Lennar Corp. v. Great American Ins. Co.

• Citation: 200 S.W.3d 651
• Decision Date: 23 February 2006
• Docket Number: No. 14-02-00860-CV.,14-02-00860-CV.
• Parties: LENNAR CORPORATION, Lennar Homes of Texas Land and Construction, Limited, and Lennar Homes of Texas Sales and Marketing, Limited d/b/a Village Builders, Appellants, v. GREAT AMERICAN INSURANCE COMPANY, American Dynasty Surplus Lines Insurance Company, Markel American Insurance Company, Gerling America Insurance Company, RLI Insurance Company, Insurance Company of the State of Pennsylvania and Westchester Fire Insurance Company, Appellees.
• Court: Court of Appeals of Texas

200 S.W.3d 651

LENNAR CORPORATION, Lennar Homes of Texas Land and Construction, Limited, and Lennar Homes of Texas Sales and Marketing, Limited d/b/a Village Builders, Appellants, v. GREAT AMERICAN INSURANCE COMPANY, American Dynasty Surplus Lines Insurance Company, Markel American Insurance Company, Gerling America Insurance Company, RLI Insurance Company, Insurance Company of the State of Pennsylvania and Westchester Fire Insurance Company, Appellees.

No. 14-02-00860-CV.

Court of Appeals of Texas, Houston (14th Dist.).

February 23, 2006.

Substituted Concurring and Dissenting Opinion by Justice Edelman April 11, 2006.

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Cynthia Hollingsworth and Kimberly Marie Phillips, Houston, for Appellants.

Greg K. Winslett, Ellen L. Van Meir, Dallas, B. Lee Ware, David S. Lynch, Houston, Appellees.

Panel consists of Justices FOWLER, EDELMAN and SEYMORE.

SUBSTITUTE MAJORITY OPINION

CHARLES W. SEYMORE, Justice.

We overrule appellees' motions for rehearing. We withdraw our opinion dated June 2, 2005 and issue this substitute majority opinion.

This case involves an insurance coverage dispute over whether the insured homebuilders are covered under six commercial general liability ("CGL") policies for damages resulting from their application of defective stucco material to numerous homes. Appellants, Lennar Corporation, Lennar Homes of Texas Land and Construction, Limited, and Lennar Homes of Texas Sales and Marketing, Limited, d/b/a Village Builders (collectively "Lennar") are the insureds.¹ Appellees, Great American Insurance Company and American Dynasty Surplus Lines Insurance Company (collectively "American Dynasty"),² Gerling America Insurance Company ("Gerling"), Markel American Insurance Company ("Markel"), RLI Insurance Company ("RLI"), Insurance Company of the State of Pennsylvania ("ICSOP"), and Westchester Fire Insurance Company ("Westchester"), are the insurance carriers (collectively "the carriers"). Lennar appeals the denial of its motion for summary judgment and the grant of each carrier's motion for summary judgment on the coverage issues. Lennar also appeals the grant of American Dynasty's separate motion for summary judgment on Lennar's extra-contractual claims.

We affirm the denial of Lennar's motion for summary judgment as to all carriers. We affirm the summary judgments in favor of Gerling, RLI, ICSOP, and Westchester. We reverse and remand the summary judgment on coverage issues in favor of Great American/American Dynasty. We reverse and remand the summary judgment in favor of Markel. We affirm the summary judgment in favor of Great American/American Dynasty on Lennar's extra-contractual claims.

I. BACKGROUND

From early 1996 through late 1999, Lennar built more than 400 homes in the Houston area with a synthetic stucco called Exterior Insulation and Finish System ("EIFS"). According to Lennar, the manufacturers of EIFS marketed it as an ideal product for wood-framed homes. However, Lennar contends it later discovered that EIFS is defectively designed such that it traps water behind it and does not allow the water to drain. Consequently, the trapped water can cause damage, such as wood rot, mold, and termite infestation, among other problems, to other parts of the home.

Through the spring of 1999, Lennar had received a few complaints from homeowners about EIFS-related problems. In the spring of 1999, the complaints increased after television programs regarding EIFS aired. According to Lennar, it initially accepted the manufacturer's position that the problems were caused by installation error and/or were typical of wood-framed homes. Therefore, Lennar addressed these complaints on an individual basis. However, by September 1999, after spending the summer responding to complaints, Lennar became convinced EIFS is a defective product.

Thereafter, Lennar removed the EIFS from all the homes and replaced it with a traditional stucco.³ According to Lennar, it also repaired resulting water damage to the homes although the extent to which any homes sustained damage is disputed. Lennar then sought indemnification for all its replacement and repair costs from the carriers. The carriers refused to indemnify Lennar for the EIFS claims contending there is no coverage under their policies.⁴

Lennar sued the carriers requesting a declaratory judgment that they have a duty to indemnify Lennar for the EIFS claims and alleging breach of contract and violations of former article 21.55 of the Texas Insurance Code based on the carriers' refusal to indemnify. In addition, Lennar asserted extra-contractual claims against American Dynasty only. Lennar and each carrier filed a motion for summary judgment on the coverage issues. The trial court denied Lennar's motion and granted all the carriers' motions. American Dynasty also filed a motion for summary judgment on Lennar's extra-contractual claims, and the trial court granted the motion.⁵

II. THE ISSUES AND OUR REVIEW

In its first issue, Lennar contends the trial court erred by denying Lennar's motion for summary judgment because Lennar established coverage under all the policies. Alternatively, in its second issue Lennar contends the trial court erred by granting the carriers' motions for summary judgment because there was, at least, a genuine issue of material fact on whether coverage exists under all the policies. In its third issue, Lennar contends the trial court erred by granting American Dynasty's motion for summary judgment on Lennar's extra-contractual claims. In its fourth issue, Lennar contends Texas law applies to this dispute.

Well-settled principles govern review of summary judgments in insurance coverage disputes. See State Farm Fire & Cas. Co. v. Vaughan, 968 S.W.2d 931, 933 (Tex. 1998) (per curiam).⁶ To prevail on a traditional motion for summary judgment, the movant must establish there is no genuine issue of material fact so that the movant is entitled to judgment as a matter of law. TEX.R. CIV. P. 166a(c); Fort Worth Osteopathic Hosp., Inc. v. Reese, 148 S.W.3d 94, 99 (Tex.2004). To prevail on a no-evidence motion for summary judgment, the movant must establish that "after adequate time for discovery, there is no evidence of one or more essential elements of a claim or defense on which an adverse party would have the burden of proof at trial." TEX.R. CIV. P. 166a(i); Reese, 148 S.W.3d at 99. To defeat a no-evidence motion, the nonmovant must produce more than a scintilla of evidence raising a genuine issue of material fact. TEX.R. CIV. P. 166a(i); Reese, 148 S.W.3d at 99.⁷ When, as here, a trial court's order granting summary judgment does not specify the grounds relied upon, we must affirm summary judgment if any of the grounds are meritorious. FM Props. Operating Co. v. City of Austin, 22 S.W.3d 868, 872-73 (Tex.2000). Finally, when both parties move for summary judgment and the trial court grants one motion and denies the other, we must review both parties' summary-judgment evidence, determine all issues presented, and render the judgment that the trial court should have rendered. Id. at 872.

Lennar filed one motion for summary judgment as to all the carriers. However, each of the six carriers filed its own motion for summary judgment and response to Lennar's motion for summary judgment. Therefore, in effect, we have six separate cross-motions for summary judgment to review on the coverage issues. However, the dispute with respect to each cross-motion follows a typical framework for insurance coverage litigation.

Interpretation of insurance contracts is governed by the same rules as interpretation of other contracts. Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d 819, 823 (Tex.1997); Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex.1994). When construing a contract, the court's primary concern is to give effect to the written expression of the parties' intent. Forbau, 876 S.W.2d at 133. We construe an unambiguous insurance policy as a matter of law. Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 157 (Tex.2003). Further, the duty to indemnify is triggered by the actual facts establishing the insured's liability in the underlying suit. Cowan, 945 S.W.2d at 821.

Generally, an insured bears the initial burden to prove the claims against it fall within the scope of coverage afforded by the policy's initial "insuring agreement." Comsys Info. Tech. Servs., Inc. v. Twin City Fire Ins. Co., 130 S.W.3d 181, 193 (Tex.App.-Houston [14th Dist.] 2003, pet. denied); Evergreen Nat'l Indem. Co. v. Tan It All, Inc., 111 S.W.3d 669, 675 (Tex.App.-Austin 2003, no pet.). Then, the insurer bears the burden to prove an exclusion or other avoidance of coverage. Comsys, 130 S.W.3d at 193; Tan It All, 111 S.W.3d at 675; see Act of May 27, 1991, 72nd Leg., R.S., ch. 242, § 11.03, 1991 Tex. Gen. Laws 939, 1046 (repealed and recodified 2003) (current version at TEX. INS.CODE ANN. § 554.002 (Vernon Supp.2005)). Lennar asserts it is entitled to coverage for the EIFS claims because it was "legally obligated to pay . . . damages because of . . . `property damage' . . . caused by an `occurrence'" as required by the initial "insuring agreement" of all the policies.⁸ However, all the carriers dispute that there was an "occurrence" and "property damage" as defined in the policies. Then, each carrier asserts various exclusions, conditions precedent, or other grounds to defeat coverage under its respective policy.

First, we will address the "occurrence" and "property damage" issues because they are common to all carriers.⁹ Then, we will review the cross-motions for summary judgment as to each carrier. Finally, we will review American Dynasty's motion for summary judgment on Lennar's extra-contractual claims.

III. "OCCURRENCE" UNDER TEXAS LAW

"Occur...