A commercial liability insurer must defend any claim of physical property damage that occurs during the policy term regardless of when the damage is actually discovered, the Texas Supreme Court ruled last week in a construction defect case on appeal in the 5th U.S. Circuit Court of Appeals.
The federal appeals court asked the Texas Supreme Court to define when property damage occurs under Texas law for purposes of an occurrence-based commercial general liability insurance policy. The court also was asked to determine whether an insurer’s duty to defend is triggered when damage is alleged to have occurred during the policy period but was not discovered until after the policy expired.
The Texas Supreme Court ruled that property damage occurs—and coverage is therefore triggered—when the actual physical damage occurs, not when it is discovered.
The case, Don’s Building Supply Inc. vs. OneBeacon Insurance Co., stems from lawsuits brought by various Texas homeowners against Don’s Building Supply Inc., a Dallas-based retailer and distributor of a synthetic stucco siding product. The homeowners alleged that DBS’ siding product was defective and not weather-tight and thus allowed moisture to seep into wall cavities behind the siding, causing wood rot and other damage.
The siding was installed on various homes from Dec. 1, 1993, through Dec. 1, 1996. During that period, DBS was covered by a comprehensive general liability policy underwritten by Hamilton, Bermuda-based OneBeacon Insurance Co.
OneBeacon initially provided a defense to DBS but then filed suit in federal district court in Texas seeking a ruling that it had no duty to defend or indemnify DBS under the CGL policies because that duty arises after damage is identified, which in this case was after the policies had expired.