{"id":521,"date":"2024-10-25T08:10:38","date_gmt":"2024-10-25T12:10:38","guid":{"rendered":"https:\/\/blogs.duanemorris.com\/insurancelaw\/?p=521"},"modified":"2024-10-25T08:10:39","modified_gmt":"2024-10-25T12:10:39","slug":"texas-contractors-coverage-claims-foreclosed-by-defective-workmanship-exclusion","status":"publish","type":"post","link":"https:\/\/blogs.duanemorris.com\/insurancelaw\/2024\/10\/25\/texas-contractors-coverage-claims-foreclosed-by-defective-workmanship-exclusion\/","title":{"rendered":"Texas Contractor\u2019s Coverage Claims Foreclosed by Defective Workmanship Exclusion"},"content":{"rendered":"\n

By: Daniel B. Heidtke<\/a><\/strong><\/p>\n\n\n\n

In a recent case decided in the Southern District of Texas, the court entered summary judgment, holding that the insurer\u2019s \u201cconstruction [and] workmanship\u201d exclusion excluded coverage as a matter of law.  The claim, brought by a contractor against a subcontractor\u2019s insurer, arose out of allegedly defective work related to pipe fabrication.<\/p>\n\n\n\n

The contractor agreed to fabricate, construct, and install pipes for a construction project in Corpus Christi, Texas.  The contractor then hired a subcontractor to fabricate piping for the project.  \u201cAs a pipe fabricator, [the subcontractor] was responsible for creating or customizing pipes for the Project so that they fit its exact requirements.\u201d  \u201cIn connection with its work,\u201d the subcontractor obtained a property insurance policy, which covered the workshop where it welded the components to fit the project\u2019s needs. <\/p>\n\n\n\n

The contractor eventually discovered that some of the subcontractor\u2019s work was defective, and asserted that the subcontractor missed \u201cdelivery times and production standards for the [p]roject.\u201d  The contractor eventually pursued a claim under the subcontractor\u2019s policy.<\/p>\n\n\n\n

The insurer denied the claim, asserting: (1) the pipes were not \u201ccovered property\u201d; (2) the damages to the pipes did not occur at a \u201ccovered location\u201d; and (3) the damages to the pipes did not constitute \u201cphysical loss.\u201d  The insurer also relied on \u201cExclusion \u2018f,\u2019\u201d which barred coverage \u201cfor loss resulting from the design, specification, construction, workmanship, installation, or maintenance of property[.]\u201d  In response, the contractor filed suit, alleging breach of contract (as subrogee to the subcontractor\u2019s rights), and extracontractual claims for violations of Sections 541 and 542 of the Texas Insurance Code.<\/p>\n\n\n\n\n\n\n\n

The court analyzed the policy language, which provided coverage for \u201cdirect physical loss to covered property at a \u2018covered location\u2019 caused by a covered peril.\u201d  It concluded, \u201c[b]ased on this, there are three elements to coverage: (1) the loss must occur at a \u2018covered location\u2019; (2) the loss must be to \u2018covered property\u2019; and (3) the loss must be caused by a \u2018covered peril.\u2019\u201d  Because the policy \u201ccover[ed] risk of direct physical loss unless the loss is limited or caused by a peril that is excluded,\u201d the court analyzed Exclusion (f). <\/p>\n\n\n\n

The court focused on Exclusion (f)\u2019s exclusion for damages arising out of \u201cconstruction\u201d and \u201cworkmanship\u201d.  It applied plain meanings to the terms of Exclusion (f) and found that \u201cconstructing\u201d means \u201cto make or form by combining or arranging parts or elements\u201d and \u201cworkmanship\u201d means \u201cthe quality imparted to a thing in the process of making.\u201d  It noted that the Fifth Circuit has likewise observed:<\/p>\n\n\n

\u201cA defect in workmanship is a defect in the way some part of the (insured property) is constructed . . . .\u201d [T]he [defective-workmanship] clause excludes coverage for damages \u201cresulting from defects in the product caused by faults in the construction process . . . It is the quality of the product which is excluded from coverage, and not damage to the product caused by negligence during the construction process.\u201d<\/p>\n\n\n

U.S. Indus., Inc. v. Aetna Cas. & Sur. Co.<\/em>, 690 F.2d 459, 462 (5th Cir. 1982) (first quoting Equitable Fire & Marine Ins. v. Allied Steel Constr. Co.<\/em>, 421 F.2d 512, 514 (10th Cir. 1970); and then quoting City of Barre v. N.H. Ins.<\/em>, 396 A.2d 121, 122\u201323 (Vt. 1978)). The \u201cnegligence\u201d referenced there is \u201cfortuitous damage to construction property extraneous to the construction of the product itself<\/em>,\u201d not damage resulting from part of the construction process. Id. <\/em>(emphasis added).<\/p>\n\n\n\n

After analyzing the contractor\u2019s alleged damages, the court found that each of the damages \u201cplainly relate[d] to (1) construction (i.e., the process, art, or manner in which the fabricated pipes were made or formed); or (2) workmanship (i.e., the quality imparted to the fabricated pipes in the process of making them).\u201d  Relying on its analysis of Balfour Beatty Construction, LLC v. Liberty Mutual Fire Insurance Co.<\/em>, 968 F.3d 504 (5th Cir. 2020), the court also found that even though Exclusion (f) contained an \u201censuing-loss\u201d exception, the damages in this case were \u201cthe direct and unmediated result\u201d of the subcontractor\u2019s defective construction and workmanship.  As a result, the ensuing loss close could not \u201creinstated coverage\u201d for any damage to the individual pipe components or any loss that followed.<\/p>\n\n\n\n

Because the contractor\u2019s breach of contract claim failed, the insurer argued, so too must the contractor\u2019s extracontractual claims.  The court agreed: \u201cThe general rule is that an insured cannot recover policy benefits for an insurer\u2019s statutory violation is the insured does not have a right to those benefits under the policy.\u201d  USAA Tex. Lloyds Co. v. Menchaca<\/em>, 545 S.W.3d 479, 490 (Tex. 2018).  Continuing, the court explained, \u201cTexas courts have \u2018yet to encounter\u2019 a successful independent-injury claim[,]\u201d Mechaca<\/em>, 545 S.W.3d at 499-500, and the contractor failed to demonstrate it should be the first.  Accordingly, the court entered summary judgment in favor of the insurer on the contractor\u2019s breach of contract and extracontractual claims.<\/p>\n\n\n\n

Decided by U.S. District Judge Drew B. Tipton, the case is Corval Builders & Erectors, Inc. v. Markel American Ins. Co.<\/em>, 4:21-cv-01268.<\/p>\n","protected":false},"excerpt":{"rendered":"

By: Daniel B. Heidtke In a recent case decided in the Southern District of Texas, the court entered summary judgment, holding that the insurer\u2019s \u201cconstruction [and] workmanship\u201d exclusion excluded coverage as a matter of law.  The claim, brought by a contractor against a subcontractor\u2019s insurer, arose out of allegedly defective work related to pipe fabrication. … <\/p>\n

Continue reading “Texas Contractor\u2019s Coverage Claims Foreclosed by Defective Workmanship Exclusion”<\/span><\/a><\/p>\n","protected":false},"author":243,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[],"ppma_author":[431],"class_list":["post-521","post","type-post","status-publish","format-standard","hentry","category-general"],"authors":[{"term_id":431,"user_id":243,"is_guest":0,"slug":"dbheidtke","display_name":"Daniel B. Heidtke","avatar_url":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-content\/uploads\/sites\/12\/2024\/10\/Danny-Heidtke-LinkedIn-6249-e1729870422263-100x100.jpg","0":null,"1":"","2":"","3":"","4":"","5":"","6":"","7":"","8":""}],"_links":{"self":[{"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/posts\/521","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/users\/243"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/comments?post=521"}],"version-history":[{"count":0,"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/posts\/521\/revisions"}],"wp:attachment":[{"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/media?parent=521"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/categories?post=521"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/tags?post=521"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/ppma_author?post=521"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}