A LOOK AT SOME OF THE LEGAL DECISIONS IMPACTING INSURANCE ACROSS THE COUNTRY
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Was the Insurer Liable for
these Construction Defects?
Steven A. Meyerowitz, Esq.
Although the U.S. has a reputation as a litigious society, in reality judges often encourage parties to
a lawsuit to settle. When insurers defend
their insureds, settling a case is a reasonable trial strategy to limit court costs and
attorney fees. What happens when the
plaintiffs reach an agreement with the defendant before trial not to pursue all available assets if they win? When a judgment
is rendered against the insured in the trial
in which the insurer doesn’t participate,
must the insurer provide coverage?
Case of construction defects
Glen and Marsha Hamel hired Terry
Mitchell Builders, Inc., to finish building
a single family home in Flower Mound,
Texas, which it did in October 1995. In
August 2000, the Hamels said they noticed signs of water damage in the home.
They sued the builder in April 2002 for
breach of implied warranty, negligence,
Deceptive Trade Practices Act violations
and Residential Construction Liability
Act violations, alleging that the builder
had failed to perform its services in a good
and workmanlike manner. The Hamels
also alleged that the water damage had
resulted from the home’s improper construction or the improper installation of
a certain exterior stucco finish.
Great American Insurance Company
insured the builder under several commercial general liability policies, one of
which excluded property damage “arising
out of” the stucco product. The builder
notified Great American of the Hamels’
suit, but Great American declined to defend the builder, citing the policy’s exterior stucco exclusion because the discovery of the damage fell within that period.
Great American subsequently conceded that this position was erroneous
and the insurer had wrongfully refused to
defend the builder.
A week before trial, the Hamels reached
an agreement with the builder providing
that, if they obtained a judgment against
the company, they would only go after the
assets in the company’s name, excepting
any “personal tools of the trade and truck.”
When the agreement was executed, the
company had no assets beyond the ex-
cepted “tools of the trade and truck.”
The trial court awarded the Hamels
$365,089 in damages, including $50,000
in mental anguish damages, plus prejudg-
ment interest and court costs.
The builder subsequently assigned most
of its rights against Great American to the
Hamels, who sued Great American for
breach of contract and declaratory relief,
seeking to recover the judgment from their
suit against the builder under the builder’s
Ruling against insurer
The trial court rendered judgment for the
Hamels, finding the following:
• The builder had been negligent.
• Great American had waived its right
to control the builder’s defense.
• The builder had defended itself at the
Hamels’ trial in good faith. The builder’s and the Hamels’ trial strategies and
actions had been reasonable and not
collusive or fraudulent.
• The damage judgment and findings
were supported by the evidence and
were binding on Great American.
Great American had breached its
duties to defend the builder in the
Hamels’ suit and to indemnify the
builder from the judgment.
The trial court awarded judgment to
the Hamels for $355,838, plus interest,
court costs, and attorneys’ fees.