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Injury-In-Fact in Action: Don’s Building Supply Applied
Posted 2/19/09 Lee Shidlofsky, Visser Shidlofsky LLP
In Thos. S. Byrne v. Trinity Universal Insurance Company, et al., 2008 WL 5095161 (Tex. App.¡VDallas, December 4, 2008, no pet. h.), the Dallas Court of Appeals applied Texas Supreme Court's recent decision in Don's Building Supply, Inc. v. OneBeacon Ins. Co., 267 S.W.3d 20 (Tex. 2008). The Court held that the factual allegations in the underlying pleadings asserted claims for property damage that potentially occurred within the coverage periods of the policies at issue; thus, there was a duty to defend.
Thos. S. Byrne, Ltd., ("Byrne") was hired as the general contractor to build an apartment complex in 1997. In turn, Byrne hired Subfloor Systems and S.W.I. as subcontractors responsible for installing the concrete flooring and stucco, respectively, at the complex. Upon completion in 1999, the complex was purchased by Mercantile. In 2001, Mercantile sued Byrne and others for alleged substantial construction and design defects, but did not name Subfloor Systems or S.W.I. in the suit.
Byrne demanded a defense in the Mercantile lawsuit from Subfloor Systems and S.W.I.'s insurers as an additional insured. When the subcontractors' insurers failed to tender a defense, Byrne sought declarations of its additional insured status under the policies and that it was owed a defense in the Mercantile lawsuit. The insurers moved for summary judgment, asserting that there was no duty to defend because Mercantile's live pleading demonstrated that any potentially covered property damage manifested after the policy period, after the work was completed and put into use (and therefore excluded from coverage), or both. The trial court entered summary judgment in favor of the insurers, and Byrne appealed.
Applying the eight corners rule, the Court of Appeals found the insurers had a duty to defend Byrne in the Mercantile lawsuit. The Court noted that the policy language in this case was identical to that considered by the Supreme Court of Texas in Don's Building Supply. It then looked to the allegations contained in Mercantile's live pleading. The Court held, "Mercantile is suing Byrne for property damage that began to occur some time in the past, but the time that damage started to occur is left unclear. Read as a whole, the petition leaves open the possibility that property damage occurred during the necessary time period . . ." In sum, the live pleading in the Mercantile lawsuit stated claims that could have occurred during the coverage period of the subcontractors' insurance policies, which allegedly arose from the subcontractors' work, and that were potentially outside of the policies' exclusions. Thus, there was a duty to defend Byrne in the Mercantile lawsuit.
While this case was not the first court of appeals case to apply the Supreme Court's opinion in Don's Building Supply, it provides a good example of the way the injury-in-fact trigger operates where allegations of property damage are murky. As the Supreme Court noted in Don's Building Supply, pinpointing the moment of injury retrospectively can be difficult in some cases. To determine the outcome in Byrne, the Dallas Court of Appeals applied the long-standing principle that allegations are to be interpreted liberally in favor of the insured. Here, the pleading was not crystal clear as to when the property damage occurred. But, viewing the Mercantile lawsuit's live pleading as a whole paints a picture of when the damage could have occurred during the relevant policy periods. Thus, because some covered property damage could have occurred within the policy periods, the subcontractors' insurers were obligated to defend the entire Mercantile lawsuit pursuant to additional insured endorsements.