IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
August 26, 2009
No. 08-50925 Charles R. Fulbruge III
Clerk
WILSHIRE INSURANCE CO.
Plaintiff - Appellee
v.
RJT CONSTRUCTION, LLC
Defendant - Appellant
Appeal from the United States District Court
for the Western District of Texas
Before KING, HIGGINBOTHAM, and CLEMENT, Circuit Judges.
PATRICK E. HIGGINBOTHAM, Circuit Judge:
RJT Construction LLC, the insured, appeals the district court’s summary
judgment in favor of Wilshire Insurance Co., the insurer, in Wilshire’s action
seeking a declaratory judgment that it had no duty to defend.
I
Wilshire insured RJT under two consecutive commercial general liability
policies running from June 2004 through June 2006. In 1999, RJT repaired the
foundation of the home of William Ashbaugh after the home was damaged by an
accidental discharge of plumbing water. RJT was hired to “raise[], level[], and
stabiliz[e] the foundation of the residence that had been induced to move as a
No. 08-50925
result of the accidental discharge of water from a plumbing system.” In late
2005, Ashbaugh alleges that cracks in the walls and ceilings suddenly appeared
in his home, damage which he attributes to the foundation being out of level. In
2007, he sued RJT for negligently performing the foundation repair along the
perimeter of the foundation and for failing to repair the foundation area beneath
the interior of the house.
RJT sought a defense from Wilshire based on the CGL policy. Wilshire,
in return, filed a diversity action seeking a declaratory judgment that it had no
duty to defend or indemnify. The district court granted Wilshire’s motion for
summary judgment, finding that because the alleged property damage was the
result of foundation movement, the policy’s subsidence exclusion precluded
coverage.
II
We review legal determinations in a district court's decision to grant
summary judgment de novo, applying the same legal standards as the district
court to determine whether summary judgment was appropriate.1 Texas applies
the eight-corners rule to determine insurance coverage: “an insurer's duty to
defend is determined by the third-party plaintiff's pleadings, considered in light
of the policy provisions, without regard to the truth or falsity of those
allegations.”2
Before reaching the issue that the district court found
determinative—whether the subsidence exclusion precluded coverage—we first
consider whether there was an occurrence within the policy period to trigger
coverage. The policy is limited to covering damage that “occurs during the policy
period,” here June 2004 through June 2006.
1
Gonzalez v. Denning, 394 F.3d 388, 391 (5th Cir. 2004).
2
GuideOne Elite Ins. Co. v. Fielder Road Baptist Church, 197 S.W.3d 305, 308 (Tex.
2006).
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The Texas Supreme Court recently held as to a CGL policy similar to the
policy in this case that “[o]ccurred means when damage occurred, not when
discovery occurred.” 3 There, homeowners sued a stucco supplier alleging that
the stucco allowed moisture to seep into the walls causing internal wood rot
which progressed unnoticed because of the undamaged exterior.4 The supplier’s
CGL insurer sought a declaratory judgment that it had no duty to defend
because the damage was not discovered until after the policy period.5 In
answering this Court’s certified question, the Texas Supreme Court, based on
the plain language of the policy which requires damage to occur during the
policy period, made clear that “the key date is when injury happens, not when
someone happens upon it.” 6 If the third-party plaintiff’s complaint alleges any
amount of property damage that occurred during the policy period and that was
caused by the insured, the duty to defend arises.7
Wilshire urges that the homeowner’s complaint in this case makes no
allegations that property damage occurred during the policy period. We
disagree. The complaint alleges that “cracks in the walls and ceilings” were
“suddenly appearing” in late 2005. The cracks themselves are physical damage
allegedly caused by the faulty foundation. This is not a case where latent
internal rot long lies undiscovered before external signs warn of the festering
damage. The cracks are not merely a warning of prior undiscovered damage;
they are the damage itself. It is of no moment that the faulty foundation work
3
Don’s Building Supply, Inc. v. OneBeacon Ins. Co., 267 S.W.3d 20, 30 (Tex. 2008).
4
Id. at 22–23.
5
Id. at 23.
6
Id. at 22.
7
Id. at 31–32.
3
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occurred in 1999, 8 or that the damage was discovered in 2005; it matters only
that damage was alleged to have occurred in 2005.9 The complaint’s allegations
trigger coverage unless an exclusion is applicable.
III
The district court held that the policy’s subsidence exclusion precluded
coverage. The exclusion reads:
It is agreed that this policy shall not apply to any claim of
liability . . . caused by, resulting from, attributable or
contributed to, or aggravated by the subsidence of land as a
result of landslide, mudflow, earth sinking or shifting, resulting
from your operations or your subcontractor’s operations.
The district court found the exclusion applied because the alleged foundation
movement would not have occurred if not for the faulty repair. The court focused
on the movement of the foundation. But the exclusion focuses on the movement
of land, not of the foundation, listing examples of “landslide, mudflow, earth
sinking or shifting.” This movement of land must “result[] from the [insured’s]
operations.”10 Here, the complaint does not allege RJT’s operations resulted in
8
Don’s Building quotes a leading treatise: “the time of the occurrence of the accident
within an indemnity policy is generally not considered the time the wrongful act was
committed but the time when the complaining party was actually damaged.” 7A JOH N ALAN
APPLEM AN , INSURANCE LAW AND PRACTICE § 4491.01 (Walter F. Berdal ed., 1979).
9
The complaint also makes an allegation regarding discovery: “Around late 2005,
Plaintiff discovered that Defendants’ product and services did not result in stabilizing and
leveling the foundation or otherwise fixing the foundation problem.” This allegation does not
affect the analysis about when damage occurred. It does not contradict the allegation that
damage occurred “suddenly” in 2005. The discovery in the allegation relates to when the
plaintiff discovered the work was faulty, an allegation going to negligence or causation, not
damage.
10
The Ninth Circuit, in an unpublished opinion, interpreted a similar exclusion which
precluded coverage for damage from subsidence resulting from the insured’s operations.
United Capitol Ins. Co. v. Ferma Corp., 114 F.3d 1197 (9th Cir. 1997). The contested issue was
whether the damage was the direct result of vibrations generated by the insured’s equipment
or whether the vibrations caused the land to “lose its lateral support, such that its earth and
soil were caused to ‘slip and subside,’” 1995 WL 481686, at *1 (N.D. Cal. 1995), which in turn
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movement of the earth. Instead, when the earth moved from unknown or
unalleged causes, RJT’s negligent foundation work failed to stop the foundation
from moving. In other words, it is not alleged RJT’s operations resulted in
subsidence; rather, the complaint alleges RJT failed to repair the foundation to
withstand subsidence. The subsidence exclusion does not apply.
IV
Wilshire also argues that the “your work” exclusion precludes coverage.
The exclusion states:
This insurance does not apply to:
‘Property damage’ to ‘your work’ arising out of it or any part of it
and included in the ‘products-completed operations hazard.’
This exclusion does not apply if the damaged work or the work out
of which the damage arises was performed on your behalf by a
subcontractor.
A CGL policy generally protects the insured when his work damages someone
else’s property. The “your work” exclusion prevents a CGL policy from morphing
into a performance bond covering an insured’s own work.11
The exclusion precludes coverage for the cost of repairing RJT’s own work,
the foundation. In Lamar Homes, Inc. v. Mid-Continent Casualty Co., 12 a
homebuyer sued the homebuilder for damage that he attributed to defects in the
home’s foundation, which was built by a subcontractor. The homebuilder’s work
extended to the entire house and the Texas Supreme Court noted that the
exclusion would have applied but for the subcontractor exception.13 Here, the
caused the damage.
11
See Mid-Continent Casualty Co. v. JHP Development, Inc., 557 F.3d 207, 212 (5th Cir.
2009).
12
242 S.W.3d 1, 5 (Tex. 2007).
13
Id. at 11.
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No. 08-50925
foundation was RJT’s own work, not that of a subcontractor to the insured. The
exclusion applies to preclude coverage for repairing the foundation.
The exclusion, however, only precludes coverage for liability for repairing
or replacing the insured’s own defective work; it does not exclude coverage for
damage to other property resulting from the defective work. In Travelers
Insurance Co. v. Volentine,14 the insured, an automobile mechanic, performed
faulty work on an engine’s valves which resulted in the destruction of the entire
engine. The Texas appellate court noted that Volentine was not alleged to have
worked on any other part of the engine but the valves and thus held that the
“your work” exclusion precluded coverage for replacing the valves themselves,
but “[t]o the extent those other parts [of the engine] were damaged or destroyed
and Volentine is liable therefor, the policy affords coverage.”15
The complaint alleges that the faulty foundation caused damage to other
parts of the house that RJT did not work on including the walls and ceilings.16
The “your work” exclusion does not preclude coverage for damage to the parts of
the house resulting from the allegedly faulty foundation. Because these
damages present a covered claim, Wilshire must defend the entire suit.17 Having
14
578 S.W.2d 501, 503 (Tex. Civ. App.—Texarkana 1979).
15
Id. at 504. See also T.C. Bateson Constr. Co. v. Lumbermens Mut. Cas. Co., 784
S.W.2d 692, 694–95 (Tex. App.—Houston [14th Dist.] 1989) (“The purpose of comprehensive
liability insurance coverage is to provide protection to the insured for personal injury or for
property damage caused by the completed product but not for the replacement and repair of
that product.”).
16
Wilshire submits that the complaint defines RJT’s work to include the entire house.
To the contrary, the complaint makes clear that RJT was brought onto the job as the
“foundation repair subcontractor.”
17
Zurich Am. Ins. Co. v. Nokia, Inc., 268 S.W.3d 487, 491 (Tex. 2008) (“If a complaint
potentially includes a covered claim, the insurer must defend the entire suit.”).
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found a duty to defend, we leave the ultimate question of coverage until full
resolution of the case.18
REVERSED and REMANDED.
18
Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1, 5 (Tex. 2007) (“We do
not reach the duty to indemnify, however, as that duty is not triggered by allegations but
rather by proof at trial.”).
7