Don's Bldg. Supply v. Onebeacon Ins. Co.
| Decision Date | 29 August 2008 |
| Docket Number | No. 07-0639.,07-0639. |
| Citation | 267 S.W.3d 20 |
| Parties | DON'S BUILDING SUPPLY, INC., Appellant, v. ONEBEACON INSURANCE COMPANY, As Assignee of Potomac Insurance Company of Illinois, Appellee. |
| Court | Texas Supreme Court |
Thomas B. Alleman, Winstead Sechrest & Minick, P.C., Dallas, TX, for Appellant.
Marcus Jarrett Coleman, Dallas, Michelle Macarthur Castro, Fort Worth, Philip Roderick Lamb, Quilling, Selander, Cummiskey & Lownds, Dallas, Tim Headley, and Gene F. Creely II, Cozen O'Connor, Houston, TX, for Appellee.
J. Ross Hostetter, Burdin Mediations, Dallas, TX, for person interested in case.
Paul E. Ridley, Kirkpatrick & Lockhart Preston Gates Ellis LLP, Don Martinson, Fanning Harper & Martinson, P.C., Dallas, TX, for Amicus Curiae.
This insurance-coverage dispute presents two certified questions from the United States Court of Appeals for the Fifth Circuit. The Fifth Circuit asks generally when property damage "occurs" under Texas law for purposes of an occurrence-based commercial general liability insurance policy, a question this Court has never answered. More specifically, is an insurer's duty to defend triggered where damage is alleged to have occurred during the policy period but was inherently undiscoverable until after the policy expired? As to this policy, which focuses on when damage comes to pass, not when damage comes to light, we answer "yes"—the insurer's duty is triggered under Texas law; the key date is when injury happens, not when someone happens upon it.
The relevant facts are set out in the Fifth Circuit's opinion certifying the questions to us.1 Don's Building Supply, Inc. (DBS) sells and distributes a synthetic stucco product known as an Exterior Insulation and Finish System (EIFS). This siding system was installed on various homes from December 1, 1993 to December 1, 1996, during which DBS was covered by comprehensive general liability (CGL) policies issued by Potomac Insurance Company of Illinois and assigned to OneBeacon Insurance Company (OneBeacon).2 From 2003 to 2005, various Texas homeowners filed state-court lawsuits against DBS, alleging the EIFS was defective and not weather-tight, thus allowing moisture to seep into wall cavities behind the siding and causing wood rot and other damages. The homeowners argue these injuries "actually began to occur on the occasion of the first penetration of moisture behind" the EIFS, which they say was "within six months to one year after the application of the EIFS."3 The alleged result of this ongoing moisture exposure was extensive damage to the homes, reduced property values, and the need to retrofit or replace the EIFS.4
In their suits alleging negligence, fraud, and violations of the Texas Deceptive Trade Practices Act,5 the homeowners seek to avoid the statutes of limitations for their various claims by pleading the discovery rule, arguing the home damage was "hidden from view" by the siding's undamaged exterior and "not discoverable or readily apparent to someone looking at that surface until after the policy period ended."6
OneBeacon initially provided a defense to DBS but then filed a declaratory judgment action in federal district court seeking a ruling that it had no duty to defend and indemnify under the CGL policies. The court agreed with OneBeacon that the duty does not arise until the damage becomes identifiable.7 DBS appealed to the Fifth Circuit, which certified the coverage trigger-date questions to us.
The Fifth Circuit first asks:
When not specified by the relevant policy, what is the proper rule under Texas law for determining the time at which property damage occurs for purposes of an occurrence-based commercial general liability insurance policy?
We construe insurance policies according to the same rules of construction that apply to contracts generally.8 Effectuating the parties' expressed intent is our primary concern.9 If an insurance contract uses unambiguous language, we must enforce it as written.10 If, however, a contract is susceptible to more than one reasonable interpretation, we will resolve any ambiguity in favor of coverage.11 Policy terms are given their ordinary and commonly understood meaning unless the policy itself shows the parties intended a different, technical meaning.12 "No one phrase, sentence, or section [of the policy] should be isolated from its setting and considered apart from the other provisions."13 In addition, "we must give the policy's words their plain meaning, without inserting additional provisions into the contract."14
With these principles in mind, we turn to the relevant policy language. The first page provides a one-year policy period with designated start and end dates. The policy provides "bodily injury" and "property damage" coverage as follows:
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.
The policy further provides:
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 policy defines an "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." We recently noted, in construing the same CGL language, that "[a]n accident is generally understood to be a fortuitous, unexpected, and unintended event."15 The policy's requirement that property damage be caused by an "occurrence" limits coverage in at least two respects. First, because the occurrence must be an "accident," coverage for intentional torts is excluded.16 Second, because a single occurrence can be "an accident" and consist of "continuous or repeated exposure to substantially the same general harmful conditions," the definition of occurrence serves to limit the number of occurrences an insured can claim for what the policy deems to be a single accident.17 This limitation is sometimes important because the dollar limits of the policy include an aggregate limit and also a lower dollar limit per occurrence.18
The policy defines "property damage" to mean:
a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or
b. Loss of use of tangible property that is not physically injured. All such loss shall be deemed to occur at the time of the "occurrence" that caused it.
Considering these provisions together and reading them for their plain meaning, we hold that property damage under this policy occurred when actual physical damage to the property occurred. The policy says as much, defining property damage as "[p]hysical injury to tangible property," and explicitly stating that coverage is available if and only if "`property damage' occurs during the policy period." So in this case, property damage occurred when a home that is the subject of an underlying suit suffered wood rot or other physical damage. The date that the physical damage is or could have been discovered is irrelevant under the policy.
We recognize, however, the existence of caselaw discussing when the duty to defend is "triggered" under occurrence-based and other policies. The Fifth Circuit notes that courts have not uniformly resolved this issue.19 To some extent, these varying approaches reflect perceived differences in the policy language under review.20 The varying approaches also reflect different factual circumstances, with some courts not facing, for example, the difficulty encountered in the pending case by an alleged delay between the time of property damage and the discovery of that damage.21
Many courts agree with the analysis we adopt today, sometimes called the "actual injury" or "injury-in-fact" approach, that the insurer must defend any claim of physical property damage that occurred during the policy term.22 Other courts, including several Texas appellate courts, have followed a "manifestation rule" that imposes a duty to defend only if the property damage became evident or discoverable during the policy term.23 The manifestation approach takes different forms, with some courts having the rule turn on when the damage is actually discovered, and others looking to when the damage could have been discovered.24
Even those courts favoring the latter manifestation trigger appear to take differing views of how easily discoverable the damage or injury must be.25
We also note that decisions sometimes cited as following the manifestation rule, and which indeed use a form of the word "manifest" in their analysis, do not actually follow the manifestation rule as opposed to the actual-injury rule, because they were not concerned with latent damage where these two rules diverge. Instead, these cases merely hold that the time of the injury or damage, as opposed to the time of the alleged negligent conduct that caused the injury, is the triggering event under the policy. These cases, when carefully reviewed, may actually be more aligned with the actual-injury rule than with the manifestation rule, and appear to use a form of the verb "manifests" merely as a synonym for "results in" or "leads to," rather than drawing a distinction between the actual occurrence of damage and the later discovery or obviousness of damage.26
Other courts, including two Texas courts of appeals,27 follow an "exposure rule" that finds coverage if the plaintiff is exposed to whatever agent ultimately results in personal injury or property damage during the policy period. Again, what...
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