Tred R. Eyerly | Insurance Law Hawaii
The court determined that the insurer improperly denied a defense for construction defect claims made against the insured. Amerisure Mut. Ins. Co. v. McMillin Tex. Homes, 2022 U.S. Dist. LEIS 40363 (W.D. Texas March 8, 2022).
McMillin was a developer, general contractor and home seller. It constructed multiple homes in various communities in the San Antonio area. After the homes were completed, homeowners observed defects in the artificial stucco exterior finish. After claims were lodged against McMillin, the various claims were tendered to Amerisure. Amerisure filed for declaratory judgment that it had to duty to defend or indemnify and moved for summary judgment.
Amerisure first argued the homeowners’ faulty workmanship claims did not allege “property damage” under the policies. It argued there were no allegations that any property damage existed, but merely that the stucco suffered from construction defects. The court disagreed. Among the allegations was the statement that due to the construction defects, the homes suffered damage “not only to the exterior stucco, but also to the underlying wire lath, paper backing, house wrap, flashing, water resistive barriers, sheathing, interior walls, interior floors and/ or other property.” Consequently, the underlying claims amounted to property damage.
The court then considered exclusions relied upon by Amerisure. Exclusions J (5) and (6) precluded coverage for faulty workmanship. Both were limited by the phrase “that particular party” of property damaged due to the insured’s work. This limitation precluded application of the exclusions to damage on other parts of the home or non-defective portions of the insured’s work. Here, several of the homeowners alleged damage to parts of the house beyond the stucco system, including interior walls, interior floors and other property. Therefore, Amerisure failed to establish as a matter of law that Exclusions J (5) and (6) prohibited coverage for the homeowners’ claims.
Next the court determined that Exclusion k did not apply to the construction of a building because buildings were constructed or erected, not manufactured.
Exclusion L, Damage to Your Work, only applied to exclude damages to the insured’s “competed” work. The underlying complaints did not specifically allege when property damage from McMillin’s work occurred. The property damage could have occurred before, during, and after completion of McMillin’s work.
Finally, there was a duty to defend rip and tear allegations. Amerisure asserted that the policy did not cover tear-out work performed to remove and replace the stucco system because defective work itself did not constitute covered “property damage” and any ensuing tear-out work would not qualify for independent coverage under the policies. The extent of any property damage and whether repair or removal of the stucco exterior was necessary to fix any covered damages would depend upon the facts in each instance. For the duty to defend analysis, the insured needed only to demonstrate the potential that tear-out work would be necessary.
The duty to indemnify could only be determined when the underlying suit was concluded.
Consequently, Amerisure’s motion for summary judgment was denied.
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