Construction Defects
5th Circ. Rejects Insurer's Call To Review Home Defect Ruling
Emily Field | Law 360
December 19, 2014
The Fifth Circuit declined on Thursday [Dec. 18, 2014] to revisit its earlier decision that Mid-Continent Casualty Co. had incorrectly applied a contractual liability exclusion in a construction defect case and also denied a request to certify questions to the Texas Supreme Court.
In a per curiam order without comment, the circuit panel denied Mid-Continent’s request to review its ruling that reversed an earlier summary judgment in the insurer’s favor by saying that the costs to replace the original, defective foundation of Doug and Karen Crownover's house were considered property damage under Mid-Continent's commercial general liability policy.
The Fifth Circuit also denied, again without comment, the insurer’s motion to send two questions to the Texas Supreme Court: whether costs to repair and replace the original, defective foundation was property damage as defined by its policies and whether an HVAC system’s failure to perform also represented property damage in its policies.
The panel’s opinion relied on binding precedent from that court in holding in an October decision that the defective work of contractor Arrow Development Inc., which held a commercial general liability policy from Mid-Continent, was an "occurrence" that caused the HVAC systems to require repairs, constituting "property damage" under that policy.
"As such, where this court has settled on the state law to be applied in a diversity case, that precedent should be followed unless it has been changed through legislation or jurisprudence," the Crownovers said in response to Mid-Continents’ request. "In the absence of such a 'genuinely unsettled matter of state law[,]' this court has been hesitant to certify questions."
Mid-Continent asked the court in November to review its October decision, which granted summary judgment to the Crownovers and reversed a Fifth Circuit opinion from June that had found in favor of the insurer.
In its petition, Mid-Continent argued that the cost of repairing defective work done by a third-party contractor isn’t property damage, basing its argument on another Texas Supreme Court decision, Lamar Homes Inc. v. Mid-Continent Casualty Co.
In July, the Crownovers had asked the Fifth Circuit for a rehearing of its ruling that Mid-Continent had correctly applied a contractual liability exclusion in the construction defect case, basing its argument on another Texas Supreme Court decision, Lamar Homes Inc. v. Mid-Continent Casualty Co.
The Crownovers said that the decision conflicted with the Texas high court’s decision in Ewing. In the Ewing ruling, the state high court held that the contractual liability exclusion does not bar coverage for claims that a builder violated a contractual promise to carry out construction in a “good and workmanlike manner.”
“In light of the Texas Supreme Court's controlling analysis in Gilbert and Ewing, we conclude that the contractual-liability exclusion to coverage does not apply to bar the Crownovers' suit. We also hold that the alternative exclusions from coverage raised by Mid-Continent are inapplicable under the facts established here,” the panel said in its Oct. 29 ruling. “We therefore hold that the Crownovers, rather than Mid-Continent, are entitled to summary judgment.”
In the June opinion, the Fifth Circuit had agreed with Mid-Continent that an exclusion for liabilities that Arrow Development took on solely under a contract barred coverage for homeowners' claims against Arrow over cracks in their home's foundation and walls, as well as problems with an HVAC system.
Representatives for the parties did not respond immediately to requests for comment late Friday.
The Crownovers are represented by J. James Cooper and Stacy R. Obenhaus of Gardere Wynne Sewell LLP and Gregory A. Harwell of Slates Harwell LLP.
Mid-Continent is represented by R. Brent Cooper, Diana L. Faust and Michelle E. Robberson of Cooper & Scully PC.
The case is Crownover et al. v. Mid-Continent Casualty Co., case number 11-10166, in the U.S. Court of Appeals for the Fifth Circuit.
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