Mid-Continent Cas. Co. v. Jhp Development, Inc.

Decision Date28 January 2009
Docket NumberNo. 05-50796.,05-50796.
Citation557 F.3d 207
PartiesMID-CONTINENT CASUALTY CO., Plaintiff-Counter Defendant-Appellant, v. JHP DEVELOPMENT, INC., Defendant-Appellee, TRC Condominiums, Ltd., Defendant-Counter Claimant-Appellee.
CourtU.S. Court of Appeals — Fifth Circuit

Richard Brent Cooper (argued), Diana L. Faust, Cooper & Scully, Dallas, TX, Marie K. Miller, Plunkett & Gibson, San Antonio, TX, Christopher L. Burke, Mid-Continent Group, Tulsa, OK, for Defendant-Appellant.

Patrick J. Weilinski (argued), Cokinos, Bosien & Young, Arlington, TX, Sean Brandon McNelis, Japhet, Duncan & McNelis, San Antonio, TX, for Defendants.

Lee Howard Shidlofsky, Visser Shidlofsky, Austin, TX, for Amicus Curiae.

Appeal from the United States District Court for the Western District of Texas.

Before BENAVIDES, SOUTHWICK, and HAYNES, Circuit Judges.

BENAVIDES, Circuit Judge:

In this insurance coverage suit, appellant Mid-Continent Casualty Co. ("Mid-Continent") sued appellees JHP Development, Inc. ("JHP") and TRC Condominiums Ltd. ("TRC"), seeking a declaratory judgment that it had no duty to defend or indemnify JHP or pay any damages awarded to TRC in a state court suit between those two parties stemming from JHP's defective construction of a five-unit condominium project in San Antonio, Texas. The district court held that Mid-Continent had a duty to defend and indemnify JHP pursuant to a commercial general liability insurance policy issued by Mid-Continent. Mid-Continent appeals the district court's holding that two coverage exclusions contained in the insurance policy do not apply to the damages sought by TRC and that the default judgment in the underlying suit is binding on Mid-Continent. For the reasons stated below, we AFFIRM.

I. Background

TRC and JHP entered into an agreement for the construction of the condominium project on January 27, 1999. The agreement called for the construction of a four-story, wood-frame structure with partial concrete and masonry bearing walls at the first floor/garage level, supported by a concrete slab-on-grade foundation. The structure was divided into five units, with one designated as a model. With the exception of the model, the construction plans called for the units to remain partially unfinished until they were sold, so that the new owner could choose the finish for the unit. Excavation began in July 1999, the foundation was poured and completed in the fall of 1999, and concrete masonry unit (CMU) firewalls were installed in the spring of 2000. The model unit was completed in spring 2001. At that time, the remaining units still required painting, flooring, plumbing and electrical fixtures, and the activation of the HVAC system.

Due to JHP's failure to properly water-seal the exterior finishes and retaining walls, large quantities of water penetrated the interior of the structure through ceilings and walls, under doors, and at other points, damaging contiguous building materials and interior finishes, including interior drywall, stud framing, electrical wiring, and wood flooring, prior to the final completion of the project. The water intrusion problems started some time in the summer or fall of 2001. As a result of the damage and JHP's refusal to repair the damage and complete the work, TRC terminated its construction agreement with JHP.

On December 12, 2002, TRC retained a contractor to repair and complete the condominiums. The repair and completion of the project cost $2,255,578.53. The contractor attributed $438,466.77 of that amount to investigating, demolishing, repairing, and replacing the non-defective interior finishes and wiring that were damaged by the water intrusion.

JHP notified Mid-Continent of the problems with the TRC project and sought coverage under Commercial General Liability Insurance Policy No. 04-GL000062972 issued by Mid-Continent to JHP and effective from September 24, 2001 to September 24, 2002. On May 1, 2003, Mid-Continent denied coverage, claiming that there was no "occurrence" or "property damage" as defined under the insurance policy, and that various exclusions were applicable. In October 2003, TRC sued JHP for breach of contract, breach of warranty, negligence, and attorney's fees. JHP timely submitted the petition to Mid-Continent. Mid-Continent again denied JHP's request for coverage and refused to provide a defense. On December 22, 2003, a default judgment in excess of $1.5 million was entered against JHP.

Mid-Continent filed this declaratory judgment action seeking a declaration that: (1) JHP was not entitled to coverage; (2) Mid-Continent had no duty to defend or indemnify JHP; (3) TRC was not entitled to any sums as a third-party beneficiary or judgment creditor; and (4) the default judgment was not binding on Mid-Continent. Mid-Continent moved for summary judgment, asserting that there was no "occurrence" or "property damage" as defined under the insurance policy, that various policy exclusions were applicable, and that the default judgment in the underlying suit was not binding on Mid-Continent because that suit was not a fully adversarial proceeding and Mid-Continent had no duty to defend JHP. TRC filed a counterclaim alleging that it was entitled to indemnity for the default judgment against JHP and its attorney's fees in this suit as a judgment creditor and that it was entitled to relief for breach of contract as a third party beneficiary to the insurance contract. TRC moved for summary judgment on the grounds that there was an "occurrence" and "property damage" as defined under the insurance policy and that none of the policy exclusions applies to the property damage for which it sought to recover, specifically damage to the interior portions of the condominiums that resulted from JHP's failure to properly water-seal the exterior finishes and retaining walls. JHP failed to answer this suit, and Mid-Continent sought a default judgment against JHP.

The district court granted TRC's motion for summary judgment and denied Mid-Continent's motion for summary judgment, finding that there was an "occurrence" and "property damage" as defined under the insurance policy, that none of the policy exclusions applied to the damages sought by TRC, and that the default judgment in the underlying suit was binding on Mid-Continent. The court found that Mid-Continent owed indemnity to TRC in the amount of $438,466.77 and TRC's reasonable attorney's fees. The district court denied Mid-Continent's motion for default judgment against JHP.

Mid-Continent appeals the district court's holding that two of the policy exclusions, exclusion j(5) and exclusion j(6), do not apply to the damages sought by TRC.1 Exclusion j(5) excludes property damage to "[t]hat particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the `property damage' arises out of those operations." Exclusion j(6) excludes property damage to "[t]hat particular part of any property that must be restored, repaired or replaced because `your work' was incorrectly performed on it." This exclusion further provides that it "does not apply to `property damage' included in the `products-completed operations hazard.'" "Your work" is defined, in relevant part, as "work or operations performed by you or on your behalf." Both exclusions are "business risk" exclusions, common features in commercial general liability insurance policies that are designed to exclude coverage for defective work performed by the insured. See Hartford Casualty Co. v. Cruse, 938 F.2d 601, 603 (5th Cir.1991) (citing T.C. Bateson Const. Co. v. Lumbermens Mut. Cas. Co., 784 S.W.2d 692, 694-95 (Tex.App.1989)) (discussing the purpose of business risk exclusions); Lennar Corp. v. Great Am. Ins. Co., 200 S.W.3d 651, 670 (Tex.App.2006) (same); see also Farmington Cas. Co. v. Duggan, 417 F.3d 1141, 1142 (10th Cir.2005) (citations omitted) ("The purpose of a commercial general liability policy is to protect the insured from liability for damages when his own defective work or product damages someone else's property. Damage to an insured's own work resulting from his faulty workmanship on it is usually covered by a performance bond, not a commercial general liability policy."); Robert J. Franco, Insurance Coverage For Faulty Workmanship Claims Under Commercial General Liability Policies, 30 Tort & Ins. L.J. 785, 785 (Spring 1995) ("[C]ommercial general liability insurance policies cover only `insurable risks' and exclude business risks."). Mid-Continent also appeals the district court's holding that the default judgment in the underlying suit was binding on Mid-Continent. The parties do not dispute that Texas law applies to this diversity suit.

II. The Applicable Legal Standards
A. The Standard of Review

This court reviews a district court's grant of summary judgment de novo, applying the same standards as the district court. See XL Specialty Ins. Co. v. Kiewit Offshore Services, Ltd., 513 F.3d 146, 149 (5th Cir.2008); Hirras v. Nat'l R.R. Passenger Corp., 95 F.3d 396, 399 (5th Cir.1996). Summary judgment is proper if the record reflects "that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c).

B. Interpretation of Insurance Policies Under Texas law

Under Texas Law, insurance policies are construed as are contracts generally, and must be interpreted to effectuate the intent of the parties at the time the contracts were formed. Kelley-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462, 464 (Tex.1998); Glover v. Nat'l Ins. Underwriters, 545 S.W.2d 755, 761 (Tex.1977). When the words of a policy are unambiguous, they are to be given their plain, ordinary, and generally accepted meaning, unless the policy clearly indicates that the contractual terms have been used in a different or technical sense. Puckett v. U.S. Fire Ins. Co., 678 S.W.2d 936, 938 (T...

To continue reading

Request your trial
87 cases
  • Nautilus Ins. Co. v. Heartland Builders, LLC
    • United States
    • U.S. District Court — District of Kansas
    • March 11, 2021
    ...on which defective work was performed, and not to the building generally.") (alteration in original); Mid-Continent Cas. Co. v. JHP Dev., Inc. , 557 F.3d 207, 215 (5th Cir. 2009) ("The narrowing ‘that particular part’ language is used to distinguish the damaged property that was itself the ......
  • Advanced Optics Electronics Inc. v. Robins
    • United States
    • U.S. District Court — District of New Mexico
    • December 16, 2010
    ...aspects of a party's claim, including damages, is proper if there are no genuine issues of material fact); Mid–Continent Cas. Co. v. JHP Dev., 557 F.3d 207, 211, 218 (5th Cir.2009) (affirming district court's granting summary judgment awarding damages based on finding “default judgment in t......
  • Two Old Hippies Llc v. Catch the Bus Llc
    • United States
    • U.S. District Court — District of New Mexico
    • February 14, 2011
    ...aspects of a party's claim, including damages, is proper if there are no genuine issues of material fact); Mid–Continent Cas. Co. v. JHP Dev., 557 F.3d 207, 211, 218 (5th Cir.2009) (affirming district court's granting summary judgment awarding damages based on finding “default judgment in t......
  • Two Old Hippies, LLC v. Catch the Bus, LLC
    • United States
    • U.S. District Court — District of New Mexico
    • August 18, 2011
    ...aspects of a party's claim, including damages, is proper if there are no genuine issues of material fact); Mid–Continent Cas. Co. v. JHP Dev., 557 F.3d 207, 211, 218 (5th Cir.2009) (affirming district court's granting summary judgment awarding damages based on finding “default judgment in t......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT