The Texas Court of Appeals held that the insured need not prove the exact dates physical damage occurred in order to trigger defense and indemnity coverage. Vines-Herrin Custom Homes, LLC v. Great Am. Lloyds Ins. Co., 2011 Tex. App. LEXIS 10027 (Tex. Ct. App. Dec. 21, 2011).
In 1999, the insured built a home. He was insured under a CGL policy issued by Great American from November 9, 1998 to November 9, 2000. Thereafter, the insured held a CGL policy issued by Mid-Continent from November 9, 2000 to September 18, 2002.
After construction was completed, the insured sold the house to the buyer in May 2000. After moving in, the buyer found numerous construction defects in the home, including water entering cracks in the home, and sinking and sagging of parts of the house. The buyer sued the insured, who sought coverage under the two policies. When the insurers refused to defend the underlying suit, the insured sued for a declaratory judgment.
The underlying case went to arbitration and an award of $2.4 million was granted to the buyer. The insured assigned to the buyer his claims against the insurers.
In the coverage action, the trial court initially applied the manifestation rule and imposed a duty to defend only if the property damage became apparent during the policy period. The court found for the buyer, but during the post-judgment motions, the Texas Supreme Court adopted the "actual injury" trigger. See Don's Bldg. Supply, Inc. v. One-Beacon Ins. Co., 267 S.W. 3d 20 (Tex. 2008). Under the "actual injury" approach, property damage occurred when actual physical damage took place rather than when it became discoverable. The trial court ruled for the insurers because the insured failed to show, by expert testimony, when the actual physical damage to the property occurred.
The Court of Appeals reversed. Don's Buildingheld only that property damage under the CGL policy "occurred when actual physical damage to the property occurred." Id. at 24. So long as the damage occurred within the policy period, coverage was provided. Applying the eight-corners rule, the pleadings sufficiently alleged the policies were in effect prior to construction and actual damage occurred sometime during or after construction during the policy periods. Therefore, the underlying pleadings adequately plead that actual physical damage to the property potentially occurred during the policy periods and a defense was owed.
Further, Great American's duty to indemnify was triggered. The lower court determined that the property damage manifested in May 2000, during Great American's policy period. As a matter of law, when the damage manifested, it had necessarily occurred under the actual injury rule. The evidence showed Great American's duty to indemnify was triggerd and expert testimony to establish the exact date of injury was not required to trigger the duty.