In Wilshire Insurance Co. v. RJT Construction, LLC, 2009 WL 2605436 (5th Cir. Aug. 26, 2009), the court held that Wilshire Insurance had a duty to defend under a CGL policy a contractor, RJT Construction, who was alleged to have negligently performed foundational repairs on a home.   

Wilshire Insurance insured RJT under two consecutive CGL policies in the period from June 2004 through June 2006. The policies included a subsidence exclusion that read:

It is agreed that this policy shall not apply to any claim of liability caused by, resulting from, attributable or contributed to, or aggravated by the subsistence of land as the result of landslide, mud flow, earth sinking or shifting, resulting from your operations or your subcontractor’s operations.

The policies also included a “your work” exclusion:

“This insurance does not apply to:  ‘Property Damage’ to ‘your work’ arising out of it or any part of it and included in the ‘products-completed operations hazard.’ This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.”

In 1999, RJT repaired the foundation of the home of William Ashbaugh. In late 2005, Ashbaugh discovered cracks in the walls and ceilings of his home, which he attributed to the foundation being out of level. In 2007, he brought suit against RJT for negligently performing the foundation repairs. RJT sought a defense from Wilshire Insurance under the CGL policies. Wilshire Insurance responded by filing a declaratory judgment action, asking that the court declare that it had no duty to defend or indemnify RJT. 

The district court granted Wilshire Insurance’s motion for summary judgment, finding that the claim was excluded by the subsidence exclusion. 

The Fifth Circuit reversed, finding that Ashbaugh’s claim constituted an occurrence under the policies’ insuring agreement and fell outside the ambit of the subsidence and “your work” exclusions.” 

First, applying the Texas eight-corners rule, the court concluded that there was an occurrence within the policy that triggered coverage. Under Texas law, “if the third-party plaintiff’s complaint alleges any amount of property damage that occurred during the policy period and that was caused by the insured, the duty to defend arises.” 2009 WL 2605436, at *1. Measured against this standard, Ashbaugh’s complaint triggered coverage under the policies:

The complaint alleges that ‘cracks in the walls and ceilings’ were ‘suddenly appearing’ in late 2005. The cracks themselves were physical damage allegedly caused by the faulty foundation. This is not a case where latent internal rot long lies undiscovered before external signs warn of the festering damage. The cracks are not merely a warning of prior undiscovered damage: they are the damage themselves. It is of no moment that the faulty foundation work occurred in 1990, whether the damage was discovered in 2005; it matters only that the damage was alleged to have occurred in 2005.

Id.

Second, the allegations of Ashbaugh’s complaint fell outside the subsidence exclusion:

The [district] court focused on the movement of the foundation. But the exclusion focuses on the movement of lands, not of the foundation, listing examples of ‘landslide, mud flow, earth sinking or shifting.’ This movement of land must ‘result from the insured’s operations.’ Here, the complaint does not allege RJT’s operations resulted in movement of earth. Instead when the earth moved from unknown or unalleged causes, RJT’s negligent foundation work failed to stop the foundation from moving. In other words, it is not alleged RJT’s operations resulted in subsidence; rather, the complaint alleges RJT failed to repair the foundation to withstand subsidence. The subsidence exclusion does not apply.

2009 WL 2605436, at *2. 

Likewise, Ashbaugh’s complaint did not implicate the “your work” exclusion. “A CGL policy generally protects the insured when his work damages someone’s property.” Id. “The ‘your work’ exclusion prevents a CGL policy from morphing into a performance bond covering an insured’s own work.” Id. Thus understood, “the exclusion precludes coverage for the cost of repairing RJT’s own work, the foundation.” The exclusion “does not exclude coverage work damage to other property resulting from the defective work.” Id.

The court found decisive that the “complaint alleges that the faulty foundation caused damage to other parts of the house that RJT did not work on including the walls and ceilings.” 2009 WL 2605436, at *3. “The ‘your work’ exclusion does not preclude coverage for damage to the parts of the house resulting from the allegedly faulty foundation.” Id.

 “Because these damages present a covered claim, Wilshire must defend the entire suit.” Id.