YOUR WORK, EARTH MOVEMENT EXCLUSIONS DO NOT DEFEAT DUTY TO DEFEND IN ROAD CONSTRUCTION LAWSUIT
Last Thursday, the Houston First Court of Appeals held that a CGL carrier was obligated to defend its insured in a suit over the construction of a road in a subdivision, and rejected the insurer’s arguments that the policy’s your work exclusion and the earth movement exclusion defeated coverage. In Mid-Continent Cas. Co. v. Krolczyck, No. 01-12-00587-CV, 2013 WL 2445049 (Tex. App.—Houston [1st Dist.] June 6, 2013), the court considered an agreed interlocutory appeal of the trial court’s denial of the parties’ cross-motions for summary judgment. Krolczyck was a contractor who built a road for a subdivision in Waller County, Texas. The project lasted several years, and resulted in litigation between Krolczyck and the homeowners’ association for the subdivision. Krolczyck tendered the defense to Mid-Continent, which, after defending the case for a short time subject to a reservation of rights, eventually determined that there was no coverage.
Mid-Continent relied on the your work exclusion and the earth movement exclusion to deny benefits. The court of appeals first addressed the your work exclusion. The court noted that the road construction project involved multiple distinct stages, separated by periods of many months. In addition, the relevant pleading from the homeowners’ association alleged damage to only one of the phases. The First Court panel also observed that the Fifth Circuit had reviewed Mid-Continent’s your work exclusion in 2009, holding that if an insured performs both defective and non-defective work, and the defective work damages the non-defective work, the your work exclusion will not defeat the duty to defend. Accordingly, since the pleadings could reasonably be construed to conclude a claim that faulty work in one stage of the road construction damaged a separate, non-defective stage, the Houston court followed the Fifth Circuit case and concluded that the your work exclusion did not apply.
Next, Mid-Continent argued that an exclusion of property damage caused by “movement of land, earth or mud.” The court of appeals disagreed, concluding that the petition alleged movement of man-made materials only. Since insurance policies are construed against the insurer, the court declined to interpret “land, earth or mud” to encompass, for example, concrete. Thus, the earth movement exclusion also did not preclude coverage. The court of appeals therefore concluded that the duty to defend had arisen, and rendered judgment for the contractor.