In answering a certified question from the Fifth Circuit, the Texas Supreme Court adopted the injury-in-fact trigger for a comprehensive liability policy in Don's Building Supply Inc. v. OneBeacon Ins. Co., No. 07-0639 (Tex. Aug. 29, 2008).
The insured sold and distributed insulation which was installed in various homes from December 1, 1993 to December 1, 1996. During this time, the insured was covered by comprehensive general liability policies issued by OneBeacon. From 2003 to 2005, various Texas homeowners filed suit against the insured, alleging the insulation was defective and not weather-tight, allowing moisture to seep behind the insulation and cause wood rot. The homeowners alleged the damage began to occur within six months to one year after installation of the insulation. The district court held that OneBeacon's duty did not arise because the damage was not identifiable during the policy period.
The Fifth Circuit asked the Texas Supreme Court what the proper rule under Texas law was for determining the time at which property damage occurs for purposes of an occurrence-based CGL policy? OneBeacon's policy said the insurance applied to "property damage" only if it occurred during the policy period. The policy defined "property damage" as "physical injury to tangible property."
Citing cases from other jurisdictions, including the Hawai`i Supreme Court's decision in Sentinel Ins. Co. v. First Ins. Co. of Haw., 76 Hawai`i 277, 875 P.2d 894, 915, 917 (Haw. 1994), the Texas Supreme Court adopted the injury-in-fact approach, and held that property damage occurred when actual physical damage to property occurred. Under the facts presented, property damage occurred when the homes suffered wood rot or other physical damage. Although OneBeacon advocated for the "manifestation rule", the policy did not allow for this application of the rule. Instead, the policy linked coverage to damage, not damage detection.
A second certified question from the Fifth Circuit asked whether an insurer's duty to defend was triggered where damage is alleged to have occurred during the policy period but was inherently undiscoverable until after the policy expired? The Texas Supreme Court again answered "yes." A claim against the insured that a home suffered physical injury to tangible property during the policy period and was caused by the insured's defective product triggered OneBeacon's duty to defend. The duty was not diminished because the property damage was undiscoverable until after the policy period.
