Thos. S. Byrne, Ltd. v. Trinity Universal Ins. Co., No. 05-07-01255 (Tex. App. Dallas, Dec. 4, 2008) See Byrne Decision.
Last August, the Texas Supreme Court in Don's Building Supply adopted the injury-in-fact trigger of coverage for property damage cases. That is, the liability policy in effect when physical damage actually occurs covers the damage, not the policy in effect when the damage is discovered. (See my discussion Texas Adopts Injury-in-Fact Trigger) The Byrne case illustrates how this decision may benefit policyholders in construction defect cases.
Byrne was a general contractor hired to build apartment buildings. A flooring subcontractor agreed to add Byrne as an additional insured to its CGL policy, which contained a typical blanket endorsement adding as additional insureds those parties the sub agreed in writing to add, subject to certain limitations. The endorsement excluded property damage occurring after covered operations have been completed. The work was completed by April 1999, and the owner put the complex to use some time after that. Alas, water damage was then discovered, apparently caused by widespread design and construction defects. Lawsuit followed in 2001.
Byrne's request for defense was denied because, said Trinity, the work had been completed when the damage occurred. The trial court agreed and granted summary judgment in favor of the insurer. Before the appellate court could weigh in, Don's Building Supply was handed down. Now the court must find that damage occurs when, well, the damage actually occurs, not when it is discovered. Noting that Texas strictly follows the 8-corners rule (i.e., courts look only at the most recent pleading and the policy to determine duty to defend), the appellate court searched the pleading for allegations that might fix the time of actual damage.
The court found little to go on. One allegation mentioned some water problems before June 1999, and the descriptions of the damage process implied that several different defects were working together over time. Based on this, the court concluded that it was possible that damage actually occurred before April 1999. If, the court held, a pleading is silent as to when property damage occurred but leaves open the potential that it occurred during the policy period, then the insurer should defend (or at least let a jury decide when damage occurred). Case reversed and remanded.
This result is bad news for insurers who have tried for years to reign in the scope of additional-insured coverage (insurers rarely get added premium for additional-insured coverage). Their plight is particularly acute in Texas where they are at the mercy of the 8-corners rule and the plaintiff's attorney's pen. The Byrne decision doesn't completely destroy the completed-operation exclusion in additional-insured endorsements, but it provides an easy roadmap around it.
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