“Your Work” Exclusion Does Not Apply to Damage to Other Parts of House from Faulty Foundation

In Wilshire Ins. Co. v. RJT Const., LLC, 2009 WL 2605436 [C.A.5 (Tex.)],Wilshire Insurance Co. insured RJT Construction LLC, under two consecutive CGL policies running from June 2004 through June 2006. In 1999, RJT repaired the foundation of the home of William Ashbaugh after it was damaged by an accidental discharge of plumbing water.

In 2005, Ashbaugh alleged that due to the foundation being out of level, cracks in the walls and ceilings suddenly appeared in his home. In 2007, he sued RJT for negligently performing the foundation repair

RJT sought a defense from Wilshire, who in return filed a diversity action seeking a declaratory judgment that it had no duty to defend or indemnify. The district court granted Wilshire's motion for summary judgment, finding that because the alleged property damage was the result of foundation movement, the policy's subsidence exclusion precluded coverage. RJT appealed.

The Fifth Circuit Court of Appeals first considered whether there was an occurrence within the policy period to trigger coverage, the determination of which was based on the date the injury happened, not when one happened upon it.

The court determined that there was an occurrence. The policy was limited to covering damage that occurred during the policy period, and the homeowner's underlying complaint alleged that “cracks in the walls and ceilings” were “suddenly appearing” in late 2005. Thus, the cracks themselves were not merely a warning of prior undiscovered damage but, instead, were physical damage allegedly caused by the faulty foundation repair work. That the purportedly faulty foundation work occurred in 1999 or that the damage was discovered in 2005 was not important.

Next, although the district court held that the policy's subsidence exclusion precluded coverage, the appeals court determined that the policy's subsidence exclusion did not apply to preclude coverage where the underlying complaint did not allege that its operations resulted in subsidence. Rather, the complaint alleged that RJT failed to repair the home's foundation to withstand subsidence. Thus, the subsidence exclusion did not apply.

Finally, Wilshire argued that the “your work” exclusion precluded coverage. The court disagreed, explaining that the “your work” exclusion applied to preclude coverage for repairing or replacing RFT's own allegedly defective work—that is, the foundation of the house in question—but did not preclude coverage for damage to other parts of the house resulting from the allegedly faulty foundation, including the walls and ceilings.

Therefore, the court reversed and remanded, holding that the damages presented a covered claim and Wilshire must defend the entire suit.