March 11, 2003

Texas Judge Finds No Coverage For Building Deficiencies

FORT WORTH, Texas -- Claims for substandard construction sound in contract and don't qualify as "property damage" caused by an "occurrence," a Texas federal judge held Feb. 12, granting summary judgment to a builder's liability insurer (Jim Johnson Homes Inc. v. Mid-Continent Casualty Co., No. 4:02-CV-758-A, N.D. Texas, Fort Worth Div.).

Jim Johnson Homes Inc. sought declaratory relief as to coverage for construction defects under a CGL policy issued to it by Mid-Continent Casualty Co. in 2001. Johnson was hired to build a home in Alvarado, Texas. Before the project was complete, the homeowners discovered defects and demanded mediation and arbitration. Johnson's insurer refused to provide a defense in the underlying proceedings.

The insurer challenged the duty to defend and indemnify and any basis for awarding attorney's fees or extracontractual damages.

The parties filed cross-motions for summary judgment in the U.S. District Court for the Northern District of Texas. Johnson contended that claims in the arbitration constitute an occurrence and that the insurer's refusal to defend is a violation of Article 21.55 of the Texas Insurance Code.

Mid-Continent argued that the homeowners don't allege "property damage" caused by an "occurrence" and that certain exclusions apply.

U.S. Judge John McBryde of the Forth Worth Division agreed.

A copy of the complaint is available, please contact Smith & Knott if you wish to receive a copy.