Great Am. Ins. Co. v. Hamel

Decision Date19 September 2014
Docket NumberNo. 08–11–00302–CV.,08–11–00302–CV.
Citation444 S.W.3d 780
PartiesGREAT AMERICAN INSURANCE COMPANY d/b/a Great American Insurance Companies, Appellants, v. Glen HAMEL and Marsha Hamel, Appellees.
CourtTexas Court of Appeals

Aaron L. Mitchell, Tollefson Bradley Ball & Mitchell, LLP, Dallas, for Appellants.

Hunter T. McLean, Whitaker, Chalk, Swindle & Sawyer LLP, Fort Worth, for Appellees.




In this insurance coverage and indemnity dispute, Appellants, Great American Insurance Company d/b/a Great American Insurance Companies (hereafter, Great American)1 appeal the trial court's judgment in favor of Glen and Marsha Hamel, Appellees.2 In five issues, Great American alleges the trial court committed reversible error. We sustain Issue Five, modify the trial court's judgment, and affirm the judgment as modified.

Procedural History of the Construction Case

Great American issued policies to its insured, Terry Mitchell Builders, Inc. (TMB) covering policy periods May 3, 1996 to May 3, 1997 (first policy period), May 3, 1997 to May 3, 1998 (second policy period), May 3, 1998 to May 3, 1999 (third policy period), May 3, 1999 to May 3, 2000 (fourth policy period), and May 3, 2000 to May 3, 2001 (fifth policy period). The fourth and fifth policies contain an exclusion relating to exterior insulation and finish system (EIFS), which the policies describe as “synthetic stucco.” The policies for the first three periods do not contain this exclusion.

TMB was hired to inspect and complete construction of a home in Flower Mound, Texas, for Glen and Marsha Hamel after the original contractor, GSM, purportedly abandoned the project. TMB utilized subcontractors and expressly agreed that it would finish the building and complete improvements in a good and workmanlike manner. It completed the Hamels' home in October 1995.

By August 2000, Glen Hamel began to observe baseboards warping and the staining of walls above the baseboards in the home. Glen attempted to determine the cause and eventually consulted with home inspectors who indicated that there was water penetration that was probably related to the roofing and fascia board areas.

In 2005, Glen and Marsha Hamel sued TMB for breach of implied warranty, negligence, violations of the Deceptive Trade Practices Act, and violations of the Residential Construction Liability Act relating to its failure to construct and inspect their home in a good and workmanlike manner (the construction case).3 Great American refused to defend TMB in that case.

On or about May 19, 2005, the Hamels' counsel, Hunter T. McLean, sent a letter to TMB's counsel, Robert Hudnall, to confirm the Hamels' position and agreement on a few matters that Hudnall had raised on behalf of TMB. The Hamels signed a letter wherein they agreed that their claims were against TMB and, in the event of a judgment against TMB, the Hamels would not attempt to enforce or collect the judgment against the assets of Terry Mitchell, individually, or against his other companies or business assets, and would not attempt to pierce the corporate veil of TMB. Based upon Mitchell's representation that TMB had not transferred assets in excess of $25,000, the Hamels further specified that they would not attempt to set aside, void, or invalidate any transfer of assets of TMB to other corporations or business interests of Mitchell. The agreement included a recitation that Terry Mitchell was permitted to continue to use his personal tools of the trade and that the Hamels would not seek to levy upon those assets, even if held in the name of TMB. The Hamels stated that they did not intend to pursue other assets of TMB and agreed not to assign any judgment against TMB or to publish or use the judgment to affect Mitchell's individual credit. In consideration of the Hamels' agreements, Mitchell executed the document on behalf of TMB as evidence of his agreement to appear at trial on May 26, 2005, and not seek a continuance.

On May 25, 2005, Mitchell, on behalf of TMB, executed stipulations of fact under cover of “Stipulations of Fact and Responses to Plaintiffs' First Request for Admissions to Terry Mitchell Builder, Inc. The stipulations primarily related to TMB's duties as a general contractor and supervisor to ensure that the Hamels' home was constructed and completed in a good and workmanlike manner without defects, and to ensure the home was properly inspected for construction defects. TMB stipulated that its failures were honest oversights.

The construction case was tried to the bench. At trial, Hamel testified that water had been entering the house through an open eave area that permits water to flow directly into the ceiling system, and the trial evidence demonstrated that problems involving the roofing structure, including the existence of unfinished open areas, holes, the use of steel nails, missing and improperly installed frieze boards, improperly cut roof decking, and problems with roof valleys and drainage existed.

Terry Mitchell testified as president of TMB. Mitchell testified that as the general contractor on the Hamels' home, he had agreed that the home would be completed in a good and workmanlike manner, and admitted that he had a duty to perform a final inspection to ensure that the home was so completed without problems. Mitchell testified that he had been performing this type of work for 25 years, had tried to do his best, continued to have more work than he could complete, had constant referrals and no complaints. Agreeing he would never leave a project knowing there were problems, Mitchell explained that he does not do any of the work himself, hires third-party independent contractors, and admitted that his main role as a general contractor is to oversee and inspect the work of the subcontractors. Mitchell explained that he is “a little more hands-on kind of guy than an average general contractor,” but admitted that “especially in this case[,] there were some things that were previously done and easy to miss.”

Although Mitchell agreed that a house which is constructed with points of water entry could not be deemed completed in a good and workmanlike manner, he explained that we noted some leaks and some things with the previous [work] and took care of it, like nail holes in the roof that somebody else roofed [,] and did not intend to leave the house with holes and gaps where water could enter. Regarding his failure to determine that the roofing nails were not galvanized, Mitchell explained that this is “easy for an oversight” because the shingle covers the nail and the only way to determine whether galvanized nails were used entails the removal of the roofing shingles. Mitchell admitted that he did not see the fascia board gap or anything detrimental during his final inspection, and agreed that if the roof deck was cut too short, it could not have been completed in a good and workmanlike manner. He also noted that [s]ome of this could have been caught prior to now, and maintenance fooled with it, but a visual back then might not be the same ten years later.” Mitchell agreed, however, that he did not crawl and inspect a window and roof ridge area, and admitted that because they were framed with a gap, they were not finished in a good and workmanlike condition. He also admitted that he did not notice during his final inspection a portion of the roof valley that shoots water at a wall and explained that if it was not waterproofed with flashing and is leaking, it was not constructed correctly. Mitchell explained that he had not water tested the flat roof but noted that he could not have inspected the kind of pan installed without pulling “strings” off to figure out what the previous people had done. Mitchell conceded that it is foreseeable that if gaps are left in the exterior envelope of a house, water may enter during a rain or other event. He also agreed that water can be very destructive to wood, sheetrock, and stud walls, and explained that it is [p]robably one of the bigger problems that there [is].”

According to Mitchell, most of the problems he had been asked about, other than the shower, had been constructed by GSM as the project was 60 percent to 70 percent complete when he took over, and he did not see any of the problems about which he had been asked during direct examination. However, he agreed that if he had done a more thorough inspection, and had actually climbed up on the Hamels' roof, he may have found or identified some of the problems with the home.

Donald Yeandle, a general contractor since 1981, and who is also trained to inspect exterior insulation and finishing systems (EIFS), testified regarding his inspections of the Hamels' home, as well as the construction defects, water entry points, water damage to the studs and other components of the home, and wood rot he observed there.4 Yeandle opined that TMB failed to complete the Hamels' residence in a good and workmanlike manner, and that TMB's failure to do so and to oversee and inspect the work of its subcontractors is responsible for the water entering the home. The trial court entered findings of fact and conclusions of law and, finding that TMB breached the duties it owed the Hamels and that its negligence was the producing and proximate cause of the Hamels' damages, and on July 1, 2005, entered judgment in favor of the Hamels, which included an award of $50,000 for mental anguish and distress.

Procedural History of the Coverage Case

In September 2005, after the Hamels obtained judgment against it, TMB assigned to the Hamels most of its claims against Great American. After Great American refused to pay the damages assessed against TMB in the construction case, the Hamels filed this suit against Great American (the coverage case) for breach of contract, declaratory relief, and Texas Insurance Code violations.5 Like the construction case, the coverage case was tried to the bench, which...

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