Fifth Circuit on What Constitutes Defective Workmanship “Property Damage” Under Texas Law

In TIG Insurance Co. v. Woodsboro Farmers Cooperative, No. 23-40435 (5th Cir. 9/20/2024), Woodsboro hired Erwin to construct grain silos.  Erwin in turn subcontracted with AJ Constructors to construct the silos.  The silos come as prefabricated kits assembled on site.  After completion Woodsboro noticed defects that caused the silos to leak.  After Erwin’s repair attempts failed, Woodsboro hired someone else to repair the silos, which consisted of deconstructing and reconstructing the silos in their entirety.  Because some components were damaged such that they could not be reused, new kits had to be purchased.  Woodsboro sued Erwin for breach of contract.  The dispute was ultimately arbitrated with an award and final judgment entered against Erwin.   Erwin’s CGL insurer TIG filed suit seeking declaratory judgments of no duty to defend or indemnify.   The federal trial court entered summary judgment for TIG on both issues.  On appeal, the Fifth Circuit reversed on the duty to indemnify.  The ruling on TIG’s duty to defend was not appealed (Texas follows the minority rule that a duty to indemnify can exist in the absence of a duty to defend).  The primary issue on TIG’s duty to indemnify was whether there was any “property damage.”  The trial court determined that, while the evidence supported the finding that the silos were defectively assembled, there was no evidence that the defective assembly resulted in any physical injury to the silos.  While the Fifth Circuit agreed that, under Texas law, defectively assembly by itself would not constitute “property damage,” the court found that there was evidence that the defective assembly allowed the silos to shift during wind and weather which resulted in physical injury to the silos which would constitute “property damage.”   The case was remanded back to the trial court for further proceeds on TIG’s potential duty to indemnify.