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Click here for the full text of this decision FACTS:Vincent and Janice DiMare purchased a new home from Lamar Homes Inc. Several years later, they encountered problems that they attributed to defects in their foundation. The DiMares sued Lamar and its subcontractor complaining about these defects. Lamar forwarded the suit to Mid-Continent Casualty Co. seeking a defense and indemnification under a commercial general liability or Commercial General Liability (CGL) insurance policy. Mid-Continent refused to defend, prompting Lamar to seek a declaration of its rights under the CGL policy. Lamar also sought recovery under Texas Insurance Code Art. 21.55. On cross motions, the federal district court granted summary judgment for Mid-Continent, concluding it had no duty to defend Lamar for construction errors that harmed only Lamar’s own product. The court reasoned that the purpose of a CGL policy is “to protect the insured from liability resulting from property damage (or bodily injury) caused by the insured’s product, but not for the replacement or repair of that product.” Noting disagreement among Texas courts about the application of the CGL policy under such circumstances, the 5th U.S. Circuit Court of Appeals asked the Texas Supreme Court to resolve the conflict. HOLDING:The court answered the first two certified questions in the affirmative regarding the duty to defend and also answered the third certified question in the affirmative. The Fifth Circuit certified three questions for the court to consider: “1. When a homebuyer sues his general contractor for construction defects and alleges only damage to or loss of use of the home itself, do such allegations allege an ‘accident’ or ‘occurrence’ sufficient to trigger the duty to defend or indemnify under a CGL policy? “2. When a homebuyer sues his general contractor for construction defects and alleges only damage to or loss of use of the home itself, do such allegations allege ‘property damage’ sufficient to trigger the duty to defend or indemnify under a CGL policy? “3. If the answers to certified questions 1 and 2 are answered in the affirmative, does Article 21.55 of the Texas Insurance Code apply to a CGL insurer’s breach of the duty to defend?” The court answered the first two questions in the affirmative with respect to the duty to defend but not the duty to indemnify. The proper inquiry, the court stated, is whether an “occurrence” has caused “property damage,” not whether the ultimate remedy for that claim lies in contract or in tort. An “occurrence” depends on the fortuitous nature of the event, that is, whether the damage was expected or intended from the standpoint of the insured. “Property damage” consists of physical injury to tangible property and includes the loss of use of tangible property. Thus, the court agreed with the 5th Circuit that “claims for damage caused by an insured’s defective performance or faulty workmanship” may constitute an “occurrence” when “property damage” results from the “unexpected, unforeseen or undesigned happening or consequence” of the insured’s negligent behavior. The court did not reach the duty to indemnify, however, “as that duty is not triggered by allegations but rather by proof at trial.” In answering the third question in the affirmative, the court further concluded that former Art. 21.55 (recodified as Texas Insurance Code ��542.051-.061) applied to an insurer’s breach of the duty to defend. This statute, the prompt-payment statute, provides for additional damages when an insurer wrongfully refuses or delays payment of a claim. OPINION:Medina, J., delivered the opinion of the court, in which Jefferson, C.J., and O’Neill, Wainwright, Green and Johnson, JJ., joined. DISSENT:Brister, J., delivered a dissenting opinion, in which Hecht and Willett, JJ., joined. “Selling damaged property is not the same as damaging property. Among other differences, only the latter begets a claim for property damage. When the homebuyers here sued their builder for construction defects, they did not claim the builder damaged their property; instead, they alleged broken promises and breached duties connected with the sale. Those were not property damage claims, and thus were not covered by the builder’s CGL policy.”

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