Subs Win Defective Work Dispute With Insurance Companies in Texas

Kegler Brown Construction Newsletter

ASA filed a joint brief with the ASA of Texas, AGC Texas Building Branch and PHCC requesting that the Texas Supreme Court rule that property damage caused by a defective foundation is covered by a building contractor’s general liability insurance, which many contractors and insurance agents assume includes coverage for “completed operations.” The brief argued that the “marketing” of general liability insurance policies “emphasizes the availability of coverage for various categories of defective work,” and that “the premium charged …. would be excessive to say the least,” if the insurer’s argument – that defective construction is not covered by the standard policy language – succeeds.

In an August 31, 2007 decision the Supreme Court of Texas found that defective work constitutes an “occurrence” or “property damage” as defined in the standard commercial general liability (CGL) insurance policy. The court held that defective work falls within the definition of an “occurrence” when it is unintentional and unexpected, stating that the policy makes no distinction between damage to the insured’s own work and damage to a third party’s property. Further, the court found that the damages to a home arising out of the defective work of a foundation subcontractor constitutes “physical injury to tangible property,” and thus “property damage” as defined in the policy. Lamar Homes, Inc. v. Mid-Continent Casualty Co., Case No. 05-0832 (8-31-07).