations during the underwriting process.
2. Misrepresentations Concerning Termination and Rescission
Lennar also contends that American Dynasty made misrepresentations concerning its reasons for terminating, and seeking to rescind, the policy. Ralston first learned on March 10, 2000 that Len-nar was requesting coverage for EIFS claims. Three days later, American Dynasty decided to terminate the policy. On May 12, 2000, Ralston wrote to Lennar explaining American Dynasty’s reasons for terminating the policy:
During the underwriting process ..., Lennar Corp. represented that it had not used [EIFS] in its home building projects and had no plans for use of EIFS in future projects.... Subsequent*698 to the issuance of the subject policy, American Dynasty learned that Lennar Corp. was, in fact, using EIFS applications in one or more of its Texas projects. If true facts had been disclosed to American Dynasty During [sic] the underwriting process, American Dynasty would not have issued the policy, would not have issued the policy at the same premium rate, and/or would not have provided coverage with respect to EIFS applications. For these reasons, the subject policy was canceled.... Moreover, because American Dynasty learned subsequent to the issuance of the policy that Lennar Corp.’s representation concerning past and future used [sic] of EIFS appellations was untrue, the risk covered by the policy has substantially changed. This substantial change in risk constituted a separate reason for cancellation.
The termination was prospective only. However, an American Dynasty claims representative subsequently decided to seek rescission of the policy ab initio for the same reasons. American Dynasty filed suit against Lennar in Florida seeking to rescind the policy. In the petition, American Dynasty alleged “Lennar Corp., through its insurance broker, represented to American Dynasty in April 1999 that Lennar Corp. and its affiliates and subsidiaries had never used [EIFS] in its home-building projects. (That representation proved to be false).”
In short, when terminating, and seeking to rescind, the policy, American Dynasty accused Lennar of making untrue statements regarding its use of EIFS. Lennar contends that American Dynasty’s accusations were misrepresentations because Lennar did not make such statements. Lennar presented more than a scintilla of evidence that it did not make such statements, at least with respect to all Lennar entities at issue.
In spite of this fact issue, Lennar still cannot prevail on this claim because it presented no evidence that it suffered any pecuniary loss by relying on American Dynasty’s representations as required to sustain a cause of action for common-law negligent misrepresentation.
B. Texas INSURANCE Code Article 21.21
Lennar has asserted a cause of action under former article 21.21 of the Texas Insurance Code.
1. Misrepresentations During the Underwriting Process (Sections 4(1), 4(11), 17.46(b)(5) and 17.46(b)(12))
Apparently, Lennar cites American Dynasty’s alleged misrepresentations during the underwriting process to support its claims under sections 4(1) and 4(11) of article 21.21 and sections 17.46(b)(5) and 17.46(b)(12) of the DTPA, as incorporated in article 21.21. All of these sections prohibit some type of a misrepresentation regarding the policy or its provisions. See Tex. Ins.Code Ann. art. 21.21, § 4(1) (“misrepresenting the terms of any policy issued or to be issued or the benefits or advantages promised thereby”); Tex. Ins. Code Ann. art. 21.21, § 4(11) (“[mjisrepre-senting an insurance policy”); Tex. Bus. & Com.Code Ann. § 17.46(b)(5) (representing goods or services have “characteristics” or “benefits” which they do not have); Tex. Bus. & Com.Code Ann. § 17.46(b)(12) (“representing that an agreement confers or involves rights, remedies, or obligations which it does not have or involve”).
Lennar has presented no evidence American Dynasty made any misrepresentations regarding the policy or its provisions. Specifically, we have already determined that American Dynasty did not make any misrepresentations during the underwriting process by failing to inform Lennar that the policy would not cover EIFS claims. In the absence of some specific misrepresentation by the insurer about the insurance, an insured’s mistaken belief about the scope or availability of coverage is not generally actionable under the Insurance Code or the DTPA. Moore v. Whitney-Vaky Ins. Agency,
Therefore, Lennar has presented no evidence to support its claims under sections
2. Misrepresentations Concerning Termination and Rescission (Section 4(10)0))
Lennar also contends that American Dynasty’s alleged misrepresentations concerning its reasons for terminating, and seeking to rescind, the policy violated section 4(10) of article 21.21. Section 4(10) prohibits “unfair settlement practices with respect to a claim by an insured” and enumerates the actions which constitute “unfair settlement practices.” Tex. Ins. Code Ann. art. 21.21, § 4(10). Apparently, Lennar cites American Dynasty’s alleged misrepresentations to support its claim under section 4(10)(i). Section 4(10)(i) prohibits an insurer from “misrepresenting to a claimant a material fact or policy provision relating to coverage at issue.” Id. § 4(10)®.
However, American Dynasty’s representations did not concern coverage for the EIFS claims. Rather, the representations concerned American Dynasty’s reasons for terminating, and seeking to rescind, the policy in general. We do not read section 4(10)(i) as encompassing misrepresentations concerning termination, or rescission, of a policy in general. See id. Further, even if section 4(10)(i) did encompass American Dynasty’s representations concerning termination and rescission, again, Lennar presented no evidence that it suffered any damages as a result of the representations.
3. Termination and Attempted Rescission (Section 4(10)(viii))
Lennar apparently complains of the actual termination and attempted rescission to support a claim under section 4(10)(viii). Section 4(10)(viii) prohibits an insurer from “refusing to pay a claim without conducting a reasonable investigation with respect to the claim.” Tex. Ins.Code Ann. art. 21.21, § 4(10)(viii). Lennar argues that American Dynasty did not reasonably investigate whether Lennar actually made untrue statements regarding its use of EIFS before deciding to terminate and rescind the policy.
However, section 4(10)(viii) focuses on an insurer’s refusal to pay a particular claim without conducting a reasonable investigation. See id. Section 4(10)(viii) does not prohibit, or even mention, an insurer’s terminating, or rescinding, a policy without conducting a reasonable investigation. See id. Nevertheless, Lennar cites Union Bankers Insurance Co. v. Shelton, in which the Texas Supreme Court held that an insured has a bad faith cause of action when an insurer cancels a policy without a reasonable basis, and the
While wrongful termination may be actionable in common-law bad faith, article 21.21, section 4 is an exclusive list of statutory “unfair or deceptive acts or practices” actionable under article 21.21. See Tex. Ins.Code Ann. art. 21.21, §§ 4, 16; Tri-Legends Corp. v. Ticor Title Ins. Co. of California,
C. Texas INSURANCE Code Article 21.55
Finally, American Dynasty moved for summary judgment on traditional grounds as to Lennar’s cause of action under former article 21.55 of the Texas Insurance Code.
Lennar asserts that American Dynasty’s failure to timely indemnify Lennar for the EIFS claims violated article 21.55. American Dynasty contends that Lennar has no article 21.55 cause of action as a matter of law because the EIFS claims are third-party claims- — not first-party claims.
Article 21.55 does not define “first party claim.” See id. § 1. However, several courts have recognized that a first-party claim is one in which an insured seeks recovery for the insured’s own loss. See Hartman v. St. Paul Fire and Marine Ins. Co.,
In contrast, a third-party claim is one in which an insured seeks coverage for injuries to a third party. See Hartman,
American Dynasty argues that based on these definitions, claims under a liability policy are third-party claims — not first party claims. In response, Lennar notes that several courts have held that a claim under a liability policy may be a first-party claim. However, these cases involve an insured’s request for a defense under a liability policy. See, e.g., Rx.Com, Inc. v. Hartford Fire Ins. Co.,
We conclude that even if a request for a defense can be a first-party claim for purposes of article 21.55, Lennar’s request for indemnification for the EIFS claims is a third-party claim. Courts holding that a request for a defense is a first-party claim recognize that the insured is seeking defense costs, which are paid either to, or for the benefit of, the insured. See Rx.Com, Inc.,
In contrast, Lennar’s article 21.55 claim is based on a request for indemnification— not a request for a defense. Lennar does not seek payment for direct losses that it
Nonetheless, Lennar characterizes its request for indemnification as a first-party claim because the policy proceeds will be paid directly to Lennar. Lennar suggests that article 21.55 defines a first-party claim as one in which the proceeds will be paid directly to the insured. However, Lennar incorrectly reads article 21.55. Article 21.55 has two separate requirements for its application: the claim is a first party claim and the policy proceeds ai’e paid directly to the insured. See Tex. Ins.Code Ann. art. 21.55, § 1(8).
If coverage exists under the American Dynasty policy, the proceeds will be paid to Lennar only because it settled the EIFS claims before seeking indemnification from American Dynasty. American Dynasty will still, in effect, be paying for direct losses suffered by third-parties. Therefore, we reject Lennar’s reasoning that the EIFS claims were transformed from third-party claims into first-party claims merely by Lennar’s paying the claims before seeking indemnification from American Dynasty. Consequently, the trial court properly granted summary judgment on Lennar’s article 21.55 claim.
In sum, the trial court properly granted summary judgment in favor of American Dynasty on all Lennar’s extra-contractual claims.
XI. Conclusion
We overrule Lennar’s first issue and affirm the denial of Lennar’s motion for summary judgment as to all carriers.
We sustain, in part, and overrule, in part, Lennar’s second issue. Specifically, we affirm the summary judgments in favor of Gerling, RLI, ICSOP, and Westchester. We reverse the summary judgment in favor of American Dynasty/Great American on coverage issues and remand for further proceedings consistent with this opinion. We reverse the summary judgment in favor of Markel and remand for further proceedings consistent with this opinion.
We overrule Lennar’s third issue and affirm the summary judgment in favor of American Dynasty/Great American on Lennar’s extra-contractual claims.
EDELMAN, J., concurs and dissents with opinion.
Notes
. Lennar Corporation is the parent of many entities. The homes were initially built by Lennar subsidiaries, Village Builders, Inc. or Houston Village Builders, Inc., which eventually merged into Lennar Homes of Texas Land & Construction, Limited, one of the parties to this case. Lennar Homes of Texas Land & Construction, Limited continued building the homes under the names "Village Builders” or "Houston Village Builders, Inc.” Upon completion of a home, Lennar Homes of Texas Land & Construction, Limited transferred title to Lennar Homes of Texas Sales and Marketing, Limited, also a party to this case, which, in turn, transferred title to the homeowners. We will refer to the Lennar entities collectively as "Lennar.”
. Great American is an affiliate of American Dynasty although not a separate insurer of Lennar, so we will refer to these carriers collectively as "American Dynasty.”
. Of the approximately 400 homes involved, only two homeowners filed suit against Len-nar.
. Although Lennar replaced EIFS on most homes without suit being filed, for consistency, we will refer to the “EIFS claims.” We note that Lennar paid cash settlements to a few homeowners; however, in most cases, Lennar paid contractors to replace EIFS and/or make repairs. Nonetheless, we will also refer to Lennar’s resolution of all the claims as "settlements.”
.American Dynasty and Markel also filed counterclaims to rescind their policies alleging Lennar misrepresented that it did not use EIFS and failed to disclose the EIFS claims when it purchased the policies. Lennar, American Dynasty, and Markel moved for summary judgment on the rescission counterclaims. The trial court denied these motions for summary judgment and severed the rescission counterclaims into a separate action pending this appeal.
. Because the trial court resolved Lennar's request for a declaratory judgment via summary judgments, we also review denial of the request for declaratory judgment under summary judgment standards. See Lidawi v. Progressive County Mut. Ins. Co.,
. Lennar filed a traditional motion for summary judgment. The carriers’ motions contained both traditional and no evidence grounds. When we address the individual motions, we will note when a ground is a no-evidence ground.
. The wordings of the insuring agreements vary slightly, but they are essentially the same.
. We note that one carrier, American Dynasty, argues that Florida law applies to the "occurrence” issue under its policy. American Dynasty does not urge application of Florida law to any other coverage issues. Lennar has presented a separate issue, its fourth issue, contending that Texas law applies. We must make a conflicts-of-laws decision only when the laws of the states in question differ on one or more points in issue. Greenberg Traurig of New York, P.C. v. Moody,
. We will discuss the carriers' arguments together because they are interrelated; in essence, the carriers argue that defective construction resulting in damage to the insured’s own work is not an “occurrence.” Apparently, the carriers acknowledge that defective construction can constitute an "occurrence” when it results in damage to the work of a third-party. See generally Federated Mut. Ins. Co. v. Grapevine Excavation, Inc.,
. We have found numerous cases and articles showing there is also a conflict nationwide on this issue. Compare, e.g., Clifford J. Shapiro, Point/Counterpoint: Inadvertent Construction Defects Are An “Occurrence” Under CGL Policies, 22-SPG-Constr. Law. 13 (2002), with Linda B. Foster, Point/Counterpoint: No Coverage under the CGL Policy for Standard Construction Defect Claims, 22-SPG-Constr. Law. 18 (2002).
. However, the First Court of Appeals, which decided Hartrick, recently found that unintentionally defective construction may constitute an "occurrence.” See Archon Invs., Inc. v. Great Am. Lloyds Ins. Co.,
. In Jim Johnson Homes, the insured’s actions could arguably be characterized as intentional, and, thus, not accidental, because the insured failed to follow plans and specifications in many respects. See
. Several other courts applying Texas law have found that defective construction resulting in damage to the insured’s work does not constitute an "occurrence.” See, e.g., Courtland Custom Homes, Inc. v. Mid-Continent Cas. Co.,
. The carriers attempt to distinguish Len-nar’s cases arguing they involved the duty to defend when the claimant’s allegation was negligence, whereas this case involves the duty to indemnify when the only basis for Lennar's liability is breach of contract: See Cowan,
. Several other courts applying Texas law have held that defective construction resulting in damage to the insured’s work can constitute an "occurrence.” See, e.g., Ins. Co. of N. Am. v. McCarthy Bros. Co.,
. In American Girl, the insured contractor's faulty building site preparation, based on faulty advice from a subcontractor, caused the foundation to sink resulting in extensive damage.
. Nonetheless, some courts suggest that damage to the insured’s own work from failure to properly perform a construction contract is presumed to be expected while damage to the work or property of a third-party is presumed to be unexpected. See, e.g., Burlington Ins. Co. v. Oceanic Design & Constr., Inc.,
. With certain exceptions, the "products-completed operations hazard” includes all " ‘property damage’ occurring away from premises you own or rent and arising out of 'your product' or 'your work’.... ”
. As we will further discuss, this exclusion now contains a subcontractor exception that has modified the exclusion.
. One such exclusion precludes coverage for “property damage” to “that particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the property damage arises out of those operations.” Another exclusion precludes coverage for "that particular part of any property that must be restored, repaired, or replaced because ‘your work' was incorrectly performed on it” if the "property damage” is not included in the "products-completed operations hazard.”
. In Jim Johnson Homes, the court found that the exclusions applicable to deficiencies arising during construction would preclude coverage because the project was not completed; however, the court had already concluded there was no occurrence. See
. The exclusions for damage arising during construction do not contain a subcontractor exception.
. Here, all the policies, except the ICSOP policy, contain the standard "business risk” exclusions, including the "your work” exclusion and its subcontractor exception. The ICSOP contains the BFPD, and, thus, effectively includes a subcontractor exception to the "your work” exclusion. See Mid-United Contractors,
. See also, e.g., Limbach Co., LLC v. Zurich Am. Ins. Co.,
. We recognize that some jurisdictions have held the opposite, reasoning that an exception to an exclusion cannot create coverage where none otherwise exists under the initial "insuring agreement.” See, e.g., ACS Constr. Co. v. CGU,
. The subcontractor exception restores coverage only for property damage arising after the project is completed because only the “your work” exclusion contains the subcontractor exception, and the "your work” exclusion applies to the “products completed operations hazard.”
. For example, we would likely agree with the result in Jim Johnson Homes based on its recited facts although we disagree with the court’s suggestion that no damage arising from defective construction can result from an occurrence. There, the claimants sought rescission of the contract and return of various amounts paid before construction was complete based on the insured contractor’s abandonment of the project and failure to build according to the contract. See Jim Johnson Homes,
. We must note that we question whether the rationale for adding the subcontractor exception applies here. The rationale is that the contractor can control its own performance but cannot necessarily control a subcontractor's performance. See Fireguard Sprinkler Systems, Inc. v. Scottsdale Ins. Co.,
. We decline to guess how Florida law would resolve the issue to determine whether its law conflicts with Texas law. Resolution of the issue under Florida law is appropriately left to its own courts.
. "Property damage” is also defined as "[l]oss of use of tangible property that is not physically injured.” Apparently, none of the homeowners claimed "loss of use” due to EIFS.
.American Dynasty moved for summary judgment on these overhead costs, inspection costs, personnel costs, and attorneys' fees, as a separate ground. RLI and Markel also mention in their motions for summary judgment that there is no coverage for these costs. However, we view the issue of coverage for these costs as encompassed in the “property damage” issue raised by Lennar and all carriers because Lennar claims these costs are "damages because of ... property damage,” for which it is entitled to indemnification.
. Lennar presented evidence that it incurred other costs to repair the water damage in addition to the costs to actually repair the damaged areas. For example, on some homes, windows were broken, driveways were cracked, and landscaping was damaged to repair the water damage. We characterize these costs as “damages because of ... property damage." Further, in some cases, Len-nar may have removed some EIFS to access and repair underlying water damage or determine the areas of underlying damage. We characterize these costs to remove EIFS solely to repair underlying water damage as "damages because of ... property damage.”
. Daris Horn averred by affidavit that “all homes at issue in this case” had wood rot and/or substrate damage. Horn also testified in her deposition that every home had some damage to either sheathing, insulation, or framing. Therefore, this evidence suggests there was "physical injury” to every home. However, at another point, Horn testified that Lennar measured damage by the moisture level in the walls. This testimony raises the question of whether every home suffered water damage or whether some homes merely accumulated moisture which could potentially cause damage. In any event, Lennar established that at least some homes sustained water damage.
.Greg Eby, a Lennar superintendent involved in replacing EIFS and repairing water damage to the homes, testified it is the “substrate and beyond,” not the EIFS itself, that is damaged. Donald Klein, president of one of the Lennar entities, testified the "actual rotting of the wood or growing of the mold” is the "property damage.”
. Until early 2000, when Lennar decided to replace all EIFS, Lennar addressed the homes on an individual basis. The evidence is somewhat unclear as to the work performed on these homes. Horn testified Len-nar made "repairs” on a few homes to areas where testing revealed high moisture content. Although Horn characterized this work as "repairs,” her testimony reflects some of these "repairs” may have actually been replacement of EIFS as a preventative measure because the high moisture content might damage the homes. However, Horn also indicated Lennar repaired water damage on some homes and in some cases, removed EIFS to repair the damage. In any event, Lennar must also apportion its costs incurred before early 2000 between its costs to repair water damage and its costs to replace EIFS as a preventative measure.
. In their motions for summary judgment, several carriers argued that Lennar was not "legally obligated to pay” the EIFS claims because it settled them voluntarily without suits being filed. According to Lennar, the Residential Construction Liability Act ("RCLA”) legally obligated Lennar to cure construction defects without suits being filed. See generally Tex. Prop.Code Ann. §§ 27.001-.007 (Vernon 2000 & Supp.2005). On appeal, the carriers no longer argue that Lennar was not legally obligated to pay the EIFS claims. Nonetheless, even if Lennar was legally obli
. Lennar asserts that Maurice Pincoffs is a “faulty batch” case whereas in defective design cases, courts have found one "occurrence.” However, Maurice Pincoffs did not limit its ruling to "faulty batch” cases, see generally,
. See, e.g., Chemstar, Inc. v. Liberty Mut. Ins. Co.,
. Apparently, the chart filed by Lennar was updated to include a few additional homes not included on the chart filed by Gerling.
. RLI’s policy, effective August 1, 1998 to June 1, 1999, has a policy limit of $25,000,000 per “occurrence” and is excess to the Gerling policy. ICSOP’s policy, effective June 1, 1997 to August 1, 1998, has a policy limit of $20,000,000 per "occurrence” and is excess to the Gerling policy. West-Chester’s policy, effective June 1, 1995 to June 1, 1996, has a policy limit of $5,000,000 per "occurrence." Unlike the RLI and ICSOP policies, the Westchester policy is not excess to the Gerling policy because the Westchester policy period precedes the Gerling policy period. However, the primary policy underlying the Westchester policy also had limits of $1 million per "occurrence" and a $250,000 SIR.
. As we will later discuss, our conclusion that each home constitutes a separate occurrence is not dispositive of coverage under the American Dynasty and Markel policies because the American Dynasty policy contains an aggregate SIR, and the Markel policy is excess to the American Dynasty policy.
. We note that Westchester’s exhaustion ground is "no evidence,” while RLI and IC-SOP's exhaustion grounds are traditional. Regardless, the result is the same. With respect to the traditional motions, the summary judgment evidence shows, and Lennar effectively concedes, neither Lennar nor Gerling will exhaust the underlying policy limits. With respect to the no-evidence motion, Lennar has presented no evidence that it or Gerling will exhaust the underling policy limits, and, again, effectively concedes they cannot be exhausted.
, American Dynasty also asserts that each home constitutes a separate "occurrence.” However, our conclusion that each home constitutes a separate "occurrence" does not defeat coverage under the American Dynasty policy because there is an annual $1 million limit on the amount Lennar must pay before coverage is triggered. Accordingly, the fact that Lennar has not incurred damages exceeding $250,000 for any one home does not necessarily preclude coverage under the American Dynasty policy.
. Donald Klein testified that EIFS-related property damage begins within "a couple of months” after a home is completed. Mark Williams, an architect familiar with EIFS, averred by affidavit that in the Houston climate, EIFS-related property damage is likely to begin shortly after construction.
. Exclusion M also applies to “property damage” to "impaired property.” However, "impaired property” is defined as "tangible” property other than "your work” that cannot be used because it incorporates “your work.” Here, the homes are Lennar’s work; thus, the homes are not "impaired property.”
. Only American Dynasty and Markel raised the "known loss” and "loss in progress” doctrines because their policy periods are last in line chronologically.
. The letter binding the American Dynasty policy was issued May 28, 1999. The policy was effective June 1, 1999. Because the time between issuance and the effective date is negligible, we will refer to June 1, 1999 as the "purchase” date.
. On remand, it can be determinated which specific homes fall into this category.
. The evidence is unclear on the number of inquiries. At one point, Horn testified Lennar had received twelve to fourteen inquiries as of June 1999. At another point, she suggested Lennar had received thirty to forty inquiries by that time. Regardless, Lennar received a number of inquiries in a short time period.
. In 1996, Lennar had learned of a class action in North Carolina against certain EIFS manufacturers. When Lennar inquired about this suit, it was told the problems were unique to North Carolina and caused by applicator error.
. Ultimately, Lennar decided to contact all homeowners and voluntarily replace EIFS.
. Further, that fact that Lennar did not stop using EIFS until late 1999 is evidence that Lennar did not know on June 1, 1999 that
. The Hernandez court originally imposed the prejudice requirement with respect to enforcing a "settlement-without-consent" clause in an uninsured/underinsured motorist policy. See
. Although the Markel policy was not issued until July 21, 1999, it was effective June 1, 1999. Nonetheless, we will consider July 21, 1999 as the purchase date for purposes of the "known loss” and "loss in progress” doctrines. See Burch,
. Again, it can be determined on remand which homes fall into this category.
. Markel also points to Lennar’s privilege logs on which Lennar listed several reports, letters, and memoranda demonstrating that Lennar was internally communicating about EIFS homes before July 21, 1999. However, without knowing the contents of these communications, we cannot conclude they prove Markets "known loss” and "loss in progress” defenses.
. Lennar did not notify Markel of the EIFS claims until January 28, 2000. It is undisputed that Lennar had settled some of the claims by this date. Further, it is undisputed that Markel did not consent to any of the EIFS settlements.
. American Dynasty also asserts that Florida law applies to Lennar's extra-contractual claims. However, American Dynasty has not met its burden to show that Florida law differs from Texas law on all Lennar's extra-contractual claims. See Weatherly,
. Ralston stated that binding the policy was subject to American Dynasty's receipt of (1) a completed application, (2) Lennar's financial data, (3) a letter from Lennar confirming an approved claims service, (4) “currently valued loss data”, and (5) a schedule of all named insureds to be covered.
. The Florida suit was abated due to this Texas suit; American Dynasty’s rescission counterclaim is still pending in this suit because the trial court severed it.
. According to Ralston, before binding the policy, she specifically asked Pulley whether Lennar used EIFS, and Pulley responded that Lennar did not use EIFS. However, Pulley averred by affidavit that she had no recollection of Ralston asking her whether Lennar used EIFS. Nonetheless, even if they did discuss EIFS, Ralston did not know whether Pulley had spoken with Lennar concerning EIFS exposure; Ralston assumed that Pulley had spoken with the “retail broker." Ralston could not identify what untrue statements Lennar made regarding its use of EIFS, but "there somewhere was a misrepresentation." Further, according to Ralston, most of the time, she and Pulley spoke about "Lennar Corporation” only, as opposed to Lennar's subsidiaries. Ralston also decided Lennar made untrue statements regarding its use of EIFS based on an “Underwriting Risk Analysis” performed several months after the policy’s effective date. The analysis reflected that "Lennar Corporation” reported no past use of EIFS and no future plans to use EIFS. However, the analysis also stated that Lennar's numerous acquisitions of builders over the previous years made accurate assessment of EIFS exposure unlikely, and the acquired builders may present greater exposure to EIFS losses. Ralston did not follow up possible EIFS exposure for Lennar subsidiaries.
.Further, the alleged misrepresentation regarding rescission of the policy was not made for the guidance of Lennar in its business as required to sustain a negligent misrepresenta
. Lennar contends it was damaged by American Dynasty's terminating the policy because it had to replace the policy with another policy. Lennar contends it was damaged by American Dynasty's attempted rescission because it incurred legal expenses to avoid rescission and a gap in coverage and conducted business with uncertainty over whether it would have liability coverage for that policy period. Therefore, Lennar is, in effect, complaining of damages caused by the actual termination, and attempted rescission, as opposed to damages caused by any misrepresentations regarding the reasons for termination and attempted rescission. We will address Lennar’s complaints regarding the actual termination and attempted rescission when we address its article 21.21 claims.
. Article 21.21 was repealed and recodified effective April 1, 2005. After we formally cite each section of former article 21.21 relevant to this opinion, we will then, for ease of reference, refer to the sections as they were previously codified in article 21.21.
. Act of April 25, 1957, 55th Leg., R.S., ch. 198, § 1, 1957 Tex. Gen. Laws 401, 401-06 (repealed and recodified 2003) (current version at Tex. Ins.Code Ann. § 541.003 (Vernon Supp.2005)).
. Act of May 10, 2001, 77th Leg., R.S., ch. 290, § 1, 2001 Tex. Gen. Laws 548, 548-551 (repealed and recodified 2003) (current version at Tex. Ins.Code Ann. §§ 541.051-.061 (Vernon Supp.2005)).
. Act of May 17, 1995, 74th Leg., R.S., ch. 414, § 13, 1995 Tex. Gen. Laws 2988, 3000-001 (repealed and recodified 2003) (current version at Tex. Ins.Code Ann. § 541.151 (Vernon Supp.2005)); see Tex. Bus. & Com.Code Ann. § 17.46(b) (Vernon Supp.2005).
. Lennar does not specify which particular conduct supports which particular section. However, we have tried to match the particular alleged conduct with the particular section.
. Unlike a common-law misrepresentation claim, an insured is not required to prove reliance to maintain a claim under section 4 of article 21.21. See Tex. Ins.Code Ann. art. 21.21, § 16(a). However, the insured must prove that it sustained actual damages. See id.
. Ralston did not follow up on her earlier conversation with Pulley or the "underwriting risk analysis” when deciding to terminate the policy. Nevertheless, she thought she had enough information to terminate the policy based on Lennar’s alleged untrue statements regarding its use of EIFS. Further, the claims representative who decided to rescind the policy did not conduct his own investigation; instead, he relied on the information provided to him by Ralston.
. Further, although article 21.21 incorporates section 17.46 of the DTPA, article 21.21 makes actionable only those deceptive acts and practices specifically defined in section 17.46. See Tri-Legends,
. Moreover, the issue of whether American Dynasty had a reasonable basis to rescind the policy is premature because the trial court severed American Dynasty’s rescission counterclaim from this action pending resolution of this appeal. This issue will be more appropriately resolved in the rescission counterclaim. Nonetheless, American Dynasty’s conduct with respect to attempted rescission does not support an article 21.21 claim.
.Act of May 27, 1991, 72nd Leg., R.S., ch. 242, § 11.03, 1991 Tex. Gen. Laws 939, 1043-1045 (repealed and recodified 2003) (current version at Tex. Ins.Code Ann. §§ 542.051-.061 (Vernon Supp.2005)). Article 21.55 was also repealed and recodified effective April 1, 2005. We will hereafter refer to the pertinent sections as they were previously codified in article 21.55.
. As we have discussed, Lennar did seek indemnification for its own overhead costs, inspection costs, personnel costs, and attorneys’ fees in addition to the costs to repair the EIFS homes. However, we have already concluded American Dynasty has no duty to indemnify Lennar for these costs. Therefore, even if these costs could constitute a first-party claim, Lennar has no article 21.55 claim with respect to these costs. See Allstate Ins. Co. v. Bonner,
. We note the Hartman court indicated that a request for a defense was not a first-party claim. See
Concurrence Opinion
substituted concurring and dissenting.
My concerns with the majority’s 72-page opinion in this case mostly relate to the following three aspects. First, if the costs for preventive replacement of EIFS, overhead, inspection, personnel, and attorney’s fees are not property damage within the meaning of the policies, as the majority holds, then the summary judgments should have been partially affirmed as to the claims for those costs against American Dynasty / Great American and Markel (as well as the other insurers).
Second, despite purporting to deny Lennar’s motion for summary judgment as to all carriers, the majority opinion nevertheless unequivocally holds, based on the uncontroverted evidence, that “Len-nar’s defective construction constitutes an ‘occurrence’ in this case”; “Lennar’s defective construction constitutes an ‘occurrence’ under Texas law”; and “Lennar has established an ‘occurrence’ under all the policies.” If this was a ground on which Lennar sought summary judgment, then the majority’s conclusion dictates that summary judgment be partially rendered for Lennar on that ground. On the other hand, if the lack of an occurrence was merely a ground on which the insurers sought summary judgment, then our opinion should go no farther than to state that the insurers’ summary judgment materials failed to establish this ground as a matter of law, Lennar’s evidence was sufficient to raise a fact issue, or the like, as the case may be.
Third, I disagree with the reasoning of the majority opinion in interpreting the term “occurrence” in the policies. As relevant to this appeal, “occurrence” is defined to mean accident, which is not defined in the policies. An injury is accidental if, from the viewpoint of the insured,
An injury caused by voluntary and intentional conduct is not an accident just because the result or injury may have been unexpected, unforeseen, or unintended. Id. On the other hand, the mere fact that an actor intended to engage in the conduct that gave rise to the injury does not mean that the injury was not accidental. Id. Rather, both the actor’s intent and the reasonably foreseeable effect of his conduct bear on the determination of whether an occurrence is accidental. Id. An event is, thus, accidental if its effect: (1) cannot reasonably be anticipated from the use of the means that produced it; and (2) is one that the actor did not intend to produce and cannot be charged with the design of producing. Trinity Universal Ins. Co. v. Cowan,
As examples, “accident” has been held to include: (1) an employer’s alleged negligent hiring, training, and supervision of an employee whose intentional conduct (assault) caused the injury;
In this case, the trapping of water by EIFS is accidental if that effect: (1) could not reasonably be anticipated from the use of the product; and (2) is one that Lennar did not intend to produce and cannot be charged with the design of producing. See Cowan,
On the contrary, framing the controlling issue as merely whether defective construction resulting in damage to the insured’s own work can be an accident only begs the question because, under the Texas Supreme Court’s standards (outlined above), it unquestionably can be an accident, but depends entirely on other circumstances. Similarly, the fact that the “accident framework” established by the Texas Supreme Court does not eliminate coverage for damage to the insured’s own work is of no consequence because that consideration is not even remotely a part of that framework.
Likewise, if framed broadly enough, any category of subject matter can potentially be covered by some policy exclusion and, under the majority rationale, thereby fall within the scope of the insuring agreement. Therefore, the fact that defective construction resulting in damage to an insured’s own work could come within a business risk exclusion provides no guidance whether the water entrapment in this case was an accident.
Lastly, the fact that Lennar did not intend to use a defective product or expect the resulting damage does not alone establish an accident at all, let alone do so as a matter of law (if affirmatively establishing an accident is even an issue that is properly before us, as noted above). Instead, additional evidence (than is recited in the majority opinion) would be needed about the properties of EIFS and Lennar’s decision to use it in the manner that it did to determine whether its water-trapping effect: (1) could not reasonably be anticipat
.Where the insured is not the actor who actually caused the injury, the actor’s intent is not imputed to the insured to determine whether there was an occurrence. See King v. Dallas Fire Ins. Co.,
. See King,
. Lindsey,
. Cowan,
. See Mass. Bonding & Ins. Co. v. Orkin Exterminating Co., 416 S,W.2d 396, 400-01 (Tex.1967); see also Orkin Exterminating Co. v. Gulf Coast Rice Mills,
. Cowan,
. See Argonaut Southwest Ins. Co. v. Maupin,