Onebeacon Insurance v. Don's Building Supply, Inc. ( 2008 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
December 23, 2008
No. 06-10727 Charles R. Fulbruge III
Clerk
ONEBEACON INSURANCE COMPANY, as Assignee of Potomac Insurance
Company of Illinois
Plaintiff - Appellee
v.
DON’S BUILDING SUPPLY INC
Defendant - Appellant
Appeal from the United States District Court
for the Northern District of Texas, Dallas
Before KING, DEMOSS, and OWEN, Circuit Judges.
PER CURIAM:
Plaintiff-appellee OneBeacon Insurance Company (OneBeacon) sought a
declaration that it had no duty to defend or indemnify its insured, defendant
appellant Don’s Building Supply, Inc. (DBS), in twenty-two lawsuits that various
homeowners have filed against DBS and other defendants. DBS requested a
defense from OneBeacon under three occurrence-based commercial general
liability insurance policies (CGL policies) issued to DBS by Potomac Insurance
Company of Illinois and assigned by Potomac to OneBeacon. As we explained
in our initial consideration of this appeal, the central question before the district
court was whether the property damage described in the underlying suits is
alleged to have occurred within the respective policy periods such that
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OneBeacon’s duty to defend DBS was triggered under the CGL policies. See
OneBeacon Ins. Co. v. Don’s Bldg. Supply, Inc., 496 F.3d 361, 363 (5th Cir. 2007).
To resolve this question, the court had first to identify the time at which Texas
law deems property damage to occur for purposes of a CGL policy. The district
court granted summary judgment to OneBeacon, determining that it was bound
by Fifth Circuit precedent holding that “property damage ‘occurs’ within the
meaning of a CGL policy [under Texas law] . . . when the damage becomes
manifest or identifiable.” Guar. Nat’l Ins. Co. v. Azrock Indus. Inc., 211 F.3d
239, 246-47 (5th Cir. 2000); see also Am. Home Assurance Co. v. Unitramp Ltd.,
146 F.3d 311, 313 (5th Cir. 1998).
Concluding that this case involved important and determinative questions
of Texas law as to which there was no controlling Texas Supreme Court
precedent, we certified two unresolved questions to the Supreme Court of Texas:
1. When not specified by the relevant policy, what is the
proper rule under Texas law for determining the time at which
property damage occurs for purposes of an occurrence-based
commercial general liability insurance policy?
2. Under the rule identified in the answer to the first question,
have the pleadings in lawsuits against an insured alleged that
property damage occurred within the policy period of an occurrence-
based commercial general liability insurance policy, such that the
insurer’s duty to defend and indemnify the insured is triggered,
when the pleadings allege that actual damage was continuing and
progressing during the policy period, but remained undiscoverable
and not readily apparent for purposes of the discovery rule until
after the policy period ended because the internal damage was
hidden from view by an undamaged exterior surface?
OneBeacon, 496 F.3d at 366. The Supreme Court of Texas has answered the
certified questions. In response to the first question and addressing the CGL
policies at issue here, the Supreme Court held that:
property damage under this policy occurred when actual physical
damage to the property occurred. The policy says as much, defining
property damage as “[p]hysical injury to tangible property,” and
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explicitly stating that coverage is available if and only if “‘property
damage’ occurs during the policy period.” So in this case, property
damage occurred when a home that is the subject of an underlying
suit suffered wood rot or other physical damage. The date that the
physical damage is or could have been discovered is irrelevant under
the policy.
Don’s Bldg. Supply, Inc. v. OneBeacon Ins. Co., 267 S.W.3d 20, 24 (Tex. 2008)
(alteration in original). In response to the second question, the Supreme Court
held that:
the insurer’s duty to defend DBS depends on whether the
homeowners’ pleadings allege property damage that occurred during
the policy term. Under the actual-injury rule applicable to this
policy, a plaintiff’s claim against DBS that any amount of physical
injury to tangible property occurred during the policy period and
was caused by DBS’s allegedly defective product triggers
OneBeacon’s duty to defend. This duty is not diminished because
the property damage was undiscoverable, or not readily apparent or
“manifest,” until after the policy period ended. Nor does it depend
on whether DBS has a valid limitations defense.
Id. at 31-32 (footnote omitted).
The effect of the answers provided by the Supreme Court of Texas to our
certified questions is to overrule Unitramp and the relevant portion of Azrock.
Because the district court relied on Azrock and Unitramp, we REVERSE the
district court’s judgment and REMAND this case for further proceedings
consistent with this opinion. Costs shall be borne by OneBeacon.
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