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American Legend Homes v. Navigators Specialty Insurance Co.

United States District Court, E.D. Texas, Sherman Division

November 5, 2019

AMERICAN LEGEND HOMES, Plaintiff,
v.
NAVIGATORS SPECIALTY INSURANCE COMPANY, Defendant.

          MEMORANDUM OPINION AND ORDER

          AMOS L. MAZZANT UNITED STATES DISTRICT JUDGE.

         Pending before the Court is Plaintiff American Legend Homes's Motion for Leave to File First Amended Complaint Adding Parties and Updating Factual Allegations and Claims (Dkt. #8).

         After reviewing the relevant pleadings and motions, the Court finds the Motion should be GRANTED in part and DENIED in part.

         BACKGROUND

         I. Factual Background

         Plaintiff American Legend Homes (“Plaintiff”) is a family-owned residential home builder that has built thousands of homes in North Texas over the past fifteen years. Plaintiff is a Texas limited liability company (LLC) with its principal place of business in Lewisville, Texas. Plaintiff's members are Bright Industries, LLC, American Legend Services, Inc., and AmLegend Management, Inc.-all Texas residents. Defendant Navigators Specialty Insurance Company (“Defendant”) is an eligible surplus lines insurance company with its principal place of business in New York.

         Plaintiff built over sixty homes in the Castle Hills Villas development, a master-planned development in Lewisville, Texas, utilizing an identical foundation design and construction process on every home built. However, sometime after completion of the project, certain homes that Plaintiff built in Castle Hills Villas began to experience shifting foundations. Plaintiff commenced an investigation into the cause of the damage; the investigation concluded that the Castle Hills Villas development had a naturally occurring underground water source beneath it. The houses in the path of that underground water source were the homes that experienced foundation shifting.

         Between October 1, 2014 and October 1, 2015, nineteen homeowners in the Castle Hills Villas reported foundation issues. Twenty-five other homeowners in Castle Hills Villas reported similar issues between October 1, 2015 and October 1, 2016. Five more homeowners reported foundation issues between October 1, 2016 and December 1, 2017. Due to foundational damage reported at the homes, Plaintiff has incurred over $2 million in expenses to repair the damage caused by the underground water source.

         Defendant issued and delivered Commercial General Liability policies to Plaintiff in Lewisville, Texas. Such policies normally cover sums that the insured becomes legally obligated to pay because of “property damage” that occurs during the policy period caused by an “occurrence” (Dkt. #1). The policies define “property damage” to include “physical injury to tangible property” (Dkt. #1). The policies also define “occurrence” to mean “an accident, including continuous or repeated exposure to substantially the same general harmful conditions” (Dkt. #1). The policies also contain an Amendatory Endorsement providing that “[a]ll . . . Property Damage arising out of substantially the same general harmful conditions shall be deemed to be one occurrence” (Dkt. #1).

         After Plaintiff became aware of the foundational issue with the homes in the Castle Hills Villas development, it notified Defendant of the issue and made an insurance claim. The claim was for all sums Plaintiff was legally obligated to pay arising from the property damage to the homes' foundations caused by the underground water source. Defendant has not paid the claim, contending that “each home affected involves a separate occurrence” to which a separate deductible applies (Dkt. #1). For the homes sustaining property damage between October 1, 2014 and October 1, 2015, Defendant would apply a $50, 000 deductible to each home. For those sustaining damage after October 1, 2015, Navigator would apply a $500, 000 deductible to each. This would amount to a $20 million total deductible for all the property damage.

         Plaintiff's costs to repair each foundation allegedly would fall well below the $500, 000 threshold and thus would not reach the “per home” deductible claimed by Defendant. Defendant contends that the separate deductible applies to each individual home, and Defendant has paid no portion of the damages in Plaintiff's claim thus far. Nor has Defendant paid any amounts for the “per home” deductible it claims is applicable.

         Plaintiff's specific legal claims are (1) breach of contract; (2) Declaratory Judgment under Federal Rule of Civil Procedure 57 and 28 U.S.C. §§ 2201-2202; and (3) attorneys' fees. Plaintiff seeks leave to amend to update factual allegations and claims and add two additional defendants: United Specialty Insurance Company (“USIC”), an insurance company with its principal place of business in Texas; and Knight Specialty Insurance Company (“KSIC”), an insurance company with its principal place of business in California.

         II. Procedural History

         On January 16, 2019, Plaintiff filed a Complaint against Defendant (Dkt. #1). On March 25, 2019, Defendant filed an Answer (Dkt. #3). On July 3, 2019, Plaintiff moved for leave to file First Amended Complaint adding parties and updating factual allegations and claims (Dkt. #8). On July 17, 2019, Defendant filed a Response (Dkt. #10). On July 24, 2019, Plaintiff filed a Reply (Dkt. #11). ...


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