Texas “property damage” caused by an “occurrence,” and “your product” and “your work” exclusions.

In Building Specialties, Inc. v. Liberty Mutual Fire Ins. Co., No. 09-CV-0823 (S.D. Tex. May 17, 2010), Lone Star hired Building Specialties to supply and install insulated ductwork for the HVAC system. Building Specialties purchased the ductwork materials from Knauf. After completion,  the property owner complained of condensation leaking from air conditioning grills in one room. To determine the cause of the leak and repair it, Lone Star had to remove and replace the entire ceiling of the room. Lone Star then filed suit against Building Specialties and Knauf seeking to recover the cost of removing the ceiling, repairing a leak in the ductwork, and then replacing the ceiling, alleging that Knauf’s ductwork materials were defective and Building Specialties’ installation of the ductwork was defective. The causes of action were for breach of contract, breach of warranty, and negligent misrepresentation. Liberty Mutual, Building Specialties’ CGL insurer, denied a defense. After settling with Lone Star, Building Specialties sued Liberty Mutual for breach of contract. The federal district trial court entered summary judgment for Liberty Mutual, finding no duty to defend or indemnify. The court held that, even assuming an “occurrence,” which it was not deciding, because the only damages sought by Lone Star were for the repair and replacement of the ductwork installed by the insured, there was no “property damage.” With respect to the “get to” costs in tearing out and replacing the ceiling, the court simply states that these were part of the costs to repair the ductwork. The court goes on to state, in dicta, that, even assuming “property damage” caused by an “occurrence,” all of the damages would fall within exclusions k. (“your product”) and l. (“your work”). As to the subcontractor work exception to exclusion l., the court states that, while a materialman can qualify as a subcontractor, it was unable to determine whether Knauf was in fact a subcontractor.  Building Specialties filed a notice of appeal to the Fifth Circuit Court of a Appeals on June 14, 2010 but subsequently  moved to dismiss the appeal with prejudice on August 9, 2010.  No. 10-20421.