Archon Inv. V. Great American Lloyds Ins.

Decision Date28 September 2005
Docket NumberNo. 01-03-01299-CV.,01-03-01299-CV.
Citation174 S.W.3d 334
PartiesARCHON INVESTMENTS, INC. d/b/a GEMS Custom Homes, Appellant, v. GREAT AMERICAN LLOYDS INSURANCE COMPANY and Mid-Continent Casualty Company, Appellees.
CourtTexas Supreme Court

Lee Howard Shidlofsky, Nickens, Keeton, Lawless, Farrell & Flack, L.L.P., Austin, TX, for Appellant.

Jennifer Bruch Hogan, Hogan & Hogan, L.L.P., John Engvall, J. Jonathan Hlavinka, Engvall & Hlavinka, L.L.P., Richard P. Hogan Jr., Pillsbury Winthrop Shaw Pittman, L.L.P., Houston, TX, for Appellees.

Panel consists of Justices TAFT, KEYES, and HANKS.

OPINION

EVELYN V. KEYES, Justice.

This is an insurance coverage case decided on cross-motions for summary judgment in which the trial court construed a commercial general liability (CGL) policy in favor of appellees, Great American Lloyds Insurance Company (Great American) and Mid-Continent Casualty Company1 and against appellant, Archon Investments, Inc. d/b/a GEMS Custom Homes (Archon). In three issues, Archon contends that the trial court erred in rendering summary judgment for Great American because Great American (1) had a duty to defend Archon; (2) had a duty to indemnify Archon; and (3) violated article 21.55 of the Texas Insurance Code.2 The parties do not dispute the pertinent facts; the issue in this case is whether those facts triggered Great American's duty to defend. Because we conclude Great American has a duty to defend Archon in the underlying litigation, we reverse.

Factual & Procedural Background

In 1994, Dr. William F. Braden contracted with Archon to build a custom home for him in Baytown, Texas. A few years after the house was built, Braden noticed that wood was rotting around the windows, possibly as a result of leakage from the stucco siding or because some of the windows might have been installed by a subcontractor without the requisite flashing. In 2001, Braden sued Archon and two of its subcontractors, contending that the defendants had used materials that did not meet industry standards and had failed to construct the home in a good and workmanlike manner. Based on these allegations, Braden brought causes of action for breach of the implied warranties of good and workmanlike construction and suitability for habitation, breach of contract, violation of the Deceptive Trade Practices Act (DTPA),3 violation of chapter 27 of the Property Code,4 negligence, and negligent misrepresentation. Braden sought to recover his actual damages, punitive damages, and attorney's fees.

Great American refused to provide counsel to defend Archon and sought a declaratory judgment from the trial court that it owed no duty to defend or indemnify Archon. The parties filed cross-motions for summary judgment on the coverage issue. The trial court granted Great American's motion and denied Archon's motion, finding that Great American had no duty to defend or indemnify Archon.

Standard of Review

We follow the usual standard of review for traditional summary judgments rendered under rule 166a(a) and (b) of the Rules of Civil Procedure: The party with the burden of proof must prove it is entitled to judgment by establishing each element of its claim or defense as a matter of law, or by negating an element of a claim or defense of the opposing party as a matter of law. TEX.R. CIV. P. 166a(a), (b). These standards are applicable in insurance-coverage cases. See e.g., State Farm Fire & Cas. Co. v. Vaughan, 968 S.W.2d 931, 933 (Tex.1998); Hanson v. Republic Ins. Co., 5 S.W.3d 324, 327 (Tex.App.-Houston [1st Dist.] 1999, pet. denied). When, as here, both parties move for summary judgment and the trial court grants one motion and denies the other, we may determine all questions presented, including the propriety of overruling the losing party's motion, provided each party has fully met its burden and sought final judgment relief. CU Lloyd's v. Feldman, 977 S.W.2d 568, 569 (Tex.1998); Hanson, 5 S.W.3d at 327.

Discussion

In its first and second issues, Archon contends the trial court erred in concluding that Great American had no duty to defend or indemnify it in the underlying lawsuit and in rendering summary judgment for Great American on that basis. Archon contends that its CGL policy provides coverage for inadvertent construction defects that cause damage after a home has been sold to a buyer when the damages arise from the work of the insured's subcontractors, as alleged in the underlying suit; and therefore Great American has a duty to defend and indemnify it. Great American contends that a suit for construction defects does not constitute an "occurrence" triggering the indemnification provisions of the GCL policy; thus, it has had no duty to defend Archon. The policy provisions and definitions and Braden's pleadings comprise the foundation of our analysis.

Policy Terms

The policy issued to Archon is a standard 1993 broad-form CGL policy. Section I of the policy contains the insuring agreement and the terms of coverage. "Coverage A," providing coverage for "Bodily Injury and Property Damage Liability," addresses the duties to defend and to indemnify. Coverage A provides that the insurer has a duty to defend Archon in any suit seeking damages for "bodily injury" and "property damage" and to indemnify Archon for those sums it becomes legally obligated to pay as damages as follows:

COVERAGE A. BODILY INJURY AND PROPERTY DAMAGE LIABILITY

1. Insuring Agreement

a. We will pay those sums that the Insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. We will have the right and duty to defend any "suit" seeking those damages. We may at our discretion investigate any "occurrence" and settle any claim or suit that may result....

b. This insurance applies to "bodily injury" and "property damage" only if:

(1) the "bodily injury" or "property damage" is caused by an "occurrence" that takes place in the "coverage territory";....5

"Property damage" is defined in relevant part in Section V(15) of the CGL policy as "physical injury to tangible property, including all resulting loss of use of that property." The definition further provides that "loss of use shall be deemed to occur at the time of the physical injury that caused it." An "occurrence" is defined in Section V(12) of the CGL policy as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions."

Coverage A Section 2(j) provides that certain property damage is excluded from coverage, including property damage to "(5). that 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," and "(6). that particular part of any property that must be restored, repaired or replaced because `your work' was incorrectly performed on it."6 Section 2(j) then states, "Paragraph (6) of this exclusion does not apply to `property damage' included in the `products-completed operations hazard.'"

Section 2(l) of Coverage A excludes coverage for "`[p]roperty damage' to `your work' arising out of it or any part of it and included in the `products-completed operations hazard.'" But that section too states, "This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor." Section V(14)(a) defines a "[p]roducts-completed operations hazard" as including "all `bodily injury' and `property damage' occurring away from premises you own or rent and arising out of `your product' or `your work.'"

Construction of the CGL Policy

Insurance contracts are subject to the same rules of construction as ordinary contracts. Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d 819, 823 (Tex.1997); Hanson, 5 S.W.3d at 328. When a policy permits only one interpretation, we construe it as a matter of law and enforce it as written. Upshaw v. Trinity Cos., 842 S.W.2d 631, 633 (Tex.1992); Hanson, 5 S.W.3d at 328. We must strive to effectuate the policy as the written expression of the parties' intent. State Farm Life Ins. Co. v. Beaston, 907 S.W.2d 430, 433 (Tex.1995). It is well settled that insurance policies should be construed in favor of the insured; however, this rule does not apply when the term to be construed is unambiguous and susceptible of only one construction. Devoe v. Great Am. Ins., 50 S.W.3d 567, 571 (Tex.App.-Austin 2001, no pet.). In such a case, we give the words in the policy their plain meaning. Id.

Duty to Defend

Great American asks us to declare that a claim by a homeowner against a general contractor "for the costs to repair and/or replace the insured general contractor's own defective work" is not an occurrence that triggers either the duty to defend or the duty to indemnify under the CGL policy. Archon replies that it is not claiming that Great American has a duty to defend it against claims for the costs of repairing or replacing its own defective work, but rather that Great American has a duty to defend it against claims for losses caused by the negligent work of Archon's subcontractors on Braden's house, which are covered by the policy.

To determine whether an insurer has the duty to defend its insured, Texas courts apply the "eight corners" rule. See Nat'l Union Fire Ins. Co. v. Merchants Fast Motor Lines, Inc., 939 S.W.2d 139, 141 (Tex.1997); Pilgrim Enters., Inc. v. Maryland Cas. Co., 24 S.W.3d 488, 493 (Tex.App.-Houston [1st Dist.] 2000, no pet.). Under the "eight corners" rule, we compare the allegations in the live pleadings to the terms of the insurance policy without regard for the truth or falsity of the allegations. See Pilgrim, 24 S.W.3d at 493. When determining the insurer's duty to defend, we interpret the allegations liberally in favor of the...

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