Summary
The Texas Supreme Court held that Lennar Corporation’s insurer was not relieved of coverage based on Lennar’s failure to obtain consent for its remediation settlements because the insurer failed to prove prejudice. The Court further held that the policy covered costs incurred to locate hidden EIFS-related property damage and the total remediation costs for homes with damage occurring during the policy period. The Court reversed the court of appeals and reinstated the trial court’s judgment.
Topics
Practice areas
Questions Presented
- Whether Markel's consent-to-settlement and related loss-establishment provisions excused coverage when Lennar failed to obtain Markel's consent but Markel did not prove prejudice.
- Whether the Markel policy covered the costs of removing EIFS to locate hidden water damage, in addition to the costs of repairing the damage.
- Whether the policy covered Lennar's total remediation costs when property damage began before or during the policy period and continued afterward.
Holdings
- An insurer is not excused from liability under a consent-to-settlement or related policy provision unless the insured's noncompliance materially prejudiced the insurer. Because the jury found no prejudice, Lennar's settlements could establish its legal liability and the amount of its covered loss.
- The policy covered reasonable costs of removing EIFS to determine the areas of hidden water damage when the homes actually sustained covered property damage and removal was necessary to locate and repair it.
- When property damage begins before or during the policy period and continues because of continuous exposure to the same harmful condition, the policy covers the total amount of the resulting remediation loss, not merely the portion incurred during the policy period.
Key quotations
“Under Hernandez, an insurer establishes prejudice from a settlement to which it did not agree by showing that the insured’s unilateral settlement was a material breach of the policy — that is, that it significantly impaired the insurer’s position.” (756)
“Under no reasonable construction of the phrase can the cost of finding EIFS property damage in order to repair it not be considered to be “because of” the damage.” (758)
“We conclude that Markel’s policy covered Lennar’s entire remediation costs for damaged homes.” (759)
Factual background
Lennar and a subsidiary built approximately 800 homes using EIFS, a construction product that trapped water inside wood-frame walls and caused hidden rot and structural damage. After investigating the problem, Lennar proactively contacted homeowners and removed EIFS from affected homes, replacing it with conventional stucco between 1999 and 2003. Lennar notified its insurers and sought indemnification, but Markel refused to participate or consent to the remediation settlements. The jury found that the EIFS defect created an imminent threat to inhabitants' health or safety, that Lennar took reasonable steps to cure the defect, and that Markel was not prejudiced by Lennar's failure to obtain consent.
Procedural history
Lennar sued its insurers after they denied coverage for Lennar's voluntary remediation of EIFS-related damage in homes it had built. The trial court initially granted summary judgment for the insurers, and the court of appeals affirmed as to most insurers but remanded claims involving Markel. After Lennar settled with American Dynasty, the case proceeded to trial against Markel; the trial court entered judgment for Lennar based on the jury's findings. The court of appeals reversed and rendered judgment for Markel, concluding that Lennar had not established legal liability to homeowners and had not proved covered damages. The Supreme Court of Texas reversed the court of appeals and reinstated the trial court's judgment.
Remand instructions
The Supreme Court of Texas reversed the court of appeals and affirmed and reinstated the trial court's judgment in favor of Lennar.