Monday, September 15, 2008

A Texas view of occurrences

In an earlier post I noted that the Massachusetts Appeals Court has stated in unpublished opinions that a construction defect is not an occurrence vis a vis the contractor responsible for the defect. Mike Tracy at Rudolph Friedmann has brought to my attention a recent decision from the Supreme Court of Texas, which assumed that a construction defect is an occurrence without directly addressing that question. The case is also a good example of the timing issues with respect to occurrences, which I mentioned in my last post. Finally, for those of you keeping score, Texas, like Massachusetts, has declined to adopt a blanket approach to triggers of coverage.

In Don's Building Supply, Inc. v. Onebeacon Ins. Co. the Texas court answered questions certified from the Fifth Circuit Court of Appeals about when property damage "occurs" and, more specifically, whether an insurer's duty to defend is triggered where damage is alleged to have occurred during the policy period but was inherently undiscoverable until after the policy expired. The court stated with respect to the first question that the key occurrence date is "when the injury happens, not when someone happens upon it," and answered yes to the second question.

Don's Building Supply ("DBS") sold and distributed a synthetic stucco product called EIFS. The product was installed on various homes from 1993 to 1996, during which DBS had a CGL policy. From 2003 to 2005 homeowners filed suit against DBS, alleging that the EIFS was defective and not watertight. The homeowners alleged that moisture penetration began within six months to a year after the application of the EIFS.

DBS's insurer, OneBeacon, filed a declaratory judgment action. The Texas court held that under the policy definition, the property damage occurred when a home suffered wood rot or other physical damage; the date that the damage was or could have been discovered is irrelevant.

The court refused to adopt an overall approach to triggers of coverage, stating that the trigger determination should be driven by the contract language, which varies from one policy to another.

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