Hot Topics for Trial Lawyers
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Don’s Building Supply v. OneBeacon Insurance Co.
Posted 10/16/08TEXAS SUPREME COURT UPDATE ON INSURANCE CASES
When does property damage occur under an occurrence-based commercial general liability insurance policy?
In Don's Building Supply v. OneBeacon Insurance Company, _______ S.W.3d _________, the Court answered two certified questions regarding insurance coverage disputes from the United States Court of Appeals for the Fifth Circuit. The insurance policy at issue is an occurrence-based commercial general liability insurance policy. The Court held that under Texas law, an insurer's duty is triggered on the date "when the injury happens on not when someone happens upon it" in the particular policy at issue.
Don's Building Supply, Inc., is in the business of selling and distributing a home siding product. From December 1993 to December 1996, this siding product was installed on various homes. Also during this time, Don's Building Supply was covered by comprehensive general liability issued by Potomac Insurance Company. The policy was then assigned to OneBeacon Insurance Company.
From 2003-2005, several homeowners began filing lawsuits against Don's Building Supply. The homeowners' property damage allegations stemmed from claims that the siding was defective and allowed moisture to leak in to the walls behind the siding which damaged their homes. The alleged damage happened the first time moisture seeped behind the siding; the homeowners believed this occurred six months to a year after the installation of the siding. The homeowners also claimed the damage was hidden and not easily discoverable until after the insurance policy period because the exterior of the siding appeared to be undamaged.
Initially, OneBeacon provided a defense to Don's Building supply, but later filed a declaratory judgment action in federal court claiming it had no duty to defend and indemnify Don's Building Supply under the commercial general liability policies. The District Court agreed that OneBeacon's duty did not arise until the damage became identifiable; thereafter, Don's Building Supply appealed to the Fifth Circuit.
The first certified question to the Texas Supreme Court:
"When not specified by the relevant policy, what is the proper rule under Texas law for determining the time at which property damage occurs for purposes of an occurrence-based commercial general liability policy?"
In response, the Court stated that insurance policies are construed according to the same general rules of construction that apply to contracts. After reading the provisions in this policy for the plain meaning, the Court held the property damage occurred when the actual physical damage occurred; the date that such physical damage was discovered or could have been discovered was irrelevant.
The Court further discussed the other approaches used by Texas courts to determine when an insurer must defend any claim of physical property damage occurring during the policy term. Aside from the actual injury or injury in fact approach adopted by the Court in this case, the Court also analyzed other theories. The manifestation rule used by some courts imposes a duty to defend only if the property damage became discoverable during the policy period. The Court reiterated that its goal was to effectuate the parties' intent as expressed by the insurance policy, and not to create a universal rule for determining when an insurer's duty to defend is triggered under an insurance policy.
The second certified question to the Texas Supreme Court:
"Under the rule indentified in the answer to the first question, have the pleadings in lawsuits against an insured alleged that property damage occurred within the policy period of an occurrence-based commercial general liability insurance policy, such that the insurer's duty to defend and indemnify the insured is triggered, when the pleadings allege that actual damage was continuing and progressing during the policy period, but remained undiscoverable and not readily apparent for purposes of the discovery rule until after the policy period ended because the internal damage was hidden from view by an undamaged exterior surface?"
In response, the Court concluded that under Texas insurance law, the insurer's duty to defend turns on the policy's terms and Plaintiff's allegations. In application to the insurance policy at issue, the Court clarified that the insurer's duty to defend depended on whether the homeowner's pleadings alleged the property damage occurred during the policy term even if the underlying claims were not meritorious. The Court also reiterated that their decision rested upon the specific language of the parties' insurance policies and offered no position as to whether the underlying property damage claims were meritorious.
In the future, it will be interesting to see if insurance companies add policy language to follow the manifestation rule and begin to limit an insurer's duty to defend only to situations where the damage to the property manifested during the policy period.
William Allred, Cooper & Scully, P.C.