Cu Lloyd's of Texas v. Main Street Homes, 03-01-00498-CV.

• Decision Date: 13 June 2002
• Docket Number: No. 03-01-00498-CV.,03-01-00498-CV.
• Citation: 79 S.W.3d 687
• Parties: CU LLOYD'S OF TEXAS and Potomac Insurance Company of Illinois, Appellants, v. MAIN STREET HOMES, INC. and Main Street, Ltd., Appellees.
• Court: Texas Court of Appeals

79 S.W.3d 687

CU LLOYD'S OF TEXAS and Potomac Insurance Company of Illinois, Appellants, v. MAIN STREET HOMES, INC. and Main Street, Ltd., Appellees.

No. 03-01-00498-CV.

Court of Appeals of Texas, Austin.

June 13, 2002.

Rehearing Overruled July 26, 2002.

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John M. Curney Jr., Wm. David Farmer, Curney, Garcia, Wise & Farmer, P.C., San Antonio, for appellant.

Daniel W. Jordan, Jordan & Carmona, P.C., Austin, for appellee.

Before Justices KIDD, YEAKEL and PATTERSON.

LEE YEAKEL, Justice.

This appeal arises from a dispute over insurance coverage between appellees Main Street Homes, Inc. and Main Street, Ltd. (together "Main Street"), and appellants CU Lloyd's of Texas and Potomac Insurance Company of Illinois (together "Lloyds"). Lloyds, Main Street's insurance provider, refused Main Street's request to defend Main Street in two suits brought against it. Following Lloyds' refusal, Main Street sued Lloyds, seeking, inter alia, a declaratory judgment that Lloyds had a duty to defend Main Street.¹ Main Street moved for partial summary judgment that its insurance policies contractually obligated Lloyds to defend it in the underlying suits. Lloyds also moved for partial summary judgment, arguing that there was no duty to defend because the underlying suits' pleadings did not allege an "occurrence" and, alternatively, that the policies' business-risk exclusions applied. The district court granted Main Street's motion and denied Lloyds'. The court then granted an agreed motion to sever, rendering the duty-to-defend issue appealable. Lloyds appeals the district court's grant of summary judgment in favor of Main Street and the denial of its own motion. We will affirm the district court's judgment.

FACTUAL AND PROCEDURAL BACKGROUND

Main Street, a general contractor, constructed residential homes in two subdivisions, Chimney Hills North in Austin and Ashford Park in Buda. At Chimney Hills, Main Street hired Professional Design Group ("PDG") to design foundations for the homes. Kevin and Denise Holiday purchased one of the homes, and subsequently observed structural defects in the home's construction. The Holidays filed suit against Main Street as a result of alleged foundation defects.² The Holiday petition asserts that Main Street received warnings that the foundations of the Chimney Hills homes, as designed, were inappropriate for the subdivision's soil conditions, and that Main Street disregarded the warnings and knowingly proceeded with construction. The Holidays seek damages for violations of the Texas Deceptive Trade Practices Act, fraud, breach of implied warranty, negligence, and fraudulent conveyance.

At Ashford Park, Main Street subcontracted with PDG and another foundation engineering firm³ for the design and construction of residential foundations. Several Ashford Park homeowners brought a suit similar to the Holidays',⁴ alleging that Main Street and PDG relied on an inaccurate soil survey, which resulted in deficient foundation designs that they knew were destined to fail. The Armstrong petition does not seek damages from Main Street for negligence, but does assert that the foundations' conditions are construction defects and structural failures as defined by the Texas Residential Construction Liability Act. See Tex. Prop.Code Ann. § 27.001(2), (5) (West 2000).

Lloyds was Main Street's insurance carrier from September 1998 to September 2000, the period in which the Holiday and Armstrong causes of action arose. During this time, Main Street was covered by two identically worded comprehensive general liability insurance policies (the "policies").⁵ "Coverage A," the applicable portion of the policies, insured Main Street for "bodily injury" and "property damage" and provided that Lloyds would defend Main Street from suits brought against it.⁶ Upon learning of the Holiday and Armstrong petitions, Main Street notified Lloyds, requesting that it provide a defense to the suits. Lloyds declined on the basis that the petitions failed to allege claims covered by the policies. Main Street then brought this suit.

Main Street moved for partial summary judgment on the grounds that the pleadings in the underlying petitions contained allegations of covered occurrences and allegations falling within the "products-completed operations hazard" clause of the policies.⁷ Lloyds also moved for partial summary judgment, asserting that the policies did not require it to defend because the facts alleged in the underlying pleadings do not allege an "occurrence," and, in the alternative, that the policies'"business risk" exclusions negated coverage for faulty workmanship, thereby failing to trigger a duty to defend. The district court rendered partial summary judgment, granting Main Street's motion and denying Lloyds'. In the summary judgment, the district court found that Lloyds had a duty to defend Main Street, which it breached, and that Lloyds was obligated to reimburse Main Street for its defense costs. The parties then jointly moved to sever, requesting that these issues be made final and appealable. The district court granted the motion, and Lloyds brings this appeal.

DISCUSSION

When both sides move for summary judgment and the trial court grants one motion and denies the other, the appealing party may appeal both the prevailing party's motion as well as the denial of its own. Holmes v. Morales, 924 S.W.2d 920, 922 (Tex.1996). In such a situation, we review the summary-judgment evidence presented by both sides and determine the questions presented. Commissioners Court v. Agan, 940 S.W.2d 77, 81 (Tex.1997). If the pertinent facts are undisputed, we can determine the issues presented as a matter of law. Devoe v. Great Am. Ins., 50 S.W.3d 567, 570 (Tex.App.-Austin 2001, no pet.). This Court may then either affirm or reverse and render. Jones v. Strauss, 745 S.W.2d 898, 900 (Tex.1988); Tobin v. Garcia, 159 Tex. 58, 316 S.W.2d 396, 400-01 (1958). However, if resolution of the issues rests on disputed facts, summary judgment is inappropriate, and we will reverse and remand. Coker v. Coker, 650 S.W.2d 391, 394-95 (Tex.1983). The parties do not dispute the pertinent facts; the issue in this case is whether those facts trigger Lloyds' duty to defend.

To determine an insurer's duty to defend, Texas courts follow the "eight corners" rule. See National Union Fire Ins. Co. v. Merchants Fast Motor Lines, Inc., 939 S.W.2d 139, 141 (Tex.1997); Texas Prop. & Cas. Ins. Guar. Ass'n v. Southwest Aggregates, Inc., 982 S.W.2d 600, 604 (Tex.App.-Austin 1998, no pet.) (citing American Alliance Ins. Co. v. Frito-Lay, Inc., 788 S.W.2d 152, 153-54 (Tex.App.-Dallas 1990, writ dism'd)). Pursuant to the rule, we consider only the allegations in the underlying complaint and the terms of the insurance policy to determine whether a duty to defend exists, giving the allegations in the petition a liberal interpretation and resolving any doubt in favor of the insured. McCarthy Bros. Co. v. Continental Lloyds Ins. Co., 7 S.W.3d 725, 728 (Tex.App.-Austin 1999, no pet.) (citing Merchants Fast Motor Lines, 939 S.W.2d at 141). "The duty to defend is not affected by the facts of the case ascertained before, during, or after the suit." Cullen/Frost Bank of Dallas, N.A. v. Commonwealth Lloyd's Ins. Co., 852 S.W.2d 252, 255 (Tex.App.-Dallas 1993, writ denied). Nor do we consider the reliability of the allegations in the underlying pleadings. Id. If the underlying petition does not allege facts within the scope of coverage, the insurer has no duty to defend. Id. Once coverage has been found for any portion of a suit, an insurer must defend the entire suit. St. Paul Ins. Co. v. Texas Dep't of Transp., 999 S.W.2d 881, 884 (Tex. App.-Austin 1999, pet. denied). Therefore, to determine whether Lloyds has a duty to defend Main Street, we consider only the allegations in the underlying petitions and the provisions of the insurance policies.

A. Occurrence

The applicable portion of the policies is Section I, Coverage A, which states:

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....

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"; and (2) The "bodily injury" or "property damage" occurs during the policy period.

The policies define "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." However, the policies do not define "accident."

"Accident," in the context of a general liability insurance policy, "include[s] negligent acts of the insured causing damage which is undesigned and unexpected." Massachusetts Bonding & Ins. Co. v. Orkin Exterminating Co., 416 S.W.2d 396, 400 (Tex.1967). However, when the action taken is an intentional tort, there is no accident, regardless of whether the results are unintended or unexpected. See Argonaut Southwest Ins. Co. v. Maupin, 500 S.W.2d 633, 635 (Tex.1973). In Trinity Universal Insurance Co. v. Cowan, the court held that the unauthorized, purposeful copying of revealing personal photographs to show others was intentional, and therefore no accident, 945 S.W.2d 819, 827-828 (Tex.1997), but reaffirmed that the definition of "accident" included "the negligent acts of the insured causing damage which is undesigned and unexpected." Id. at 828 (quoting Orkin, 416 S.W.2d at 400).

Recently, the court again addressed "accident" in an insurance-coverage context and stated that,

an injury is accidental "if from the viewpoint of the insured [it is] not the natural and probable consequence of the action or occurrence which produced the injury; or in...