Texas “your work” exclusion

In Mid-Continent Casualty Co. v. JHP Development, Inc., 557 F.3d 207 (5th Cir. 2009), the insured was the general contractor for a condominium project. As called for in the contract, the insured completed the model unit but left the other units unfinished until they were sold and the owner selected interior finished. As a result of defective waterproofing, interior components suffered moisture penetration property damage. After the insured refused to repair the damages, the owner terminated the contract and hired a new contractor to do the repairs. The owner then sued the insured. The insured’s CGL insurer denied a defense and filed a declaratory judgment action. The trial court entered summary judgment against the insurer, 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 court first held that exclusion j(5) did not apply because the insured 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. The insured “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.