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Lennar Corp. v. Great American Insurance Co.6/2/2005
This case involves an insurance coverage dispute over whether the insured homebuilders are covered under six commercial general liability ("CGL") policies for damages resulting from their application of defective stucco material to numerous homes. Appellants, Lennar Corporation, Lennar Homes of Texas Land and Construction, Limited and Lennar Homes of Texas Sales and Marketing, Limited, d/b/a Village Builders (collectively "Lennar") are the insureds. Appellees, Great American Insurance Company and American Dynasty Surplus Lines Insurance Company (collectively "American Dynasty"), Gerling America Insurance Company ("Gerling"), Markel American Insurance Company ("Markel"), RLI Insurance Company ("RLI"), Insurance Company of the State of Pennsylvania ("ICSOP"), and Westchester Fire Insurance Company ("Westchester"), are the insurance carriers (collectively "the carriers"). Lennar appeals the denial of its motion for summary judgment and the grant of each carrier's motion for summary judgment on the coverage issues. Lennar also appeals the grant of American Dynasty's separate motion for summary judgment on Lennar's extra-contractual claims.
We affirm the denial of Lennar's motion for summary judgment as to all carriers. We affirm the summary judgments in favor of Gerling, RLI, ICSOP, and Westchester. We reverse and remand the summary judgment on coverage issues in favor of Great American/American Dynasty. We reverse and remand the summary judgment in favor of Markel. We affirm the summary judgment in favor of Great American/American Dynasty on Lennar's extra-contractual claims.
I. Background
From early 1996 through late 1999, Lennar built more than 400 homes in the Houston area with a synthetic stucco called Exterior Insulation and Finish System ("EIFS"). According to Lennar, the manufacturers of EIFS marketed it as an ideal product for wood-framed houses. However, Lennar contends it later discovered that EIFS is defectively designed such that it traps water behind it and does not allow the water to drain. Consequently, the trapped water can cause damage, such as wood rot, mold, and termite infestation, among other problems, to other parts of the home.
Through the spring of 1999, Lennar had received a few complaints from homeowners about EIFS-related problems. In the spring of 1999, the complaints increased after television programs regarding EIFS aired. According to Lennar, it initially accepted the manufacturer's position that the problems were caused by installation error and/or were typical of wood-framed homes. Therefore, Lennar addressed these complaints on an individual basis. However, by September 1999, after spending the summer responding to complaints, Lennar became convinced EIFS is a defective product.
Thereafter, Lennar removed the EIFS from all the homes and replaced it with a traditional stucco. According to Lennar, it also repaired resulting water damage to the homes although the extent to which any homes sustained damage is disputed. Lennar then sought indemnification for all its replacement and repair costs from the carriers. The carriers refused to indemnify Lennar for the EIFS claims contending there is no coverage under their policies.
Lennar sued the carriers requesting a declaratory judgment that they have a duty to indemnify Lennar for the EIFS claims and alleging breach of contract and violations of Texas Insurance Code article 21.55 based on the carriers' refusal to indemnify. In addition, Lennar asserted extra-contractual claims against American Dynasty only. Lennar and each carrier filed a motion for summary judgment on the coverage issues. The trial court denied Lennar's motion and granted all the carriers'
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