August, 31, 2007

E&L Attorney(s)

John Engvall, Jr.


United States District Court for the Western District of Texas


Lee Yeakel
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LamarHomes, Inc. v. Mid-Continent Cas. Co., No. 05-083


Insured builder sought a declaratory judgment that commercial general liability (CGL) insurer owed duty to defend and indemnify insured in homeowners’ suit alleging construction defects. The United States District Court for the Western District of Texas, Lee Yeakel, J., 335 F.Supp.2d 754, granted summary judgment in favor of insurer. Insured appealed. The Court of Appeals, 428 F.3d 193, certified questions.

Vincent and Janice DiMare purchased a new home from Lamar Homes, Inc. and several years later encountered problems that they attributed to defects in their foundation. The DiMares sued Lamar and its subcontractor complaining about these defects. Lamar forwarded the lawsuit to Mid-Continent Casualty Company seeking a defense and indemnification under a commercial general liability or CGL insurance policy. Mid-Continent refused to defend, prompting Lamar to seek a declaration of its rights under the CGL policy. Lamar also sought recovery under article 21.55 of the Texas Insurance Code.

On cross motions, the federal district court granted summary judgment for Mid-Continent, concluding it had no duty to defend Lamar for construction errors that harmed only Lamar’s own product. Lamar Homes, Inc. v. Mid-Continent Cas. Co., 335 F.Supp.2d 754 (W.D.Tex.2004). The court reasoned that the purpose of a CGL policy is “to protect the insured from liability resulting from property damage (or bodily injury) caused by the insured’s product, but not for the replacement or repair of that product.”Id. at 759.Noting disagreement among Texas courts about the application of the CGL policy under these circumstances, the Fifth Circuit has asked us to resolve the conflict.

Verdict Information

The Supreme Court, Medina, J., held that:

  1. builder’s allegedly defective construction or faulty workmanship in building house foundation was occurrence;
  2. cracks in sheetrock and stone veneer allegedly as result of defective construction or faulty workmanship in building foundation were property damage; and
  3. an insured’s claim against liability insurer for defense costs is a “first party claim” within the meaning of the prompt payment statute making the insurer liable for interest and attorney fees if it does not promptly respond to or pay first party claim, abrogating TIG Insurance Co. v. Dallas Basketball, Ltd, 129 S.W.3d 232,Summit Custom Homes, Inc. v. Great Am. Lloyds Ins. Co., 202 S.W.3d 823, Utica Cas. Co. v. Allied Pilots Ass’n, 187 S.W.3d 91, Serv. Lloyd’s Ins. Co. v. Jc. Wink, Inc., 182 S.W.3d 19.