Tred R. Eyerly | Insurance Law Hawaii
Reversing the judgment of the district court, the Fifth Circuit found the insurer owed a defense in a construction defect case. Siplast, Inc. v. Emplrs Mut. Cas. Co., 2022 U.S. App. LEXIS 795 (5th Cir. Jan. 11, 2022).
The Archdiocese of New York sued various parties for a roofing project at a high school in the Bronx. Siplast, the roofing manufacturer, was included as a defendant. The underlying lawsuit arose from the Archdiocese purchase of a roof membrane system from Siplast. Siplast guaranteed that the roof membrane system would remain “in a watertight condition for a period of 20 years . . . or Siplast will repair the Roof Membrane System at its own expense.”
After installation of the roof, school officials noticed water damage in the ceiling tiles throughout the school after a rain storm. Siplast attempted to repair the damage, but was unsuccessful. Siplast later informed the Archdiocese that the guarantee would not be honored regarding any permanent improvements of the roof. The Archdiocese filed suit against Siplast and the installing contractor. The cause of action against Siplast was for breach of the guarantee.
Siplast tendered its defense to its insurer, Employers Mutual Casualty Company. Coverage was denied and Siplast filed suit. Both parties moved for summary judgment. The district court granted Employers Mutual’s motion and denied the motion filed by Siplast. The court found that there was property damage and an occurrence, but the Your Product/Your Work exclusion applied.
The Fifth Circuit considered whether the underlying complaint contained allegations of damage to property other than Siplast’s roof membrane as part of the cause of action against Siplast. Liberally construed, the Fifth Circuit found that it did. Therefore, there was a duty to defend. The underlying complaint’s request for damages in excess of $5,000,000 was read to go beyond the repair costs for the roof membrane and to include a prayer for damages covered by the insurance policies, triggering the duty to defend.
The district court correctly determined there was an occurrence. Under Fifth Circuit precedent, claims for damage caused by an insured’s defective performance could constitute an “occurrence” when “property damage” resulted from the “unexpected, unforeseen or undersigned happening or consequence” of the insured’s negligent behavior.
Further, while the legal theories underpinning the underlying plaintiffs’ cause of action might sound in contract, the facts alleged concerned property damage to the school and the roof due to Siplast’s negligence, constituting an occurrence under the policy.
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