casenotes
Summit Custom Homes, Inc. v. Great Am. Lloyds Ins. Co.
Summit Custom Homes, Inc. v. Great Am. Lloyds Ins. Co., 2006 WL 1985964 (Tex. App.—Dallas July 18, 2006, n.p.h.).
Court misses opportunity to examine interplay of manifestation trigger and the discovery rule.
Custom home builder Summit was insured under CGL policies issued by Great American from January 1996 to January 2000 and then by Mid-Continent from January 2000 to January 2005. In 1996 Summit built a home for the Lazaruses; after experiencing problems over the course of several years with the Exterior Insulating and Finishing System ( “EIFS”), the Lazaruses sued several contractors and the manufacturer of EIFS in May 2003. One of the defendants, STO Corporation, filed a third-party suit against Summit for indemnity. In their fourth amended petition the Lazaruses added Summit as a defendant. Summit tendered the suit to Great American and Mid-Continent. In the subsequent declaratory action on coverage, the trial court granted the insurers’ motions for summary judgment. The appellate court affirmed in part and reversed in part. Slip op. at *1.
To determine which policies were potentially triggered by the underlying petition, the court first addressed the trigger of coverage. Rejecting the insured’s invitation to adopt an “exposure” or “occurrence” trigger, the court reaffirmed its earlier position that the manifestation trigger applies: “no liability exists on the part of the insurer unless the property damage manifests itself, or becomes apparent, during the policy period.” Id. at *2-3 (quoting Dorchester Dev. Corp. v. Safeco Ins. Co., 737 S.W.2d 380, 383 (Tex. App.—Dallas 1987, no writ). The only date contained in the underlying petition, however, was 1996, the date the house was built; the court therefore held that Great American “failed to establish as a matter of law that damages did not manifest sometime in 1996, 1997, 1998, 1999 or 2000.” Id. at *3.
The court overlooked an important point, however: to avoid limitations problems, the Lazaruses pleaded the discovery rule and alleged that the EIFS problems were “inherently undiscoverable” because they were latent. The Lazaruses further alleged that “[t]he defects cause damage within the wall cavity which is not readily apparent to one examining the exterior of the EIFS surface. As a result the named Plaintiffs would not, in the exercise of reasonable diligence, immediately perceive, or discover the defects complained of herein.” Id. at *3 (emphasis added). The Lazaruses filed suit in May 2003 and included claims of negligence; thus, even if the discovery rule tolled limitations during the latency of the defects, the defects must have become “apparent” to the Lazaruses no earlier than May 2001 – otherwise the two-year limitations period for negligence would still defeat their claims. The requirement that the damage “become apparent” for purposes of the discovery rule is the same standard that the court applies for the manifestation trigger. See Id. at *2. Because only these negligence claims (not the contract-based claims) potentially satisfy the “occurrence” requirement of the policy, the court should have held that the facts pled -- the discovery rule and the date of filing – allowed the inference that no damage had manifested before May 2001 and that Great American’s policies therefore were not triggered.
Aside from the trigger issue, the court also held that: (1) defective construction can constitute an “occurrence,” as demonstrated by the “your work” exclusion and the subcontractor exception to that exclusion; (2) the Mid-Continent policies were not triggered by virtue of the broad EIFS exclusion contained in each of its policies; and (3) article 21.55 does not apply to an insured’s claim of defense to third-party liability. Id. at *4-8.
