Vines-Herrin Custom Homes, LLC v. Great American Lloyds Ins. Co., No. 05–10–00007–CV.

• Court: Court of Appeals of Texas
• Citation: 357 S.W.3d 166
• Decision Date: 21 December 2011
• Parties: VINES–HERRIN CUSTOM HOMES, LLC, Herrin Custom Homes, and Emil G. Cerullo, Appellants, v. GREAT AMERICAN LLOYDS INSURANCE COMPANY and Mid–Continent Casualty Company, Appellees.
• Docket Number: No. 05–10–00007–CV.

357 S.W.3d 166

VINES–HERRIN CUSTOM HOMES, LLC, Herrin Custom Homes, and Emil G. Cerullo, Appellants,
v.
GREAT AMERICAN LLOYDS INSURANCE COMPANY and Mid–Continent Casualty Company, Appellees.

No. 05–10–00007–CV.

Court of Appeals of Texas, Dallas.

Dec. 21, 2011.

[357 S.W.3d 168]

Geoffrey Scott Harper, Victor C. Johnson and Taj J. Clayton, Fish & Richardson, P.C., Dallas, TX, for Appellant.

R. Brent Cooper, Diana L. Faust and Michelle E. Robberson, Cooper & Scully, P.C., Dallas, TX, for Appellee.

Before Justices FITZGERALD, FRANCIS, and LANG–MIERS.OPINION Opinion By Justice FRANCIS.

In this insurance coverage dispute, Vines–Herrin Custom Homes, LLC, Herrin Custom Homes, and Emil G. Cerullo appeal the trial court's take-nothing judgment in favor of Great American Lloyds Insurance Company and Mid–Continent Casualty Company. In two issues, appellants argue the trial court erred as a matter of law by requiring them to allege and then to prove, through expert testimony, the exact dates physical damage occurred to Cerullo's property in order to trigger the insurance companies' duties to defend and indemnify. We agree with appellants and reverse the trial court's judgment and remand for further proceedings consistent with this opinion.

In 1999, Vines–Herrin built a single-family residence at 6617 Shady Creek in Plano. Before beginning construction, Vines–Herrin obtained commercial general liability (CGL) insurance coverage from Great American. The initial policy provided coverage from November 9, 1998 to November 9, 1999 and was renewed for a year, ending on November 9, 2000. After the Great American policies expired, Vines–Herrin purchased insurance coverage from Mid–Continent, a sister company of Great American. The first Mid–Continent policy covered the period from November 9, 2000 to November 9, 2001, and the second policy covered the period from September 18, 2001 to September 18, 2002.

Cerullo first saw the house while it was under construction but was told it was under contract to another buyer. About two months later, Vines–Herrin contacted Cerullo and told him the deal “fell through,” and Cerullo agreed to buy the house if certain renovations were made. Ultimately, Vines–Herrin added a game room and bathroom, modified the garage and kitchen areas, and installed an 8,000–gallon fish tank. Cerullo bought the house in May 2000 for $989,353.

Within days of moving in, Cerullo began having problems with the house, including water intrusion and doors not shutting properly after a rainstorm. Over the next few months, Cerullo noticed water gathering on window sills and damage to the sheetrock and baseboards. Additionally, cracks developed in the ceiling. Around Thanksgiving Day 2000, Cerullo discovered a window in the back of the master bathroom had begun to sink into the frame of the house. In 2001, more cracks and leaks developed, and in early 2002, the ceiling and roof began to sag.

Cerullo informed Vines–Herrin of the ongoing problems with the house. When repairs were not made, in January 2003 Cerullo sued Vines–Herrin and others in state district court in Collin County to recover for the damage to his property resulting from negligent construction.

[357 S.W.3d 169]

Vines–Herrin filed a claim with appellees seeking a defense and indemnification under the insurance policies. Appellees refused to provide a defense, prompting Vines–Herrin to file this lawsuit seeking a declaration that the insuring contracts required appellees to provide a full defense and indemnification in Cerullo's lawsuit. Additionally, Vines–Herrin brought claims for breach of the duty of good faith and fair dealing, breach of contract, and DTPA and insurance code violations.

As the Collin County litigation proceeded over the next few years, Vines–Herrin made additional requests to appellees for a defense against Cerullo's lawsuit, which appellees rejected. In May 2006, Vines–Herrin notified appellees that it had run out of defense funds and had agreed to arbitrate the dispute with Cerullo. The arbitration petition dropped all allegations except negligence, and a copy was sent to appellees, who refused to participate or attend the arbitration. The parties jointly selected an arbitrator who, after hearing the evidence, awarded Cerullo damages in the amount of $2,487,507.77. Cerullo and Vines–Herrin executed a settlement agreement in which, among other things, Cerullo became the rightful owner of all remaining claims, rights, and causes of action against appellees.

Cerullo then filed a petition in intervention in this coverage lawsuit. In May 2008, the case was tried to the court without a jury utilizing the “manifestation rule,” which was the controlling law at the time and imposed a duty to defend only if the property damage manifested or became apparent during the policy period. After hearing the evidence, the trial court originally ruled in Cerullo's favor. However, during the pendency of post-judgment motions, the Texas Supreme Court issued an opinion rejecting the manifestation rule and adopting an “actual injury” approach. See Don's Bldg. Supply, Inc. v. OneBeacon Ins. Co., 267 S.W.3d 20, 24–25 (2008). Under the “actual injury” approach, property damage “occurs” when actual physical damage takes place rather than when the damage manifests itself or becomes discoverable. Id. at 24. Because of the change in the law, the trial court set aside its judgment and reopened the evidence under Texas Rule of Civil Procedure 270 for the limited purpose of hearing evidence of when actual damage to the residence occurred. After hearing this additional evidence, the trial court rendered a take-nothing judgment in appellees' favor based on the post- Don's Building actual-injury standard.

In its judgment, the trial court stated its “concern” that appellants had failed to “provide expert testimony regarding the exact date on which the damages to Mr. Cerullo's home occurred.” In its amended findings of fact and conclusions of law, the trial court found that although appellants “have established that (1) the Residence was covered by an uninterrupted period of insurance (which began before the Residence was constructed) and (2) that the damages to the Residence manifested during the uninterrupted period of insurance coverage, [appellants] failed to show, by expert testimony, the date when actual physical damage to the property occurred. Therefore, judgment for the Insurance Companies is required.” Additionally, citing to Don's Building, the court concluded “Mr. Cerullo failed to allege the date when actual physical damage to the property occurred; therefore, it now seems [appellees] had no duty to defend Vines–Herrin against Mr. Cerullo's claim.”

Appellants filed this appeal, challenging in two issues the trial court's reading of Don's Building to require a party to allege an exact date that physical damage occurred and to require expert testimony to

[357 S.W.3d 170]

prove an actual date of injury in this case. Appellees have brought conditional cross-issues, which they say provide alternative grounds to affirm the judgment. Because it involves jurisdiction, we begin by addressing appellees' first cross-issue.

Appellees assert the trial court rendered a final judgment in this case in October 2004; therefore, all subsequent proceedings, including the trial of the case, were void for lack of jurisdiction.

The record shows that on October 28, 2004, the former presiding judge signed a document entitled “Final Judgment” in which the court considered the “Defendants' Cross–Motion for Summary Judgment.” The judge granted the motion and ordered, adjudged, and decreed that Great American and Mid–Continent had no duty to defend and/or indemnify Vines–Herrin or Herrin Custom Homes. The judgment awarded costs against the plaintiffs and stated the following: “This is a final judgment and all other relief not specifically granted herein is denied.”

In their brief, appellees acknowledge that (1) at the time of the judgment, there was another defendant in the case; ¹ (2) all claims were not adjudicated in the judgment; and (3)...