Texas “property damage” and duty to defend target tender

In Mid-Continent Cas. Co. v. Academy Development, Inc., No. H-08-21 (S.D. Tex. Aug. 24, 2010), insured subdivision developer Academy was sued by homeowners seeking damages for diminution in value of their homes caused by water leaking from a subdivision lake due to failing lake walls.    Academy’s CGL insurer Mid-Continent denied a defense on the basis that diminution in value did not constitute “property damage.”  Mid-Continent then filed suit seeking a declaratory judgment on its duty to defend.  On cross-motions for summary judgment, the court, applying Texas law, held that, although the underlying complaint did not allege physical damage to plaintiffs’ homes, the allegation of physical damage to the lake was sufficient to allege physical injury to tangible property “property damage” for purposes of Mid-Continent’s duty to defend.    The court then addressed the issue of allocating defense costs where the complaint alleged “property damage” occurring during multiple policy periods (all issued by Mid-Continent), each including deductibles of varying amounts.  The court rejected Mid-Continent’s pro rata allocation argument (presumably so it could argue the insured had to satisfy multiple deductibles) in favor of the insured’s “target tender” argument, holding that the insured could select “the policy from among the triggered policies that will provide a complete defense.”