Texas covered versus uncovered allocation and “legally obligated to pay.”

In Markel American Ins. Co. v. Lennar Corp., No. 14-10-00008-CV (Tex. Ct. App. April 19, 2011), insured homebuilder Lennar filed suit against its insurer Markel seeking recovery of costs incurred by Lennar to repair water damage to homes resulting from defective EIFS siding.   Following a jury trial, judgment was entered in favor of Lennar and against Markel.  On appeal, the intermediate appellate court reversed.  Applying Texas law, the court first held that Lennar failed to satisfy its burden of allocating damages between covered and uncovered.  In a prior decision, the court had held that, while the costs incurred by Lennar for the repair of the resulting water damage, including the removal of the EIFS needed to repair the water damage, constituted damages because of “property damage,” the costs incurred by Lennar for the removal and replacement of the EIFS as a preventative measure did not constitute damages because of “property damage.”  Here, the court held that it was Lennar’s burden to allocate between these elements of covered and uncovered damages which the jury instructions requested by Lennar, and given by the trial court over Markel’s objections, failed to accomplish.  The court next held that Lennar failed to prove that it was “legally obligated to pay” the costs to repair the damages.  Specifically, there was no adjudication of liablity against Lennar in favor of the homeowners, and Markel did not consent to Lennar’s settlement agreements with the homeowners.