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Texas Adopts Injury-In-Fact Coverage Trigger for Property Damage Liability Insurance
Construction Practices Newsletter
Winter 2008
After years of uncertainty, the Texas Supreme Court in Don's Building Supply, Inc. v. OneBeacon Insurance Company No. 07-0639 (Tex. August 29, 2008) settled one of the most pervasive construction coverage issues under standard commercial general liability (CGL) policies: When does property damage "occur" under the terms of most liability policies?
Rejecting the widely used "manifestation" trigger for coverage, i.e., when the alleged damage is discovered, the Texas Supreme Court in Don's Building Supply held that coverage is triggered as physical injury to tangible property occurs, not when the conduct that caused alleged damages occurs or when those damages are discovered.
In Don's Building Supply, defective siding sold by Don's Building Supply (DBS) was installed on various homes from 1993 – 1996. DBS was covered by policies issued by OneBeacon during installation of the subject defective siding from 1993 – 1996. The homeowners alleged that the actual damage to the structure occurred within six months of the installation of the defective siding and continuing (i.e., during OneBeacon's policy periods), but that no noticeable signs of damage appeared until several years after the OneBeacon policy periods ended.
OneBeacon denied coverage, arguing that Texas courts had adopted the manifestation trigger to determine when property damage occurred. Since the homeowners alleged that the damage became apparent after the OneBeacon policy periods, OneBeacon asserted that there could be no coverage under its policies. In the coverage action, DBS argued that the terms of the OneBeacon polices mandated that the court use the injury-in-fact trigger of coverage in determining whether OneBeacon owed a defense obligation to DBS in the underlying lawsuits.
The Texas Supreme Court in Don's Building Supply followed the same approach it had taken in Lamar Homes, Inc. v. Mid-Continent Casualty Co. (2007) 242 S.W.3d 1 and simply gave effect to the literal meaning of the policy, which covers damage caused by an occurrence during the policy period and not when the damage is discovered. Because it was alleged that the physical injury to tangible property occurred during the OneBeacon policy periods, under the Texas eight corners OneBeacon's defense obligation was triggered.
Recently, the Dallas Court of Appeals put the injury-in-fact trigger into practice in Union Ins. Co. v. Don's Building Supply, Inc. No. 05-06-00884-CV (Tex. App.—Dallas, September 23, 2008, w.h.).
The Union lawsuit similarly involved defective siding sold by DBS that was used in the construction of a private home in 1991. The plaintiff homeowners discovered the alleged damages caused by the defective siding after they purchased their home in 2003. The plaintiff homeowners alleged that the damage to their home occurred within six months to a year after the defective siding was installed in 1991 and was continuous thereafter. Union Insurance issued liability policies to DBS from December 1996 through December 1998. (Recall that One Beacon insured DBS from December 1993 to December 1996.) Union argued, as had OneBeacon, that the Union policies were not triggered because the damage could not have been discovered prior to the purchase of the home in 2003.
Following the Texas Supreme Court's mandate, the Dallas Court of Appeals held that because the alleged damages were progressive, Union had a duty to defend DBS because injury-in-fact was alleged within the Union policy periods.
These related cases clearly demonstrate the significant effect of the Texas Supreme Court's adoption of the injury-in-fact trigger of coverage for property damage occurring over time. Broad and sweeping allegations of progressive damages occurring over several years can trigger a defense obligation from multiple insurers over multiple years. And because under Texas law each insurer whose policy is triggered has a duty to defend the entire action, the policyholder will be made whole first and it will be up to the insurers to determine what proportionate share to pay of the defense.
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