Media Contact

Katie Nussle
214-880-2646
knussle@thompsoncoe.com

Related Attorney
Related Practice
Related Industry
Lamar Homes, Inc. v. Mid Continent Casualty Company, 2005 WL 2432029 (5th Cir. Tex., Oct. 3, 2005)
10.15.05

The Fifth Circuit Court of Appeals was presented with Lamar Homes, Inc. v. Mid-Continent Cas. Co., on appeal from the United States District Court for the Western District of Texas.

In this case, Vincent and Janice DiMare entered into a contract to purchase a home constructed by Lamar Homes, Inc. The DiMares later filed suit against Lamar, alleging that Lamar was negligent and failed to properly design and/or construct the foundation of the DiMares’ residence, and in conformity with implied and express warranties. Lamar tendered its defense to Mid-Continent Casualty Company under a commercial general liability policy. Mid-Continent denied a defense.

Lamar then filed a declaratory judgment action seeking a determination that Mid-Continent’s general liability policy covered the DiMares’ claims and that the failure to defend violated Texas Insurance Code Article 21.55. Ruling on cross-motions for summary judgment, the District Court held, as a matter of law, that the underlying claims for construction errors essentially presented a claim for breach of contract or breach of warranty; therefore, no duty to defend was present. The District Court reasoned that damages resulting from construction errors are essentially claims for pure economic loss, and coverage for such claims transforms a liability policy into a performance bond for contractors.

Citing to the numerous conflicting Texas intermediate courts of appeal and Texas federal district court opinions, that have decided whether claims of shoddy construction constitute an “occurrence” or could result in “property damage” versus purely economic loss, the Fifth Circuit certified three issues to the Texas Supreme Court for resolution. The following questions were certified:

  1. When a homebuyer sues his general contractor for construction defects and alleges only damage to or loss of use of the home itself, do such allegations allege an “accident” or “occurrence” sufficient to trigger the duty to defend or indemnify under a CGL policy?
  2. When a homebuyer sues his general contractor for construction defects and alleges only damage to or loss of use of the home itself, do such allegations allege “property damage” sufficient to trigger the duty to defend or indemnify under a CGL policy?
  3. If the answers to certified questions 1 and 2 are answered in the affirmative, does Article 21.55 of the Texas Insurance Code apply to a CGL insurer’s breach of the duty to defend?

The Texas Supreme Court is under no obligation to answer questions certified from the Fifth Circuit Court of Appeals. Even so, an answer to these questions would resolve three vigorously contested issues in Texas insurance law.