Fifth Circuit Reverses Course in Construction Defect Case

The Fifth Circuit Court of Appeals has reversed its prior decision affirming summary judgment in favor of an insurance company that refused to pay an arbitral award in a construction defect case.  In Crownover v. Mid-Continent Casualty Co., No. 11-10166, a Texas couple, the Crownovers, initiated arbitration against the company that built their defective home, Arrow.  After an arbitrator ruled in favor of the homeowners, the builder filed for bankruptcy protection.  The couple next sought to recover damages from Arrow’s insurance company.

The insurer, Mid-Continent, refused to pay the arbitration award based on a number of policy exclusions.  In response, the homeowners filed a breach of contract lawsuit against Mid-Continent in the Northern District of Texas.  The district court granted the insurer’s motion for summary judgment and the couple appealed the case to the United States Court of Appeals for the Fifth Circuit.  In June, the appellate court affirmed the trial court’s holding.  The couple then filed a petition for rehearing with the nation’s Fifth Circuit.  (For more background on the case, please read Disputing’s earlier blog post.)

In October, the Court of Appeals granted the couple’s petition for panel rehearing and withdrew its prior opinion because it conflicted with Texas Supreme Court precedent in Ewing Construction Co. v. Amerisure Insurance Co., 420 S.W.3d 30 (Tex. 2014).  According to the Fifth Circuit:

The district court held that the contractual-liability exclusion in Arrow’s contract with Mid-Continent prevented indemnity and granted summary judgment for Mid-Continent. We conclude that, consistent with Texas law and considering the Texas Supreme Court’s decisions in Gilbert Texas Construction, L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118 (Tex. 2010), and Ewing Construction Co. v. Amerisure Insurance Co., 420 S.W.3d 30 (Tex. 2014), the contractual-liability exclusion from coverage does not apply and therefore Mid-Continent was not entitled to summary judgment on that ground. We further conclude that no other exclusion from coverage forecloses the Crownovers’ claim. Accordingly, we REVERSE summary judgment for Mid-Continent, RENDER summary judgment for the Crownovers, and REMAND for calculation of legal fees.

Last month, the Fifth Circuit denied Mid-Continent’s November petition for rehearing without comment.

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