Texas Supreme Court Reaffirms 'All Sums' Approach And Finds Insurer Responsible For Costs Incurred Without Insurer’s Consent: Lennar Corporation v. Markel American Insurance Company

On August 23, 2013, in a case involving coverage for a homebuilder's costs in removing an exterior insulation and finish system which resulted in serious water damage that worsens over time, and replacing the system with stucco, the Texas Supreme Court addressed the following issues: (1) was the insurer, Markel American Insurance Company ("Markel"), responsible for the costs of Lennar's remediation program, where Markel did not consent to the costs but it was not prejudiced as a result; and (2) was Markel responsible for: (i) costs incurred to determine and repair property damage, and (ii) costs to remediate damage that began before and continued after the policy period. Lennar Corporation v. Markel American Insurance Company, No. 11-0394 (Tex. August 23, 2013). The Court resolved each of these issues in favor of the homebuilder, Lennar.

As an initial matter, the Texas Supreme Court reversed the court of appeals and upheld the jury's determination that Markel was not prejudiced by Lennar's "'failure to obtain Markel's consent (a) to enter into any compromise settlement agreement, or (b) to voluntarily make any payment, assume any obligation or incur any expense.'" The Court rejected Markel's argument that it had established prejudice as a matter of law "largely because Lennar offered remediation to homeowners with damaged houses who would never have sought redress had Lennar left them alone." As explained by the Court, "Markel's argument boils down to this — had Lennar stonewalled the homeowners, fewer repairs would have been made." The Court found that "[o]n this record, that is a question of fact, not of law, which the jury resolved in Lennar's favor."

The Supreme Court further rejected Markel's argument that the language in the policy's Insuring Agreement, obligating Markel to pay Lennar's "ultimate net loss," which was defined as "the total amount of [property] damages for which [Lennar] is legally liable and stating that such loss "may be established by adjudication, arbitration, or a compromise settlement to which we have previously agreed in writing" (the so-called "Loss Establishment Provision") comprises a separate policy condition which obligates Lennar to obtain Markel's consent prior to entering into any settlement, and as to which Markel can insist on compliance without proving prejudice. The Court held that the "Loss Establishment Provision is no more central...