United States District Court, S.D. Texas, Houston Division
MEMORANDUM OPINION AND ORDER
H. Miller Judge.
before the court is a Memorandum and Recommendation
(“M&R”) filed by the Magistrate Judge. Dkt.
36. She recommends that the court grant in part and deny in
part motions for summary judgment or partial summary judgment
filed by plaintiff Greystone Multi-Family Builders, Inc.
(“Greystone”) (Dkt. 16) and defendant Gemini
Insurance Company (“Gemini”) (Dkt. 17).
Id. Greystone has filed an opposed motion for
clarification in which it seeks clarification on whether its
motion for partial summary judgment is granted in part or
fully granted (Dkt. 37), and both parties have filed
objections to the M&R (Dkts. 38, 39). After reviewing the
original motions and related filings, the M&R, the
objections and related filings, the motion for clarification,
and applicable law, the court is of the opinion that the
M&R should be ADOPTED IN PART, Greystone's objections
should be SUSTAINED IN PART and OVERRULED IN PART,
Gemini's objections should be OVERRULED, and
Greystone's motion for clarification should be DENIED AS
a duty-to-defend lawsuit arising out of the alleged breach of
a construction contract. Dkt. 36 (citing Dkt. 1). Greystone
entered into a contract with TPG (Post Oak) Acquisition, LLC
(“TPG”) to perform services as a general
contractor on a construction project. Dkt. 1. It did not
fully perform its obligations under the contract, and it
asserts that this failure was based in part on TPG's
failure to make timely payments. Id. TPG eventually
terminated the construction contract and hired Allied Realty
Advisors (“Allied”) to complete the construction.
Id. Greystone sued TPG and Allied in state court.
Id. TPG filed a counterclaim against Greystone and
alleged that Greystone breached the construction contract.
Id. When requested, Gemini denied coverage to
Greystone, asserting that it was not obligated to indemnify
or defend Greystone for property damage that occurred while
Greystone was performing operations and for property damage
caused by mold. Id. In response to Greystone's
second request, Gemini took the position that it had no duty
to defend or indemnify Greystone because Greystone never
completed its work and the property damage alleged therefore
occurred during Greystone's operations. Id.
Greystone contends that TPG's claims in the underlying
suit satisfy the requirements under the insurance policy for
coverage and that none of the exclusions relied upon by
Gemini operates to negate all potential coverage under the
policy. Id. Greystone thus initiated this lawsuit
against Gemini alleging (1) breach of contract; and (2)
failure to timely provide a defense as required by the Texas
Insurance Code. Id. Greystone seeks attorneys'
fees and a declaratory judgment stating that Gemini has a
duty to defend in the underlying lawsuit. Id.
filed a motion for partial summary judgment. Dkt. 16.
Greystone sought an order finding that Gemini breached the
insurance policy by failing to defend Greystone in the
underlying case, Greystone is entitled to recover its defense
costs and expenses in the underlying lawsuit, and Greystone
is entitled to recover 18% penalty interest and
attorneys' fees incurred pursuing Gemini pursuant to the
Prompt Payment of Claims Act. Id.
filed a motion for summary judgment in which it argued that
the counterclaims in the underlying case do not allege a
covered occurrence and, alternatively, that certain
exclusions in the policy preclude any duty to defend. Dkt.
Magistrate Judge issued an M&R in which she made
recommendations regarding both motions. Dkt. 36. The M&R
sufficiently set forth all of the relevant policy provisions,
and the court incorporates the portion of the M&R
entitled “The Insurance Policy” into this order.
The M&R also set forth relevant portions of the first
amended counterclaim in the underlying case in the portion of
the M&R entitled “The Underlying Lawsuit (the
‘Underlying Action').” Id. The court
also incorporates this portion of the M&R into this
may file objections to an M&R on a dispositive motion
within fourteen days of being served with a copy of a written
order. Fed.R.Civ.P. 72(b)(2); see also 28 U.S.C.
§ 636(b)(1)(C). The district court judge then
“must determine de novo any part of the magistrate
judge's disposition that has been properly objected
to.” Fed.R.Civ.P. 72(b)(3). The judge may
“accept, reject, or modify the recommended disposition;
receive further evidence; or return the matter to the
magistrate judge with instructions.” Id.
Magistrate Judge correctly stated and applied the summary
judgment standard, and the court need not restate it here.
This order will instead discuss each objection and whether
the court should accept or reject the Magistrate Judge's
recommendations as they relate to each objection.
objects to the Magistrate Judge's determination that the
allegations in the underlying complaint are an
“occurrence” under the Policy. Dkt. 38 at 2. In
its motion for summary judgment, Gemini argued that the
counterclaims in the underlying case do not allege an
“occurrence” under the policy and, as such, since
the policy only covers property damage caused by an
“occurrence, ” Gemini has no duty to defend
Greystone. Dkt. 36 at 17 (discussing the parties'
arguments). Gemini specifically contended that an
“occurrence” must be an “accident”
and the allegations do not support a finding that
Greystone's actions were an accident or occurrence.
Id. The Magistrate Judge considered a Texas Supreme
Court case interpreting a contract with language almost
identical to the policy that found that “‘a claim
does not involve an accident or occurrence when either direct
allegations purport that the insured intended the injury . .
. or circumstances confirm that the resulting damage was the
natural and expected result of the insured's actions,
that is, was highly probable whether the insured was
negligent or not.'” Id. at 18 (quoting
Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242
S.W.3d 1, 4-5, 7 (Tex. 2007)). The Magistrate Judge then
considered the allegations in the underlying counterclaim and
determined that there was no allegation that Greystone
intended its work to cause the damage or that the damage was
the natural and expected result of Greystone's actions
and that the allegations thus fall under the definition of
“occurrence.” Id. at 20. She took note
of the “argumentative statements in the counterclaim
that it was ‘not surprising' that the work was
mediocre due to the timing of payments” but determined
that these statements were not sufficient for a conclusion
that Greystone's conduct was intentional or that the
alleged damages were the natural and expected result of
Greystone's actions. Id.
main issues Gemini highlights in the counterclaim to support
its contention that the events outlined in the counterclaim
do not qualify as an “occurrence” are the
allegations that Greystone hid costs so that it could
continue to collect its contractor's fees, paid
subcontractors up front so that it could collect higher
contractor's fees resulting in lower incentive for them
to complete their work, and withheld information from TPG,
all of which Gemini contends resulted in predictably poor
workmanship. Id. at 19.
the policy, an “occurrence” is “an
accident, including continuous or repeated exposure to
substantially the same general harmful conditions.”
Dkt. 17, Ex. C. Both parties relied primarily on Lamar
Homes, Inc. v. Mid-Continent Casualty Co., 242 S.W.3d 1
(Tex. 2007) to support their arguments with regard to
“occurrence.” See Dkts. 17, 31. In
Lamar Homes, the Texas Supreme Court held that
“a claim does not involve an accident or occurrence
when either direct allegations purport that the insured
intended the injury . . . or circumstances confirm that the
resulting damage was the natural and expected result of the
insured's actions, that is, it was highly probable
whether the insured was negligent or not.” 242 S.W.3d
at 9. The court noted that the “determination of
whether an insured's faulty workmanship was intended or
accidental is dependent on the facts and circumstances of a
particular case.” Id. In this case, Greystone
contended that there was not any allegation in the
counterclaim that Greystone intended the defective work or
resulting damage and that, while the counterclaim asserts
Greystone intended deficiencies, this does not mean it
intended for any damage to occur. Dkt. 31. Gemini argued that
the counterclaim indicates the injury was the
“predictable result” of Greystone's actions.
court has reviewed the counterclaims and agrees that the
inflammatory language highlighted by Gemini may lead one at
first glance to conclude that the alleged damages were the
“natural and expected result” of Greystone's
actions. For instance, the counterclaim states that it was
“not surprising” that the subcontractors failed
to complete work after Greystone paid them in advance, and
that the “predictable result of these management
failure . . . was that the work performed on the Project has
been besought with deficiencies.” Dkt. 16, Ex. B.
However, when one reviews the entire counterclaim, it becomes
clear that many of the alleged damages were not predictable
based on Greystone's alleged mismanagement. For instance,
the framing subcontractor allegedly failed to construct
frames with the required amount of studs, often using only
one when the plans called for two or three; Greystone
installed power conduits under the building's garage and
these were later lost or destroyed when concrete was poured
over them; the masonry subcontractor installed the
trash-chute walls without leaving access to install the trash
chutes, which required retrofitting of the doors; Greystone
builders “forgot to install” pipe; and the
emergency exit door was literally installed backwards.
Id. Because many of these deficiencies were clearly
not the “natural and expected result” of
Greystone's alleged mismanagement, the court finds that
the Magistrate Judge correctly determined that some of the
allegations in the counterclaim fall under the definition of
“occurrence.” Gemini's objection to this
finding is OVERRULED.