Wilshire Insurance Co. v. RJT Construction, LLC, No. 08-50925 (5th Cir. August 26, 2009)
A homeowner hired RJT Construction in 1999 to raise, level and stablize the foundation that had shifted as a result of water damage from a plumbing leak. In late 2005, the owner noticed cracks in walls and ceilings and sued RJT for negligent repairs. RJT sought defense and indemnity from Wilshire, who denied the claim and brought a lawsuit to determine coverage.
The lower court granted summary judgment favoring Wilshire holding that the alleged damages were excluded by this exclusion:
[T]his policy shall not apply to any claim of liability . . . caused by, resulting form, attributable or contributed to, or aggravated by the subsidence of land as a result of landslide, mudflow, earth sinking or shifting, resulting from your operations or your subcontractor's operations.
The lower court reasoned that the owner had alleged that the foundation shifted which caused a subsidence that caused the cracking. On appeal, the Fifth Circuit disagreed. "The [lower] court focused on the movement of the foundation. But the exclusion focuses on the movement of land, not the foundation." The owner never alleged that the land moved. That exclusion does not apply. But the appellate court also addressed other defenses that Wilshire had raised.
First, Wilshire apparently argued that the allegedly faulty construction that caused the damage occurred before the policy was issued (June 2004). The Texas Supreme Court recently rejected the "discovery" rule that property damage "occurs" when the damage is first discovered; rather, coverage is triggered when property actually sustains physical injury. (See Don's Building Supply, Inc. v. OneBeacon Ins. Co., 267 S.W.3d 20 (Tex. 2008), discussed here). The appellate court agreed that the first manifestaton of damage was not the triggering event, but neither was it when the faulty work was performed. In this case, held the Fifth Circuit, the cracks are themselves property damage, not just the manifestation of damage. Therefore, cracking in late 2005 triggered coverage within the policy period.
Second, Wilshire argued that the alleged foundation damage fell within the "your work" exclusion. Damage to the named insured's work or any part of it is not covered. Accordingly, damage caused by the foundation work is not covered. Not so, said the court. Don't forget those darned cracks. Wilshire is correct that damage to the foundation is not covered, but RJT never worked on the walls or ceilings. Cracked walls and ceilings damaged by the faulty work does not fall within the exclusion.
Reversed in favor of RJT.
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