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"Like kind and quality" limitation in commercial property insurance policy should not be read narrowly.

After the insured’s roof was damaged by a catastrophic hail storm, the insured paid to replace the roof with one of slightly different design than the original, then sought reimbursement for the cost. The carrier argued that the policy only required that it pay for an identical roof, which its engineer figured to cost about $33,540 less than the one that the insured purchased. One of the questions before the court was the scope of the phrase "like kind and quality." The court agreed that the phrase should not be read narrowly:

We agree that the plain language of the policy neither restricted nor required Republic to pay for the cost to replace the roof with an identical one. The policy clearly allows more leeway than that. There was evidence to support the court’s finding that Mex-Tex’s new roof was within that leeway. Mex-Tex’s roofing contractor and its expert at trial both testified that the old and new roofs were comparable. The only evidence to the contrary was the difference in cost. In these circumstances, the trial court could find that Republic breached the policy by refusing to pay the cost of the new roof.

Though no opinions have yet been delivered, the Texas Supreme Court has agreed to decide two important questions certified from the Fifth Circuit Court of Appeals.

Fairfield Ins. Co. v. Stephens Martin Paving, LP, 381 F.3d 435 (5th Cir. 2004)Fairfield addresses the insurability of punitive damages in Texas. The specific question the Texas Supreme Court is considering is:

Does Texas public policy prohibit a liability insurance provider from indemnifying an award for punitive damages imposed on its insured because of gross negligence?

Fairfield has been extensively briefed and oral arguments were heard in November of 2004.

Fiess v. State Farm Lloyds, 392 F.3d 802 (5th Cir. 2004)The Texas Supreme Court ordered briefing in Fiess in late January and has scheduled oral arguments for March 30, 2005. The court will consider the following question:

Does the ensuing loss provision contained in Section I-Exclusions, part 1(f) of the Homeowners Form B (HO-B) insurance policy as prescribed by the Texas Department of Insurance effective July 8, 1992 (Revised January 1, 1996), when read in conjunction with the remainder of the policy, provide coverage for mold contamination caused by water damage that is otherwise covered under the policy?

TIG Insurance Company v. Dallas Basketball LTD, et al ., 129 SW3d 232 (Tex. App.-Dallas 2004, pet denied)
This is an appeal from a decision out of the Dallas Court of Appeals that held the prompt payment of claims requirements and penalties of Texas Insurance Code Article 21.55 do not apply to the duty to defend provisions found in liability policies. After requesting a full briefing of the merits, the Supreme Court declined to review the lower court’s decision on February 11, 2005, thereby leaving a split of authority on this issue among the Texas Courts of Appeal. A Motion for Rehearing was filed on February 25, 2005.Fifth Circuit Court of Appeals

Allstate Insurance Company v. Disability Services of the Southwest, Inc., 2005 Lexis 2179 (5^th Cir., February 10, 2005)"Medical Services Exclusion" applied to defeat coverage for lawsuit against assisted living center wherein the insured was sued for not providing phone on which quadriplegic resident could call for assistance.

The family of a quadriplegic who died in the care of an insured assisted living center sued, claiming that the center failed to provide adequate health care and failed to provide a phone that the resident could have used to call for help. The CGL carrier for the center refused to defend the suit, citing its medical services exclusion. In the ensuing coverage lawsuit, the Fifth Circuit construed the exclusion broadly, holding that no coverage was owed. The court specifically found that the ability of the patient to communicate with his health care providers and others was so involved with the center’s provision of medical care that it could not be separated: "[T]he claim that [the resident’s] death was caused by the failure to provide communications devices is inseparable from the Lofton Family’s claim that DSSW failed to provide adequate medical care, and the medical services exclusion applies."

Gehan Homes, Ltd. v. Employers Mutual Casualty Company, 146 S.W.3d 833 (Tex. App. – Dallas 2004, pet. filed)Where negligence claims are presented against homebuilder, an accidental "occurrence" must be presumed for the purposes of determining a duty to defend.

The Gehan court examined the history of the "occurrence" definition, and then recognized a considerable split in authority on the issue among the Texas federal district courts and state courts of appeal. The court’s decision, however, appears to turn on the significance of the pleading’s negligence allegations. In that regard, the insurers argued that the negligence allegations should be ignored for, while not "bare bones," they were tied to an underlying contractual obligation which the insured is alleged to have failed to perform through its faulty work. Thus, the insurers argued, the complained of construction activities were voluntary and deliberate, and the injuries involved all to the subject of the contract itself, i.e., the home.

Rejecting the insurer’s argument, the court points out that to find there to be no duty to defend on such allegations, it would have to do what Texas courts have long prohibited, i.e. ". . . evaluate the merits of the claim and ignore the facts alleged." The court also found it irrelevant to the "occurrence" question that the injury involved may have been solely to the subject of the contract involved, i.e., the insured builder’s own work.

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