Construction and Engineering Lawyers & Attorneys : K&L Gates Law Firm : Financing, Development, Dispute Resolution, Government Contracting

K-2, Inc. v. Fresh Coat, Inc., 2007 WL 5101191 (Tex. App. 2008)

In this case, the court held that the Texas Product Liability Act did not provide a product seller with the right of indemnity against a product manufacturer for that seller’s independent liability under a contract.

Several homeowners sued their builder, its subcontractor which installed synthetic stucco cladding (EIFS) on their houses and the EIFS manufacturer after experiencing water penetration leading to structural damage.  After the claims made by the homeowners and the home builder against the subcontractor were settled, the subcontractor obtained a judgment against the manufacturer for indemnification of the amounts it paid in the settlement.  The manufacturer appealed that portion of the judgment finding it liable to indemnify the subcontractor for the amount it paid to settle the home builder’s claims because it was paid under an indemnity clause in the subcontract. It did not dispute that part of the judgment obligating it to indemnify the subcontractor for settlement of the homeowners’ claims. 

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Ohio Cas. Ins. Co. v. Time Warner Entm’t Co., L.P., 244 S.W.3d 885 (Tex. App. Feb. 6, 2008)

In this case, a general contractor brought a declaratory judgment action against its subcontractor’s primary and umbrella insurers to recover the cost of removing and replacing fiber optic cable that the subcontractor installed improperly.  Although the trial court granted summary judgment in favor of the general contractor, the Dallas Court of Appeals reversed.

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Vanderbeek v. San Jacinto Methodist Hosp., 246 S.W.3d 346 (Tex. App. 2008)

A plumber working on a remodel project for San Jacinto Methodist Hospital cut and capped a drainage pipe from a sink in an adjacent room.  Although he instructed a hospital employee that the sink was out of order and should not be used, hospital employees poured a drain cleaner into the sink when it wouldn’t drain.  When the plumber returned to remove the drainage line cap, a caustic liquid came out of the pipe, causing him chemical burns.  He sued the hospital for negligence for allowing caustic drain cleaner into the sink when he had given notice it was not to be used.

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By K&L Gates partner Paul E. Ridley

Introduction

On August 31, 2007, the Texas Supreme Court issued its long-awaited opinion in Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1 (Tex. 2007) deciding the issue of whether commercial general liability (“CGL”) policies provide coverage for property damage caused by defective construction by the policyholder.  This issue has been the subject of great controversy not only in Texas but in many other states and has resulted in numerous conflicting judicial decisions.  Prior to this decision, there was a split of authority within the Texas Courts of Appeal, several of which have issued diametrically opposed rulings.  That controversy has now been resolved, at least within the State of Texas, by the Texas Supreme Court’s answers in Lamar Homes to certified questions from the United States Fifth Circuit Court of Appeals.  In a well-reasoned opinion, the Texas Supreme Court ruled that unintended construction defects may constitute an “accident” or “occurrence” under a CGL policy and that resulting damage to or loss of use of the home may constitute “property damage” sufficient to trigger a duty to defend by the insurer.

Read the full article here.

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Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1 (Tex. 2007)

In this landmark decision, the Texas Supreme Court ruled that commercial general liability policies provide a duty to defend claims for property damage caused by an insured contractor’s defective construction.  Resolving a split of authority on certified questions from the Fifth Circuit, the court ruled that unintended construction defects may constitute an “accident” or “occurrence” within the meaning of a commercial general liability policy.  It also ruled that the resulting damage to or loss of use of the building may constitute “property damage” sufficient to trigger the insurer’s duty to defend.  The court also held that the CGL policy made no distinction between tort and contract damages, rejecting the insurer’s economic loss rule defense.

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Pugh v. Gen. Terrazzo Supplies, Inc., 243 S.W.3d 84 (Tex. Ct. App. 2007), petition for review filed (Mar. 24, 2008)

In this case, the court affirmed a take-nothing summary judgment in favor of a materials supplier based on the economic loss rule.  Pugh arose out of a residential construction project involving an exterior insulated finishing system (“EIFS”).  After discovering alleged water damage to their home’s wood frame and interior wood flooring, the homeowners sued the masonry subcontractor and veneer supplier for negligence, “product liability (marketing defect),” and breach of the “implied warranties of good and workmanlike service and habitability.” 

In a motion for summary judgment, the material supplier argued that the economic loss rule barred the homeowners’ claims for negligence and strict liability.

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