Texas exclusion j(5) for on-going operations only, and exclusion j(6) for “that particular part” only

In Mid-Continent Casualty Co. v. JHP Development, Inc., No. 05-50796 (5^th Cir. Jan. 28, 2009), insured JHP was the general contractor for a condominium project.   As called for in the contract, JHP completed the model unit but left the other units unfinished until they were sold and the owner-selected interior was finished.  As a result of defective waterproofing, interior components suffered moisture penetration property damage.  After JHP refused to repair the damages, the owner terminated the contract and hired a new contractor to do the repairs.  The owner then sued JHP.   JHP’s CGL insurer, Mid-Continent denied a defense and filed a declaratory judgment action.  The federal district trial court entered summary judgment against Mid-Continent, holding that there was “property damage” caused by an “occurrence” and that no exclusions applied.  Mid-Continent appealed that part of the judgment based on exclusions j(5) and j(6).  The U.S. Court of Appeals for the Fifth Circuit, applying Texas law, affirmed.  The court first held that exclusion j(5) did not apply because JHP was not “performing operations” during the extended and open-ended period of time from when it completed the model unit and semi-completed the for sale units, and the intended completion of the for sale units.  JHP “was not actively engaged in construction activities at the time the water intrusion occurred.”   The court then held that, because of the phrase “that particular part,” exclusion j(6) unambiguously applied only to the property damage to the exterior components that were defectively waterproofed and did not apply to the property damage to the non-defective interior components.