Covered Losses In Insurance Policy

Residents of Grand Prairie, Arlington, Dallas, Fort Worth, Mansfield, Irving, Garland, Mesquite, Richardson, Farmers Branch, Carrollton, and other cities in Texas would probably get confused trying to understand what is a covered loss in an insurance policy and what is not a covered loss.
The Fourteenth Court of Appeals in Texas recently issued an opinion is a case covering this topic. The opinion, styled Markel American Insurance Company v. Lennar Corporation, Lennar Homes of Texas Sales & Marketing Ltd., and Lennar Homes of Texas Land & Construction Ltd., was issued on April 19, 2011.
This case involved several legal issues but the most relevant here dealt with how courts examine these cases to see what is a covered loss versus a loss that may have been incurred that is not covered by the insurance policy. Here is some background.
This case is an appeal from a trial court where the case was being retried from an earlier appeal. Some of the relevant facts are that in 1992 or so, Lennar used a product called Exterior Insulation and Finish System (EIFS), an imitation stucco siding product on homes it built. Because EIFS’s outer surface was intended to be a moisture barrier for the siding, it did not have a secondary moisture barrier to protect underlying structures. It appears undisputed that EIFS allows the siding to trap water behind it and the materials underneath the EIFS are damaged by ongoing exposure to moisture. Approximately 800 homes were built with this product.
In 1994, warranty problems began being experienced with EIFS.
A story on a Dateline television program ran about EIFS and Lennar began receiving numerous phone calls. Thus Lennar began a voluntary business plan to act on the EIFS issues and remediate in the interest of customer relations.
Specifically, Lennar began contacting homeowners by letter to arrange an inspection of the EIFS. Lennar then undertook repairs on the homes. Lennar tried to repair sixteen homes, but those homes still had moisture problems. Lennar decided to pursue a uniform course of action: Lennar would remove all of the EIFS on a home if it found it necessary to remove 60-75% of the EIFS in order to do the repair and replace it with cementious stucco. Ultimately, Lennar decided to strip all of the EIFS off all the houses and replace it with conventional stucco. It took four and a half years to repair all the homes.
Lennar then ended up sueing their insurance company, Markel American Insurance Company, for the costs of repairs.
A jury ended up awarding Lennar almost three million for the amount of covered property damage and Markel filed this appeal claiming that Lennar had not proved that all the damages were covered damages under the insurance policy. Markel said that many of those costs were associated with Lennar investigating and tearing out EIFS in houses where there was no damage.
In analyzing this case the appeals court stated Texas law when it said the following:
An insured is not entitled to recover under an insurance policy unless it proves its damages are covered by the policy. Under the doctrine of concurrent causes, when covered and non-covered perils combine to creat a loss, the insured is entitled to recover only that portion of the damage caused solely by the covered peril. The doctrine of concurrent causation is not an affirmative defense or an avoidance issue; rather, it is a rule embodying the basic principle that insureds are not entitled to recover under their insurance policies unless they prove their damage is covered by the policy. The burden is on the insured to prove coverage. The insured must present evidence from which the jury can allocate the damage attributable to the covered peril. The insured must attempt to segregate the loss caused by the covered peril from the loss caused by the uncovered peril and secure a jury finding on the amount of damage attributable to the different causes. The failure to segregate covered and uncovered perils is fatal to recovery.
This court then spent time discussing issues related to the questions a jury is presented with, in order to reach a decision on the amount of covered damages.
Markel had argued there was no evidence of covered property damage because Lennar did not segregate the costs related to the removal and replacement of EIFS as a preventative measure from the costs related to the removal and replacement of EIFS where there was property damage. The court then analyzed the actual questions presented to the jury.
In the earlier appeal of this case, Lennar had been specifically directed to “apportion the EIFS related damages between its costs to remove and replace EIFS as a preventative and its cost to repair water damage to the homes.” Lennar did not do so.
Lennar lost this appeal.