Texas Supreme Court Rejects Pro Rata Allocation

Confirms "All Sums" Based on American Physicians Insurance Exchange v. Garcia

Lennar Corporation v. Markel American Insurance Company, No. 11-0394 (Tex. August 23, 2013) arose from a dispute over insurance coverage for damage to homes caused by an exterior insulation and finish system (EIFS). Lennar Corporation, a homebuilder, and its subsidiaries built some 800 homes using EIFS, but stopped using it in 1998. Following an exposé on NBC's Dateline in 1999, Lennar was inundated with homeowner complaints. Lennar investigated the complaints and decided to address them by contacting all its homeowners to remove the EIFS and replace it with conventional stucco.

Lennar notified its insurers early on that it would seek indemnification for the costs of replacing the EIFS. Its insurers refused to participate in Lennar's proactive efforts, preferring instead to wait and respond to homeowners as claims were made. All insurers denied coverage, and after litigation and settlement, only Markel remained. Markel had issued a $25 million...