The Texas Supreme Court held that a home builder was covered for the voluntary removal and replacement of a defective insulation product it had installed in hundreds of homes. Lennar Corp. v. Market Am. Ins. Co., 2013 Tex. LEXIS 597 (Tex. Sup. Ct. Aug. 23, 2013).
Lennar built homes using an exterior insulation and finish system (EIFS). It was subsequently determined that EIFS trapped water inside homes with wood-frame walls, causing rot and structural damage, mildew and mold, and termite infestation. Lennar decided to contact all its homeowners and offer to remove the EIFS and replace it with conventional stucco.
Lennar notified its insurers that it would seek indemnification for the costs. The insurers refused to participate in Lennar's proactive efforts, preferring to wait and respond to homeowners' claims one by one. All insurers denied coverage and Lennar sued. The trial court entered summary judgment for all insurers, The court of appeals affirmed, except for Markel, which had provided a $25 million commercial umbrella policy, in effect from June 1, 1999 through October 19, 2000.
On remand, Lennar and Markel tried the coverage case. After a jury trial, the court determined there was coverage and awarded $2.4 million to Lennar. The court of appeals reversed and rendered judgment for Markel. The court determined Lennar had not established its legal liability to the homeowners in order to trigger Markel's coverage. Further, Lennar had not offered evidence of damages covered by the policy. The policy covered only the cost of repairing home damage, not the cost of locating it. Because Lennar did not segregate the two, it was entitled to recover nothing.
The Texas Supreme Court reversed. The court rejected Markel's argument that Lennar's settlements were prejudicial because Lennar offered remediation to homeowners with damaged houses who would never have sought redress had Lennar left them alone. In other words, had Lennar stonewalled the homeowners, fewer repairs would have been made. This was a question of fact, not of law, which the jury resolved in Lennar's favor. Further, Markel failed to prove that it was prejudiced in any way by Lennar's settlements. Therefore, Lennar's loss as shown by the settlements was the amount Markel was obligated to pay under the policy.
The only cost evidence Lennar presented at trial was to remove all of the EIFS from damaged houses, repairing the damage, and recovering the houses with conventional stucco. For some homes, removal of the EIFS revealed no damage. But for the homes that had some damage, Lennar did not segregate its cost to repair only the damage found; it included the cost of removing EIFS from the entire house to find all the damaged areas. Markel argued the court of appeals correctly found that the cost of determining the areas of water damage was not covered by the policy.
The Texas Supreme Court, however, found that the cost of finding EIFS property damage in order to repair it was "because of" the damage. Lennar could not have located all the damage, which was hidden from sight, without removing all the EIFS.
Finally, Markel argued it was only responsible for the portion of the damage that occurred during its policy period. Coverage under Markel's policy was limited to property damage that occurred during the policy period, but expressly included damage from a continuous exposure to the same harmful conditions. For damage that occurred during the policy period, coverage extended to the "total amount" of loss suffered as a result, not just the loss incurred during the policy period. Thus, Lennar's total remediation costs was covered. Although Market argued, in the alternative, that it should be responsible with Lennar's other insurers only for its pro rata share of the remediation expenses, the Court had previously rejected this approach.
