IN THE SUPREME = COURT OF TEXAS

IN THE SUPREME COURT OF TEXAS

════════&#= 9552;═══

No. 05-0832

════════λ= 2;═══

Lamar Homes, Inc., = Petitioner,

Mid-Continent = Casualty=20 Company, Respondent

════════λ= 2;══════════&= #9552;═════════_= 52;══════════= ══════════ = 552;═

On Certified Questions from the = United States=20 Court of Appeals

for the Fifth Circuit

════════&#= 9552;═════════λ= 2;══════════&= #9552;═════════_= 52;══════════= ══

Argued February=20 14, 2006

Justice Medina delivered the = opinion of=20 the Court, in which Chief = Justice=20 Jefferson, Justice O=92Neill, Justice Wainwright, Justice Green, = and Justice Johnson joined.

Justice Brister filed a = dissenting=20 opinion, in which Justice=20 Hecht and Justice Willett joined.

&nbs= p;=20 This case comes to us on certified questions from the United States = Court of=20 Appeals for the Fifth Circuit asking whether an insurer under a = commercial=20 general liability (=93CGL=94) policy has a duty to defend its insured, a = homebuilder, against a homebuyer=92s claims of defective = construction. The=20 Fifth Circuit has certified three questions for our consideration:

1. When=20 a homebuyer sues his general contractor for construction defects and = alleges=20 only damage to or loss of use of the home itself, do such allegations = allege an=20 "accident" or "occurrence" sufficient to trigger the duty to defend or = indemnify=20 under a CGL policy?

2. When=20 a homebuyer sues his general contractor for construction defects and = alleges=20 only damage to or loss of use of the home itself, do such allegations = allege=20 "property damage" sufficient to trigger the duty to defend or indemnify = under a=20 CGL policy?

3. If=20 the answers to certified questions 1 and 2 are answered in the = affirmative, does=20 Article 21.55 of the Texas Insurance Code apply to a CGL insurer's = breach of the=20 duty to defend?

428 F.3d 193, 200-01 (5th Cir. 2005). We = conclude that=20 allegations of unintended construction defects may constitute an = =93accident=94 or=20 =93occurrence=94 under the CGL policy and that allegations of damage to = or loss of=20 use of the home itself may also constitute =93property damage=94 = sufficient to=20 trigger the duty to defend under a CGL policy. Accordingly, as to = the duty=20 to defend, we answer the first two questions, yes. We do not reach = the=20 duty to indemnify, however, as that duty is not triggered by allegations = but=20 rather by proof at trial. We further conclude that former article = 21.55=20 (recodified as sections 542.051-.061 of the = Texas=20 Insurance Code) does apply to an insurer=92s breach of the duty to = defend and=20 accordingly answer the third question, yes.

Vincent and=20 Janice DiMare purchased a new home from = Lamar Homes,=20 Inc. and several years later encountered problems that they attributed = to=20 defects in their foundation. The DiMares=20 sued Lamar and its subcontractor complaining about these defects. = Lamar=20 forwarded the lawsuit to Mid-Continent Casualty Company seeking a = defense and=20 indemnification under a commercial general liability or =20 CGL insurance policy. Mid-Continent refused to defend, = prompting=20 Lamar to seek a declaration of its rights under the CGL policy. = Lamar also=20 sought recovery under article 21.55 of the Texas Insurance Code. =

&nbs= p;=20 On cross motions, the federal district court granted summary judgment = for=20 Mid-Continent, concluding it had no duty to defend Lamar for = construction errors=20 that harmed only Lamar=92s own product. Lamar Homes, Inc. v.=20 Mid-Continent Cas. Co., 335 F.=20 Supp. 2d 754 (W.D. Tex. 2004). The court reasoned that the = purpose=20 of a CGL policy is =93to protect the insured from liability resulting = from=20 property damage (or bodily injury) caused by the insured=92s product, = but not for=20 the replacement or repair of that product.=94 Id. at=20 759. Noting disagreement among Texas courts about the application = of the CGL=20 policy under these circumstances, the Fifth Circuit has asked us to = resolve the=20 conflict.

&nbs= p;=20 The first two certified questions focus on the meaning of the terms = =93occurrence=94=20 and =93property damage=94 in the CGL policy. The CGL policy is a = standard form=20 developed by the Insurance Services Office, Inc. (=93ISO=94)[1] and is used throughout the=20 United=20 States. See 2=20 Jeffrey W. Stempel, Stempel on = Insurance=20 Contracts =A7 14.01 (3d ed. 2007). The meaning of = these terms=20 and their application to cases involving defective construction should = therefore=20 be the same in Texas as in the other states, but=20 unfortunately there is no consensus on the policy=92s meaning under the=20 circumstances posed here. Several courts have concluded that the = CGL=20 policy provides coverage for faulty workmanship that injures the work of = the=20 general contractor.[2] Other courts have = concluded that=20 coverage is not provided under these circumstances.[3] As the Fifth Circuit = points out,=20 even within Texas, intermediate courts of = appeals disagree=20 =93on the application of these clauses in a CGL policy when the insured = contractor=20 is sued by a building owner for damage arising from shoddy construction = of the=20 building.=94 428 F.3d at 196.

&nbs= p;=20 At present, we have similar issues pending in six separate petitions for = review=20 involving CGL policies. See Pine Oak = Builders, Inc.=20 v. Great Am. Lloyds Ins. Co., ___ S.W.3d ___ (Tex.=20 App.=96Houston [14th Dist.] 2006, pet. pending) (holding that defective=20 construction can constitute an occurrence and be the cause of property=20 damage); Summit Custom Homes, Inc. v. Great Am. Lloyds Ins. Co., = 202=20 S.W.3d 823 (Tex. App.=96Dallas 2006, pet. pending); Lennar Corp. v. Great Am. Ins. = Co., 200 S.W.3d 651 (Tex. App.=96Houston [14th = Dist.]=20 2006, pet. pending) (same); Grimes Constr.,=20 Inc. v. Great Am. Lloyds Ins. Co., 188 S.W.3d 805 (Tex. = App.=96Fort=20 Worth 2006, pet. pending) (holding that defective construction that = causes=20 damage only to the contractor=92s own work is not an occurrence of = property damage=20 and thus does not invoke the duty to defend); Great Am. Lloyds Ins. = Co. v.=20 Archon Inv., Inc., 174 S.W.3d 334 (Tex. App.=96Houston [1st Dist.] = 2005, pet.=20 pending) (holding that allegations of defective work by a subcontractor = causing=20 damage to insured contractor=92s project invokes insurer=92s duty to = defend); Gehan Homes, Ltd. v. Employers Mut. Cas.=20 Co., 146 S.W.3d 833 (Tex. = App.=96Dallas 2004,=20 pet. pending) (same).

III

&nbs= p;=20 The CGL policy provides that the insurance carrier =93will pay those = sums that the=20 insured becomes legally obligated to pay as damages because of =91bodily = injury=92=20 or =91property damage=92 to which this insurance applies=94 and will = =93defend the=20 insured against any =91suit=92 seeking those damages.=94 The = policy further=20 provides that the =93insurance applies to =91bodily injury=92 and = =91property damage=92=20 only if: (1) the =91bodily injury=92 or =91property damage=92 is caused = by an=20 =91occurrence=92 that takes place in the =91coverage territory.=92=94[4] Consequently, the carrier=92s = duty to=20 defend is triggered by a claim for =93property damage=94 or =93bodily = injury=94 caused=20 by an =93occurrence.=94

&nbs= p;=20 The policy defines an =93occurrence=94 as =93an accident, including = continuous or=20 repeated exposure to substantially the same general harmful = conditions.=94 =20 =93Property damage=94 is defined as =93[p]hysical injury to=20 tangible property, including all resulting loss of use of that = property.=94[5]

&nbs= p;=20 The first two questions ask whether defective construction or faulty = workmanship=20 that injures only a general contractor=92s own work (the home) = constitute an=20 =93occurrence=94 or =93property damage=94 under the CGL policy. = Although certified=20 as separate questions, the two are connected because both focus on the = same=20 property damage limitation, the home. Moreover, the CGL=92s insuring agreement ties the two concepts = together by=20 covering only those occurrences that cause property damage or bodily = injury.

&nbs= p;=20 The insurance carrier maintains that the CGL policy does not cover = defective=20 construction that injures only the work of the general contractor for a = number=20 of reasons. First, the carrier argues that a CGL policy=92s = purpose is to=20 protect the insured from tort liability, not claims of defective = performance=20 under a contract. Although the plaintiffs allege negligence, the = carrier=20 submits that their claim against its insured is actually in contract = because the=20 economic-loss rule dictates that all damages arising from defective work = constitute economic damages for breach of contract rather than property=20 damage. The carrier further contends that defective work cannot be = an=20 =93occurrence=94 because it is not accidental. In this regard, the = carrier=20 submits that a general contractor should expect that faulty workmanship = will=20 result in damage to the project itself, and that if an=20 injury is expected, it is not accidental. Finally, the carrier = contends=20 that extending CGL coverage under these circumstances transforms = liability=20 insurance into a performance bond.

&nbs= p;=20 The federal district court agreed with these arguments, concluding that = an=20 injury to the insured contractor=92s own work (the home) should not be = considered=20 an occurrence of property damage because the cost to correct faulty = workmanship=20 is an economic loss that a CGL policy should not cover.[6] The district court = further reasoned=20 that defective construction could be an occurrence, but only when the = defect=20 caused bodily injury or damaged the property of a third party. = Because the=20 plaintiffs here did not allege that a third party=92s property had been = damaged,=20 the court concluded the duty to defend had not been triggered under the = CGL=20 policy.

&nbs= p;=20 We begin with the question whether defective construction or faulty = workmanship=20 that damages only the work of the insured is an =93occurrence.=94 = As=20 previously mentioned, =93occurrence=94 is defined, in part, as an = accident, but=20 accident is not otherwise defined in the policy. Terms that are = not=20 defined in a policy are given their generally accepted or commonly = understood=20 meaning. W. Reserve Life Ins. v. Meadows, 261 S.W.2d 554, = 557=20 (Tex.=20 1953).

&nbs= p;=20 The insurance carrier submits that the damages alleged here for repairs = to the=20 home are direct economic damages flowing from Lamar=92s contractual = undertaking=20 and are =93conclusively presumed to have been foreseen=94 by = Lamar. See Arthur Andersen & Co. v. Perry Equip. = Corp.,=20 945 S.W.2d 812, 816 (Tex. 1997). Thus, the = carrier=20 concludes that faulty workmanship is not an accident because injury to = the=20 general contractor=92s work is the expected and foreseeable = consequence. The=20 carrier relies on Mid-Century Ins. Co. v. Lindsey, where we = explained=20 that =93an injury is accidental if =91from the viewpoint of the insured, = [it is] not=20 the natural and probable consequence of the action or occurrence which = produced=20 the injury; or in other words, the injury could not reasonably be = anticipated by=20 insured, or would not ordinarily follow from the action or occurrence = which=20 caused the injury.=92=94 997 S.W.2d 153, 155 (Tex. 1999) (quoting Republic Nat=92l Life = Ins. Co. v.=20 Heyward, 536 S.W.2d 549, 557 (Tex. = 1976)).

&nbs= p;=20 Lindsey, however, did not adopt foreseeability=20 as the boundary between accidental and intentional conduct. = Insurance is=20 typically priced and purchased on the basis of foreseeable risks, and = reading=20 Lindsey as the carrier urges would undermine the basis for most = insurance=20 coverage. Moreover, the carrier=92s argument includes a false = assumption =96=20 that the failure to perform under a contract is always intentional (or = stated=20 differently =93that an accident can never exist apart from a tort = claim=94). =20 See Ellen S. Pryor, The = Economic Loss=20 Rule and Liability Insurance, 48 Ariz. L. Rev. 905, 917 = (2006). =20 Professor Pryor acknowledges that the argument has some intuitive appeal = but=20 concludes:

&nbs= p;=20 Yet, on even a moment=92s reflection, we all understand that contracts = are broken,=20 many times, for reasons that we would call =93accidental.=94 The = wrong number=20 of boxes was shipped because someone made a mistake in the = counting. The=20 lawsuit was filed in the wrong venue because someone made a mistake when = reading=20 the venue statute. As one court explained, =93at bottom, an = occurrence is=20 simply an unexpected consequence of an insured=92s act, even if due to = negligence=20 or faulty work.=94

Id. = (quoting=20 Anthem Elecs., Inc. v. Pac. Employers = Ins. Co.,=20 302 F.3d 1049, 1056 (9th Cir. 2002)).

&nbs= p;=20 An accident is generally understood to be a fortuitous, unexpected, and=20 unintended event. See 1A John Alan Appleman & Jean = Appleman,=20 Insurance Law and Practice =A7 360 at 449 (1981) (=93something = unforeseen,=20 unexpected, and unpremeditated=94); see also Webster=92s Third New International = Dictionary=20 of the English Language 11 (2002). =93[I]t is that which = occurs not=20 as the result of natural routine, but as the culmination of forces = working=20 without design, coordination, or plan.=94 2 Alan D. Windt, Insurance Claims = & Dispute=20 =A7 11.3 at 296 (4th ed. 2001). We have further said = that an=20 intentional tort is not an accident and thus not an occurrence = regardless of=20 whether the effect was unintended or unexpected. Argonaut Sw. Ins. Co. v. = Maupin,=20 500 S.W.2d 633, 635 (Tex. 1973). But a = deliberate act,=20 performed negligently, is an accident if the effect is not the intended = or=20 expected result; that is, the result would have been different had the=20 deliberate act been performed correctly. Mass. Bonding & = Ins. Co.=20 v. Orkin Exterminating Co., 416 S.W.2d = 396, 400=20 (Tex. 1967); see also Harken Exploration = Co. v.=20 Sphere Drake Ins. PLC, 261 F.3d 466, 473 (5th Cir. 2001) (=93if the = act is=20 deliberately taken, performed negligently, and the effect is not the = intended or=20 expected result had the deliberate act been performed non-negligently, = there is=20 an accident=94). Thus, a claim does not involve an accident or = occurrence=20 when either direct allegations purport that the insured intended the = injury=20 (which is presumed in cases of intentional tort) or circumstances = confirm that=20 the resulting damage was the natural and expected result of the = insured=92s=20 actions, that is, was highly probable whether the insured was negligent = or=20 not. Lindsey, 997 S.W.2d at = 155.

&nbs= p;=20 Applying our prior decisions, the Fifth Circuit has concluded that the = terms=20 =93accident=94 and =93occurrence=94 include damage that is the = =93unexpected, unforeseen=20 or undesigned happening or consequence=94 of = an=20 insured=92s negligent behavior, including =93claims for damage caused by = an=20 insured=92s defective performance or faulty workmanship.=94 Federated Mut. Ins. Co. v. Grapevine Excavation,=20 Inc., 197 F.3d 720, 725 (5th Cir. 1999). The = federal=20 district court here distinguishes Federated Mutual Insurance by = drawing=20 the distinction between faulty workmanship that damages the insured=92s = work or=20 product and faulty workmanship that damages a third party=92s = property. =20 335 F. Supp. 2d at 760. Federated = Mutual=20 Insurance concerned only the latter circumstance, and thus the = district=20 court reasons that faulty workmanship that damages the property of a = third party=20 is a covered =93occurrence,=94 whereas faulty workmanship that damages = the property=20 of the insured contractor is not. Id.

&nbs= p;=20 The CGL policy, however, does not define an =93occurrence=94 in terms of = the=20 ownership or character of the property damaged by the act or = event. =20 Rather, the policy asks whether the injury was intended or fortuitous, = that is,=20 whether the injury was an accident. As one court has observed, no = logical=20 basis within the =93occurrence=94 definition allows for distinguishing = between=20 damage to the insured=92s work and damage to some third party=92s = property:

The=20 logical basis for the distinction between damage to the work itself (not = caused=20 by an occurrence) and damage to collateral property (caused by an = occurrence) is=20 less than clear. Both types of property damage are caused by the = same=20 thing =96 negligent or defective work. One type of damage is no = more=20 accidental than the other. Rather, . . = . the=20 basis for the distinction is not found in the definition of an = occurrence but by=20 application of the standard =93work performed=94 and =93work product=94 = exclusions found=20 in a CGL policy.

Erie Ins.=20 Exch. v. Colony Dev. Corp., 736 N.E.2d 950, 952 = n.1 (Ohio=20 App. 2000). We likewise see no basis in the definition of=20 =93occurrence=94 for the district court=92s distinction.

&nbs= p;=20 The determination of whether an insured=92s faulty workmanship was = intended or=20 accidental is dependent on the facts and circumstances of the particular = case. For purposes of the duty to defend, those facts and = circumstances=20 must generally be gleaned from the plaintiffs=92 complaint. See GuideOne Elite Ins. Co. = v.=20 Fielder Road Baptist=20 Church, 197 S.W.3d 305, = 308=20 (Tex. 2006)=20 (applying eight corners or complaint allegation = rule). Here,=20 the complaint alleges an =93occurrence=94 because it asserts that = Lamar=92s defective=20 construction was a product of its negligence. No one alleges that = Lamar=20 intended or expected its work or its subcontractors=92 work to damage = the DiMares=92 home. A CGL policy, however, does = not cover=20 every accident or occurrence =96 only those that cause =93bodily = injury=94 or=20 =93property damage.=94 Thus, we turn to the next question, whether = defective=20 construction or faulty workmanship damaging only the general = contractor=92s work=20 is =93property damage=94 under the CGL policy.

&nbs= p;=20 The policy defines =93property damage=94 as =93[p]hysical=20 injury to tangible property, including all resulting loss of use of that = property.=94 On its face, this definition does not eliminate the = general=20 contractor=92s work. The home and its component parts are clearly = =93tangible=20 property.=94 The DiMares alleged that = Lamar was=20 negligent in designing and constructing their home=92s foundation and = that Lamar=92s=20 defective workmanship caused the home=92s sheetrock and stone veneer to=20 crack. These allegations of cracking sheetrock and stone veneer = are=20 allegations of =93physical injury=94 to =93tangible property.=94 = But the district=20 court reasons that damage to the homebuilder=92s own work, the home, = cannot be=20 =93property damage=94 because CGL insurance exists not to repair or = replace the=20 insured=92s defective work and that such an interpretation transforms = CGL=20 insurance into a performance bond.

&nbs= p;=20 Any similarities between CGL insurance and a performance bond under = these=20 circumstances are irrelevant, however. The CGL policy covers what = it=20 covers. No rule of construction operates to eliminate coverage = simply=20 because similar protection may be available through another insurance=20 product. Moreover, the protection afforded by a performance bond = is, in=20 fact, different from that provided by the CGL insurance policy here.[7]

&nbs= p;=20 Some basis exists, however, for the district court=92s assumption that = CGL=20 insurance is not for the repair or replacement of the insured=92s = defective=20 work. The assumption proves true in many cases because several = acts of=20 faulty workmanship do not fall within coverage, either because they are = not an=20 =93occurrence,=94 =93accident,=94 or =93property damage,=94 or they are = excluded from=20 coverage by specific exclusions. For example, faulty workmanship = that is=20 intentional from the viewpoint of the insured is not an =93accident=94 = or=20 =93occurrence,=94 and faulty workmanship that merely diminishes the = value of the=20 home without causing physical injury or loss of use does not involve = =93property=20 damage.=94 More often, however, faulty workmanship will be = excluded from=20 coverage by specific exclusions because that is the CGL=92s structure. See generally = 2 Stempel on Insurance = Contracts =A7=20 14.01.

&nbs= p;=20 The CGL=92s insuring agreement grants the = insured broad=20 coverage for property damage and bodily injury liability, which is then = narrowed=20 by exclusions that =93restrict and shape the coverage otherwise = afforded.=94 =20 Weedo v. Stone-E-Brick, Inc., 405 A.2d 788, 790 (N.J.=20 1979). Exclusions exist for intended or expected losses, as = well as=20 for contractually-assumed liabilities, obligations under worker=92s = compensation=20 and related laws, injury and damage arising out of aircraft and = automobiles,=20 pollution related claims, and for a number of so-called business = risks. =20 See 9 Lee R. Russ & Thomas F. Segalla, = Couch on=20 Insurance =A7=A7 129:10-129:34 (3d ed. 1997); 2 Windt =A7=A7 = 11:9-11.22. Several of=20 these exclusions have specific application to the construction = industry.

&nbs= p;=20 For example, exclusion j(5) eliminates = coverage for=20 =93that particular part of real property on which you or any contractors = or=20 subcontractors working directly or indirectly on your behalf are = performing=20 operations, if the =91property damage=92 arises out of those = operations.=94 This=20 exclusion applies while operations are being performed. Lennar=20 Corp. v. Great Am. Ins. Co., 200 S.W.3d 651, 686-87 (Tex. App.=96Houston = [14th=20 Dist.] 2006, pet. pending); CU Lloyd=92s of Tex. v. Main Street = Homes, 79 S.W.3d 687, 696 (Tex. App.=96Austin = 2002, no=20 pet.). Exclusion j(6) = excludes=20 coverage for =93that particular part of any property that must be = restored,=20 repaired or replaced because =91your work=92 was incorrectly performed = on it.=94 =20 This exclusion further provides that it =93does not apply to =91property = damage=92=20 included in the =91products-completed operations hazard.=92=94 Exclusion = l, on the=20 other hand, applies to the =93products-completed operations hazard,=94 = and generally=20 excludes coverage for =93property damage=94 to the insured=92s completed = work with one=20 notable exception for work performed for the insured by a = subcontractor. =20 It provides that the CGL policy does not apply to:

&nbs= p;=20 l. Damage to Your = Work

=93Property=20 damage=94 to =93your work=94 arising out of it or any part of it and = included in the=20 =93products-completed operations hazard.=94

This=20 exclusion does not apply if the damaged work or the work out of which = the damage=20 arises was performed on your behalf by a subcontractor.

&nbs= p;=20 Lamar submits that this exclusion would have eliminated coverage here = but for=20 the subcontractor exception. According to Lamar, this exception = was added=20 to protect the insured from the consequences of a subcontractor=92s = faulty=20 workmanship causing =93property damage.=94 Thus, when a general = contractor=20 becomes liable for damage to work performed by a subcontractor =96 or = for damage=20 to the general contractor=92s own work arising out of a = subcontractor=92s work =96 the=20 subcontractor exception preserves coverage that the =93your-work=94 = exclusion would=20 otherwise negate. Lamar=92s understanding of the subcontractor = exception is=20 consistent with other authorities who have commented on its = effect. =20 See, e.g., 2 Stempel on = Insurance=20 Contracts =A7 14 [13][D] at 14-224.8 - 14-224.9;[8] 2 Alan D. Windt, Insurance Claims = & Dispute=20 =A7 11.3 at 73-74 (4th ed. 2006 supp.);[9] James D. Hendrick & James P. Wiezel,=20 The New Commercial General Liability Forms=96An Introduction and = Critique,=20 36 Fed=92n Ins. Corp. Couns. = A.=20 317, 360 (1986).[10]

&nbs= p;=20 The standard-form CGL, however, has not always provided =20 coverage for this business risk. At one time, CGL policies=20 routinely excluded property damage to the homebuilder=92s work without = regard to=20 its cause. In 1976, however, insurers began offering an = endorsement, known=20 as the Broad Form Property Damage (=93BFPD=94) endorsement,=20 that extended coverage for damage to the builder=92s work if it = were caused=20 by a subcontractor.[11]

&nbs= p;=20 In 1986, the Insurance Services Office incorporated this aspect of the=20 broad-form endorsement directly into the standard CGL policy by = inserting the=20 subcontractor exception into the =93your-work=94 exclusion. See = Am. Family=20 Mut. Ins. Co. v. Am. = Girl,=20 Inc., 673 N.W.2d 65, 82 (Wis.=20 2004). By incorporating the subcontractor = exception into=20 the =93your-work=94 exclusion, the insurance industry specifically = contemplated=20 coverage for property damage caused by a subcontractor=92s defective=20 performance.[12] More recently, the = Insurance=20 Services Office has issued an endorsement that may be included in the = CGL to=20 eliminate the subcontractor exception to the =93your-work=94 = exclusion.

&nbs= p;=20 Rather than confront this exception directly, the insurance carrier = argues the=20 economic-loss rule, urging that damage to the insured=92s own work is = not=20 =93property damage=94 but rather a contractual, economic loss. In = this regard,=20 the carrier equates =93property damage=94 with tort liability just as it = did with=20 the term =93occurrence.=94 Thus, even though the plaintiffs have = alleged that=20 Lamar was negligent in the design or construction of their foundation, = or both,=20 and failed to perform its work in a good and workmanlike manner, the = carrier=20 concludes that these allegations do not invoke the duty to defend = because the=20 economic-loss rule limits the plaintiffs=92 remedy to a contract claim = that the=20 CGL does not cover.

&nbs= p;=20 The economic-loss rule, however, is not a useful tool for determining = insurance=20 coverage. The rule generally precludes recovery in tort for = economic=20 losses resulting from the failure of a party to perform under a = contract. =20 Sw. Bell Tel. Co. v. DeLanney, 809=20 S.W.2d 493, 494-95 (Tex. 1991). Its focus = is on=20 determining whether the injury is to the subject of the contract = itself. =20 In operation, the rule restricts contracting parties to contractual = remedies for=20 those economic losses associated with the relationship, even when the = breach=20 might reasonably be viewed as a consequence of a contracting party=92s=20 negligence. See Jim Walter Homes, Inc. v. Reed, 711 S.W.2d = 617, 618=20 (Tex. 1986)=20 (=93When the injury is only the economic loss to the subject of the = contract=20 itself, the action sounds in contract alone.=94). It is a = liability defense=20 or remedies doctrine, not a test for insurance coverage. See, e.g., Ferrell v. W. = Bend=20 Mut. Ins. Co., 393 F.3d = 786, 795=20 (8th Cir. 2005) (holding that measure of damages under economic-loss = rule =93is=20 distinct from the question whether there was =91property damage=92 under = the=20 policy=94).

&nbs= p;=20 Contrary to the carrier=92s contentions, the CGL policy makes no = distinction=20 between tort and contract damages. The insuring agreement does not = mention=20 torts, contracts, or economic losses; nor do these terms appear in the=20 definitions of =93property damage=94 or =93occurrence.=94 The = CGL=92s insuring agreement simply asks whether = =93property=20 damage=94 has been caused by an =93occurrence.=94 Therefore, any = preconceived=20 notion that a CGL policy is only for tort liability must yield to the = policy=92s=20 actual language.[13] The duty to defend must = be=20 determined here, as in other insurance cases, by comparing the = complaint=92s=20 factual allegations to the policy=92s actual language. See = GuideOne Elite Ins. Co., 197 S.W.3d at=20 308.

&nbs= p;=20 The dissent, however, takes a different view, opening with the witticism = that=20 =93[s]elling damaged property is not the = same as=20 damaging property.=94 ___ S.W.3d at ___ (Brister, J. = dissenting). Assuming that this statement has something to = do with=20 the coverage issue in this case, we agree that the CGL policy = distinguishes=20 property damage that occurs while the contractor=92s work is ongoing = from property=20 damage that occurs after the work is complete. Both are = =93property damage=94=20 under the policy=92s definition, however, with distinctions thereafter = drawn=20 according to the previously discussed exclusions.

&nbs= p;=20 If, on the other hand, the dissent=92s opening statement is meant to = imply that=20 selling property (the contractor=92s work) with a latent defect that = subsequently=20 causes a =93physical injury to tangible property=94 is not =93property = damage=94 under=20 the CGL=92s insuring agreement, then we disagree. From the balance of the = dissent, we=20 suspect that this is the intended meaning.

&nbs= p;=20 The dissent=92s infatuation with the economic-loss rule as a = policy-construction=20 tool leads to the conclusion that =93property damage=94 does not mean = what the=20 policy plainly says, but rather is code for tort damages. = Texas law, = however,=20 requires that insurance policies be written in English, preferably plain = English, not code. Moreover, we have said that the label attached = to the=20 cause of action=96whether it be tort, contract, or warranty=96does not = determine the=20 duty to defend. Farmers=20 Tex. County=20 Mut. Ins. = Co. v.=20 Griffin, 955=20 S.W.2d 81, 82 (Tex. 1997).

&nbs= p;=20 The dissent also accuses the Court of creating coverage from the = subcontractor=20 exception to the your-work exclusion, noting = that =93it=20 has long been understood that CGL insurance does not cover damage to an=20 insured=92s own work.=94 ___ S.W.3d at ___ = (citing Stewart=20 Macaulay, Justice Traynor and the Law of=20 Contracts, 13 Stan. L. Rev. 812, 825-26 = (1961)). =20 As already discussed, however, this understanding does not arise from = the CGL=92s insuring agreement, which is quite broad, = but from the=20 business-risk exclusions that =93restrict and shape the coverage = otherwise=20 afforded.=94 Weedo, 405=20 A.2d at 790. When the dissent=92s law review was published = in 1961,=20 the author=92s understanding was correct because CGL policies generally = excluded=20 this type of business risk from coverage. But coverage for this = type of=20 risk depends, as it always has, on the policy=92s language, and thus is = subject to=20 change when the terms of the policy change. The dissent resolutely = ignores=20 these changes to the CGL while embracing the same regrettably overbroad=20 generalizations condemned by other courts.[14] Contrary to the = dissent=92s=20 accusation, we have not said that the subcontractor exception creates = coverage;=20 rather, it reinstates coverage that would otherwise be excluded under = the your-work exclusion.

&nbs= p;=20 Next, the dissent complains that we have inflated support for our = interpretation=20 of the CGL by failing to focus solely on the property damage issue, that = is,=20 whether defective construction that damages the contractor=92s work is = property=20 damage. Although the dissent finds this issue controlling, not = many other=20 courts have. Clearly, it is not the only piece of the insuring = agreement=20 at issue here and frankly is not the piece that has engendered the most=20 discussion either in briefs to this Court or in the national debate.

&nbs= p;=20 Only two of the eleven cases comprising the dissent=92s=20 asserted =93majority rule=94 support the view that defective work that = injures only=20 the contractor=92s own work can be an =93accident,=94 but is not = =93property damage.=94[15] One of the eleven cases = adopts a=20 position directly contrary to the dissent, noting that injury to a = contractor=92s=20 own work may constitute property damage but is not an occurrence under = the CGL=20 policy.[16] Several of the cases, = including=20 the aforementioned three, conclude that defective work is not an = accident under=20 local law, or that defective work is a business risk the contractor must = assume,=20 or both.[17] We cannot speak for = other states=20 on the meaning of the term =93occurrence=94 or =93accident,=94 but = whether a business=20 risk has been assumed or insured depends on the policy=92s language.

&nbs= p;=20 The dissent=92s =93majority rule=94 is further undermined by its = concession that the=20 policies in some of the cases omit the subcontractor exception. = This made=20 a difference in at least three cases on the dissent=92s list that were = decided on=20 the basis of express exclusions without regard to the insuring agreement = or the=20 definition of =93property damage.=94 [18] Finally, one of the = dissent=92s=20 cases does not even involve allegations of defective construction = causing=20 physical injury to property. Pursell Constr. Inc. v. Hawkeye-Security Ins. Co., 596 = N.W.2d 67=20 (Iowa=20 1999). Instead, the homeowners in Pursell claimed that the builder had = breached its=20 contract by building two homes below the elevation required by a city=20 ordinance. Id. at=20 70. The claim apparently involved a purely economic loss = without=20 any consequential property damage, and thus probably failed to invoke = the=20 insurance carrier=92s duty to defend under the builder=92s CGL. = The Iowa=20 Supreme Court, however, did not focus on the absence of property damage = but=20 rather concluded that the builder=92s mistake did not constitute an = occurrence or=20 accident under Iowa law. Id. at = 70-71. After examining the dissent=92s list, we conclude that the = dissent=20 has neither discovered a majority rule nor analyzed this case to fit = within it.=20

&nbs= p;=20 Finally, the dissent=92s preoccupation with the question of ownership is = misplaced. Critical to its analysis is the dissent=92s conclusion = that the=20 DiMares=92 claims accrued before they took = title to the=20 property. As previously noted, the policy=92s definition of = property damage=20 does not mention ownership as a factor, but the dissent thinks that it = should=20 be. Based on the contractual nature of the underlying claims and = the=20 assumption that all claims against the insured, Lamar, accrued at = closing, the=20 dissent concludes that the DiMares=92 = =93injuries occurred=20 when the sale took place (though the cracks appeared five years = later).=94 =20 ___ S.W.3d at ___.

&nbs= p;=20 While it is true that a breach of warranty claim generally accrues at = the time=20 of sale, =93accrual is extended for warranties that explicitly guarantee = future=20 performance.=94 PPG Indus., Inc. v. = JMB/Houston Ctrs. Partners Ltd. P=92ship,=20 146 S.W.3d 79, 92 (Tex. 2004). The DiMares allege such a warranty, asserting the = existence of=20 an express warranty extending =93at least one year from the date of=20 closing.=94 See Austin Co. v. Vaughn Bldg. Corp., 643 S.W.2d 113, 115 (Tex. 1982) (holding similar warranty = claim to=20 accrue against contractor when owner discovers construction = defect). =20 Moreover, the DiMares allege fraud and = violations of=20 the Deceptive Trade Practices Act that also implicate the discovery = rule. See, e.g., KPMG Peat Marwick v. Harrison = County Hous. Fin. Corp., 988 S.W.2d = 746, 749=20 (Tex. 1999)=20 (discovery rule applies to DTPA claim).

&nbs= p;=20 Contrary to the dissent=92s assumptions, the DiMares=92=20 claims did not accrue at the time of sale, but even had they accrued = then, it=20 would not make a difference. The policy defines =93property = damage=94 as=20 =93[p]hysical injury to tangible property=94 = that the=20 dissent concedes occurred after the transfer of title. The = dissent=92s=20 preoccupation with ownership is merely a stalking-horse for the = carrier=92s=20 contention that CGL policies are for tort claims only. The policy, = however, does not include this limitation. The duty to defend must = be=20 determined under the eight-corners rule = rather than by=20 the labels attached to the underlying claims. See=20 Farmers Tex. County=20 Mut. Ins. Co., 955=20 S.W.2d at 82.

&nbs= p;=20 The proper inquiry is whether an =93occurrence=94 has caused =93property = damage,=94 not=20 whether the ultimate remedy for that claim lies in contract or in = tort. An=20 =93occurrence=94 depends on the fortuitous nature of the event, that is, = whether the=20 damage was expected or intended from the standpoint of the = insured. King v. Dallas Fire Ins. Co., 85 S.W.3d 185, 191-92 = (Tex.=20 2002). =93Property damage=94 consists of physical injury to = tangible=20 property and includes the loss of use of tangible property. Thus, = we agree=20 with the Fifth Circuit that =93claims for damage caused by an = insured=92s defective=20 performance or faulty workmanship=94 may constitute an =93occurrence=94 = when =93property=20 damage=94 results from the =93unexpected, unforeseen or undesigned happening or consequence=94 of the = insured=92s=20 negligent behavior. Federated Mut. Ins. Co., 197 F.3d=20 at 725. Accordingly, with respect to the duty to defend, we = answer=20 the first two questions, yes.

&nbs= p;=20 Finally, the Fifth Circuit asks whether the =93Prompt Payment of = Claims=94 statute,=20 formerly codified as article 21.55 of the Texas Insurance Code, applies = to an=20 insurer=92s breach of the duty to defend. The prompt-payment = statute=20 provides for additional damages when an insurer wrongfully refuses or = delays=20 payment of a claim. The statute has recently been recodified, without substantial change, as = sections=20 542.051-.061 of the Texas Insurance Code, and = our=20 discussion here will refer to the current codification.

&nbs= p;=20 The prompt-payment statute provides that an insurer, who is =93liable = for a claim=20 under an insurance policy=94 and who does not promptly respond to, or = pay, the=20 claim as the statute requires, is liable to the policyholder or = beneficiary not=20 only for the amount of the claim, but also for =93interest on the amount = of the=20 claim at the rate of eighteen percent a year as damages, together with=20 reasonable attorney=92s fees.=94 Tex.=20 Ins. Code =A7=20 542.060(a). =93Claim=94 is defined as =93a = first party=20 claim [] made by an insured or policyholder under an insurance policy or = contract or by a beneficiary named in the policy or contract [that] must = be paid=20 by the insurer directly to the insured or beneficiary.=94 = Id. =A7=20 542.051(2). The statute does not separately define =93a = first-party=20 claim,=94 and Texas cases are divided as to its = meaning.

&nbs= p;=20 One line of cases holds that an insured=92s claim for defense costs = under a=20 liability policy is not a =93first-party claim=94 within the meaning of = the=20 prompt-payment statute.[19] These cases generally = follow the=20 reasoning of TIG Insurance Co. v. Dallas Basketball, Ltd., 129 = S.W.3d 232=20 (Tex. App.-Dallas 2004, pet. denied), which concluded that an = insured=92s claim=20 for defense costs was =93fundamentally different than first-party claims = for=20 payment based on a loss suffered by the insured.=94 Id. at=20 242. The court explained that an insured=92s claim for = defense costs=20 was not a first-party claim because (1) =93[a] demand for a defense = under a=20 liability policy is not a claim for payment=94 as the statute requires, = but rather=20 a demand for services, id. at 239 (quoting statute=92s title = =93Prompt=20 Payment of Claims=94); (2) a defense claim is not typically payable to = the=20 insured, but rather to the insured=92s attorney, thus it is not a claim = =93paid by=20 the insurer directly to the insured or beneficiary=94 as the statute = requires,=20 id. (quoting former art. 21.55, =A7 = 1(3), now=20 Tex. Ins. Code =A7 = 542.051(2)(B));=20 (3) an insured=92s claim for defense costs is not a policy claim but = rather a=20 breach of contract claim;[20] and (4) the cost of defending = the=20 insured is not a statutory =93claim=94 because the structure and = deadlines imposed=20 by the prompt-payment statute do not work with this type of claim, = id.=20 at 240-41.

&nbs= p;=20 A conflicting line of authority holds that the insured=92s claim for = defense costs=20 is =93a first-party claim=94 and that the prompt-payment statute does = indeed apply=20 when an insurer wrongfully refuses to pay for the insured=92s defense.[21] These cases principally = stem from=20 the suggestion in State Farm Fire & Casualty Co. v. Gandy, = 925 S.W.2d=20 696, 714 (Tex. 1996), that the prompt-payment statute might = hypothetically apply=20 to an insured=92s claim for a defense under a liability policy. = This line=20 reasons that an insured=92s claim for defense costs is a first-party = claim because=20 it concerns a direct loss to the insured; that is, the claim does not = belong to=20 a third party. See Rx.Com, Inc., 364 F. = Supp. 2d=20 at 614-19 (rejecting the court=92s analysis in TIG Ins. Co., 129 = S.W.3d=20 232). We think that this reasoning is correct = because it=20 more accurately reflects the Legislature=92s purpose for enacting the=20 prompt-payment statute.

&nbs= p;=20 As already noted, the statute does not define =93first-party claim,=94 = but we have=20 previously distinguished first-party and third-party claims on the basis = of the=20 claimant=92s relationship to the loss. Thus, we have said that a = first-party=20 claim is stated when =93an insured seeks recovery for the insured=92s = own loss,=94=20 whereas a third-party claim is stated when =93an insured seeks coverage = for=20 injuries to a third party.=94 Universe Life Ins. Co. v. = Giles, 950=20 S.W.2d 48, 54 n.2 (Tex. 1997). Based upon that=20 distinction, a defense claim is a first-party claim because it relates = solely to=20 the insured=92s own loss.

&nbs= p;=20 Without the defense benefit provided by a liability policy, the insured = alone=20 would be responsible for these costs. Unlike the loss incurred in=20 satisfaction of a judgment or settlement, this loss belongs only to the = insured=20 and is in no way derivative of any loss suffered by a third party. = The=20 claim for defense costs then is a first-party claim because the insured = is the=20 only party who will suffer the loss or benefit from the claim.

&nbs= p;=20 Some insurers have argued, however, that a =93first-party claim=94 is = synonymous=20 with a claim under a first-party insurance policy. A first-party = insurance=20 policy is typically payable only to the insured or a named beneficiary = for=20 losses personal to the insured. A life, accident, and health = policy is an=20 example. In contrast, third-party insurance traditionally refers = to=20 liability policies that protect and indemnify an insured against the = claims of=20 unnamed third parties. Insurers have argued that by using the term = =93first-party claim=94 the Legislature actually intended to eliminate = third-party=20 insurance policies from the ambit of the prompt-payment statute.

&nbs= p;=20 But =93first party=94 in the statute modifies =93claim=94 and =20 therefore does not limit the nature of the policy or = insurer. Tex. Ins. = Code =A7 = 542.051(2). In fact,=20 the statute does not apply solely to first-party insurers, but rather = expressly=20 =93applies to any insurer authorized to engage in business as an = insurance company=20 or to provide insurance in this state,=94 including either a =93stock . = . . casualty=20 insurance company=94 or =93mutual . . . casualty insurance company.=94 = Id. =A7=20 542.052. The statute does exempt certain types of = insurance, but=20 liability insurance or third-party insurance is not among them.[22] See Ins. Co. of N. = Am. v.=20 Morris, 981 S.W.2d 667, 681 (Tex. 1998) (noting =93familiar rule = of statutory=20 construction that an exception makes plain the intent that the statute = should=20 apply in all cases not excepted=94).

&nbs= p;=20 Some courts have declined to apply the prompt-payment statute to a = defense=20 benefit because the benefit relates only to services and is not = ordinarily paid=20 directly to the insured. See TIG Ins. Co., 129=20 S.W.3d at 240. That construction, however, would eliminate = much of=20 the statute=92s recognized application. For example, health = insurance=20 claims, property damage claims, and claims personal to the insured under = an=20 automobile policy are first-party claims that are often paid directly to = the=20 service provider rather than the insured. See, e.g.,=20 Prudential Ins. Co. of Am. v. Fin. Review Servs.,=20 Inc., 29 S.W.3d 74, 81 (Tex. 2000) (payment of medical bills = to=20 provider under health insurance). Determining the = statute=92s=20 application by whether the payments are made directly to the insured or = to a=20 service provider for the insured=92s benefit is a distinction without a=20 difference. Moreover, it contravenes the Legislature=92s express = intent that=20 the statute should =93be liberally construed to promote its underlying = purpose=20 which is to obtain prompt payment of claims made pursuant to policies of = insurance.=94 Tex. Ins. = Code=20 =A7 542.054; see also State Farm Life Ins. Co. v. Martinez, 216 = S.W.3d 799,=20 805 & n.26 (Tex. 2007).

&nbs= p;=20 When the claim involves a defense benefit, the payee will always be = either an=20 insured or the insured=92s attorney, and for purposes of the = prompt-payment=20 statute, no reason supports distinguishing between the two. See = Dunn v.=20 So. Farm Bureau Cas. Ins. Co., 991 S.W.2d = 467, 473 (Tex.=20 App.=96Tyler 1999, pet. denied) (interpreting =93claimant=94 to include = the insured=92s=20 attorney because =93what a principal does through an agent, he does=20 himself=94). Because the statute is to be = liberally=20 construed, whether payment is received by the insured or defense = counsel, the=20 claim is one that =93must be paid by the insurer directly to the = insured.=94 =20 See Rx.Com, 364 F. Supp. 2d at 618 (noting that the statute=92s = requirement=20 that claims be paid =93directly to the insured=94 means that the statute = applies to=20 first-party claims, like the insured=92s right to a defense, not = third-party=20 claims).

&nbs= p;=20 Finally, some Texas courts have characterized the=20 prompt-payment statute as =93unworkable=94 in the context of the = insured=92s claim=20 under a defense benefit and have accordingly rejected its application = under=20 these circumstances. See, e.g., TIG Ins. = Co., 129=20 S.W.3d at 239. Because the prompt-payment statute imposes = deadlines=20 for responding to and paying valid claims and adds interest to the value = of=20 wrongfully denied claims, some courts have questioned how the statute = can be=20 applied to a defense claim, which typically has no finite value at the = time the=20 insurer denies it. Id. Other courts have = not had the=20 same difficulty with the statute. See, = e.g.,=20 Rx.Com, 364 F. Supp. 2d at 619.

&nbs= p;=20 The prompt-payment statute requires that an insurer follow certain = procedures=20 when responding to claims and deciding whether to pay them. First, = the=20 statute requires that the insured submit a written notice of claim which = then=20 triggers the insurer=92s duties to investigate and acknowledge the = claim. =20 Tex. Ins. = Code =A7=A7 542.051(4), = 542.055. =20 The statute specifies that an insurer has fifteen days after receiving = notice of=20 a claim to (1) acknowledge receipt, (2) commence its investigation, and = (3)=20 =93request from the claimant all items, statements and forms that the = insurer=20 reasonably believes, at that time, will be required from the = claimant.=94 =20 Id. =A7=20 542.055. If its investigation reveals that additional = information=20 is needed from the claimant, the insurer may make additional = requests. =20 Id. =A7=20 542.055(b). The statutory deadlines for accepting and = paying the=20 claim do not begin to run until the insurer has =93receive[d] all items, = statements, and forms required by the insurer to secure final proof of=20 loss.=94 Id. =A7=A7=20 542.056(a), 542.058.

&nbs= p;=20 The court in TIG recognized the difficulty in applying this = procedure to=20 an insured=92s claim for a defense, observing that at the time of the = claim the=20 insured typically has not yet suffered any actual loss. 129 S.W.3d at 239. The court then queried = whether the=20 insured would have to submit his legal bills to the insurance company, = as=20 received, to mature its rights under the prompt-payment statute. =20 Id. at=20 241. The statute=92s apparent answer is, yes. See = Primrose=20 Operating Co. v. Nat=92l Am. Ins. Co., 382 F.3d 546, 565 (5th Cir. = 2004)=20 (holding that prejudgment interest should accrue =93based on the dates = Plaintiffs=20 paid each bill for attorney=92s fees rather than the date [the insurer] = refused to=20 defend Plaintiffs=94). As one amicus in this case submits, when = the insurer=20 wrongfully rejects its defense obligation, the insured has suffered an = actual=20 loss that is quantified after the insured retains counsel and begins = receiving=20 statements for legal services. These statements or invoices are = the last=20 piece of information needed to put a value on the insured=92s = loss. See=20 Tex. Ins. Code=20 =A7 = 542.056(a). And=20 when the insurer, who owes a defense to its insured, fails to pay within = the=20 statutory deadline, the insured matures its right to reasonable = attorney=92s fees=20 and the eighteen percent interest rate specified by the statute. =20 Id. =A7=20 542.060.

=20 The final = certified=20 question then is a matter of statutory construction, which is a question = of law.=20 Argonaut Ins. Co. v. Baker, 87 S.W.3d 526, = 529=20 (Tex.=20 2002). When construing a statute, we begin with its = language, and=20 when possible, we determine what the Legislature intended from its own = words.=20 State of Tex. = v. Shumake, 199 S.W.3d 279, 284 (Tex. = 2006). =20 In determining its meaning, we must also consider the statue as a whole = and=20 construe it in a manner which harmonizes all of its various = provisions. =20 Helena Chem. Co. v. Wilkins, 47 S.W.3d 486, = 493=20 (Tex.=20 2001). Applying these rules, we conclude that the = Legislature did=20 not intend to limit the prompt-payment statute to first-party insurance, = but=20 rather intended that it apply to claims personal to the insured (=93a = first-party=20 claim=94). Accordingly, Lamar=92s right to a defense benefit under = a liability=20 insurance policy is a =93first-party claim=94 within the statute=92s = meaning. =20 Our answer to the Fifth Circuit=92s third question is, therefore, = yes.

*=20 * * * *

&nbs= p;=20 In summary, we conclude that allegations of unintended construction = defects may=20 constitute an =93accident=94 or =93occurrence=94 under a CGL policy and = that allegations=20 of damage to, or loss of use of, the home itself may also constitute = =93property=20 damage=94 sufficient to trigger the duty to defend under a CGL = policy. We=20 further conclude that the prompt-payment statute, formerly article = 21.55, and=20 now codified as sections 542.051-.061 of the Texas Insurance Code, may = be=20 applied when an insurer wrongfully refuses to promptly pay a defense = benefit=20 owed to the insured.

=20 __________________________________________

=20 David M. Medina

=20 Justice

Opinion=20 delivered: August 31, = 2007

^[1]=20 The ISO is the industry organization responsible for drafting the = industry-wide=20 standard forms used by insurers.

^[2]=20 See, e.g., Travelers Indem. Co.=20 of Am. v. Moore & Assocs., Inc., 216 S.W.3d=20 302 (Tenn.=20 2007); Lee Builders, Inc. v. Farm Bureau Mut. Ins. Co., 137 P.3d 486 (Kan.=20 2006); French v. = Assurance Co. of=20 Am., 448 F.3d 693 (4th Cir. 2006) = (Va. law); Ferrell v. West Bend Mut.=20 Ins. Co., 393 = F.3d 786 (8th=20 Cir. 2005) (Ark. & Wis. law); = Am.=20 Family Mut. Ins. = Co. v. Am.=20 Girl, Inc., 673 N.W.2d 65 (Wis. 2004); Wanzek Constr., Inc. v. Employers Ins., 679 N.W.2d 322 (Minn., 2004); Corner Constr. Co. v. U.S. Fid. & = Guar., 638=20 N.W.2d 887 (S.D. 2002); Transportes Ferreos De Venezuela II CA v. NKK Corp., 239 = F.3d 555=20 (3d Cir. 2001) (N.J. law); Fejes = v. Alaska=20 Ins. Co., 984 P.2d 519 (Alaska 1999); High Country Assoc. v. N.H. = Ins.=20 Co., 648 A.2d 474 (N.H. 1994); McKellar=20 Dev. v. N. Ins. Co., 837 P.2d 858 (Nev. 1992).

^[3]=20 See, e.g., Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. = Co., 908=20 A.2d 888 (Pa. 2006); L-J, Inc. v. Bituminous Fire & Marine = Ins.=20 Co., 621 S.E.2d 33 (S.C. 2005); Burlington Ins. Co. v. Oceanic = Design=20 & Constr., Inc., 383 F.3d 940 (9th = Cir. 2004)=20 (Haw. law); Corder v. William W. = Smith=20 Excavating Co., 556 S.E.2d 77 (W.Va. 2001); Pursell Constr., Inc. v.=20 Hawkeye-Security Ins. Co., 596 N.W.2d 67 (Iowa 1999).

^[4]=20 The insuring agreement provides in pertinent part:

&= nbsp; &n= bsp; &nb= sp; &nbs= p; = ; = &= nbsp; &n= bsp; &nb= sp; =20 SECTION I - COVERAGES

COVERAGE A. BODILY INJURY AND PROPERTY DAMAGE=20 LIABILITY

1.=20 Insuring Agreement

a. We will pay those sums that the insured = becomes=20 legally obligated to pay as damages because of =93bodily injury=94 or = =93property=20 damage" to which this insurance applies. We will have the right = and duty=20 to defend the insured against any =93suit" seeking those damages. = However,=20 we will have no duty to defend the insured against any =93suit" seeking = damages=20 for =93bodily injury=94 or "property damage" to which this insurance = does not=20 apply. We may, at our discretion, investigate any =93occurrence=94 = and settle=20 any claim or =93suit=94 that may result . . . .

b. This insurance applies to =93bodily = injury=94 and=20 =93property damage=94 only if:

(1) The =93bodily injury=94 or =93property = damage=94 is caused=20 by an =93occurrence=94 that takes place in the =93coverage = territory.=94

* * *

^[5]=20 The complete definition of property damage at Section V(17) of the CGL policy provides: =93=91Property = damage=92 means:=20 a. Physical injury to tangible property, including all resulting loss of = use of=20 that property. All such loss of use shall be deemed to occur at = the time=20 of the physical injury that caused it; or b. Loss of use of tangible = property=20 that is not physically injured. All such loss of use shall be = deemed to=20 occur at the time of the =91occurrence=92 that caused it.=94

^[6] The court explains:

=93The purpose of comprehensive liability = insurance=20 coverage for a builder is to protect the insured from liability = resulting from=20 property damage (or bodily injury) caused by the insured=92s product, = but not for=20 the replacement or repair of that product.=94 Jim Johnson Homes, Inc. = v.=20 Mid-Continent Cas. Co., 244 F. Supp. 2d 706, 714 (N.D. Tex. = 2003) (citing=20 T.C. Bateson Constr. Co.=20 v. Lumbermens Mut. Cas. Co., 784 S.W.2d 692, 694-95 (Tex. App. Houston = [14th Dist]=20 1989, writ denied)). =93If an insurance policy = were to be=20 interpreted as providing coverage for construction deficiencies, the = effect=20 would be to enable a contractor to receive initial payment for the work = from the=20 homeowner, then receive subsequent payment = from his=20 insurance company to repair and correct deficiencies in his own work.=94 = Id. (quoting=20 Bateson Constr.=20 Co., 784 S.W.2d at 694-95). Thus, if the factual = allegations=20 read as a contractual breach for construction defects requiring repair = or=20 replacement instead of negligence resulting in property damage, the = resulting=20 damage for economic loss does not fall within the coverage of the = insurance=20 policy.

354 F. Supp. 2d at=20 759.

^[7]=20 As one amicus submits, an insurance policy spreads the contractor=92s = risk while a=20 bond guarantees its performance. An insurance policy is issued = based on an=20 evaluation of risks and losses that is actuarially linked to premiums; = that is,=20 losses are expected. In contrast, a surety bond is underwritten = based on=20 what amounts to a credit evaluation of the particular contractor and its = capabilities to perform its contracts, with the expectation that no = losses will=20 occur. Unlike insurance, the performance bond offers no indemnity = for the=20 contractor; it protects only the owner.

^[8]=20 =93As a result of this consensus on the faulty workmanship issue, the = insurance=20 industry through ISO in 1986 began specifically providing coverage for = claims=20 arising out of allegedly faulty workmanship by subcontractors of the=20 policyholder. The Your Work exclusion in the basic ISO CGL was = amended to=20 include a =91subcontractor exception=92 stating: =91This exclusion [the = =93Damage to=20 Your Work=94 exclusion] does not apply if the damaged work or the work = out of=20 which the damage arises was performed on your behalf by a = subcontractor.=92 =20 With this action, the insurance industry essentially agreed to cover a = huge=20 portion of faulty workmanship claims, particularly those arising out of = home=20 building or other construction.=94

^[9]=20 =93If the policy=92s exclusion for damage to the insured=92s work = contains a proviso=20 stating that the exclusion is inapplicable if the work was performed on = the=20 insured=92s behalf by a subcontractor, it would not be justifiable to = deny=20 coverage to the insured, based upon the absence of an occurrence, for = damages=20 owed because of property damage to the insured=92s work caused by the=20 subcontractor=92s work.=94

^[10] =93[The subcontractor exception] = should allow=20 for coverage, for example if an insured general contractor is sued by an = owner=20 for damage to a completed residence, caused by faulty plumbing or = electrical=20 work done by a subcontractor. The coverage in that circumstance = should=20 extend to all =91work=92 damaged, whether it was done by the contractor = or by any=20 subcontractor, since the =91work out of which the damage arises was = performed . .=20 . by a subcontractor.=92 The only property damage to completed = work which is=20 excluded by exclusion =91l=92 is damage to the insured contractor=92s = work, which=20 arises out of the insured contractor=92s work.=94

^[11] See, e.g. Mid-United = Contractors, Inc.=20 v. Providence Lloyds Ins. Co., 754 S.W.2d 824, 827 (Tex. = App.=96Fort=20 Worth 1988, writ denied) (construction defect claims against builder = based on=20 faulty workmanship of subcontractor covered under CGL policy with BFPD=20 endorsement); Fireguard Sprinkler Sys., Inc. v. Scottsdale=20 Ins. Co., 864 F.2d = 648, 651-54=20 (9th Cir. 1988) (explaining rationale for the development of the BFPD=20 endorsement).

^[12] See Limbach Co. v. Zurich Am. Ins. Co., 396 F.3d = 358, 362-63=20 (4th Cir. 2005) (discussing history of the addition of the = =93subcontractor=94=20 exception to the =93your-work=94 exclusion); Kalchthaler v. Keller Const. Co., = 591 N.W.2d=20 169, 173-74 (Wis. App. 1999) (reviewing insurance industry publications = stating=20 that the subcontractor exception results in coverage if the work out of = which=20 the damage arose was performed by the insured=92s subcontractor); see = also=20 2 Stempel on Insurance = Contracts=20 =A7 14[13][D] at 14-224.9 (=93With [the subcontractor exception], the = insurance=20 industry essentially agreed to cover a huge portion of faulty = workmanship=20 claims, particularly those arising out of home building or other=20 construction.=94).

^[13] See 2 Jeffrey W. Stempel, Law of Insurance = Contract=20 Disputes =A7 14.02[d][1] at 14A-10 (2d ed. 1999) (=93The language = of the CGL=20 policy and the purpose of the CGL insuring agreement will provide = coverage for=20 claims sounding in part in breach-of-contract/breach-of-warranty under = some=20 circumstances.=94); see also 9 Couch on Insurance =A7 126:3 = at 126-8 (3d=20 ed. 1997) (=93the legal theory asserted by the claimant is immaterial to = the=20 determination of whether the risk is covered=94).

^[14] =93CGL policies generally do not = cover=20 contract claims arising out of the insured=92s defective work or = product, but this=20 is by operation of the CGL=92s business risk = exclusions,=20 not because a loss actionable only in contract can never be the result = of an=20 =91occurrence=92 within the meaning of the CGL=92s initial=20 grant of coverage. This distinction is sometimes overlooked, and = has=20 resulted in some regrettably overbroad generalizations about CGL polices = . .=20 . =94 Am. Family Mut., 673 N.W.2d at 76; see also Travelers = Indem. Co. of Am. v. Moore & Assocs., = Inc., 216=20 S.W.3d 302, 307 (Tenn. 2007). Regrettably, the = dissent=20 would likewise have us apply the economic-loss rule without regard to = the=20 particular facts of the defective-work claim or the particular = provisions of the=20 CGL.

^[15] Acuity v. Burd & Smith, 721 N.W.2d 33, 39 (N.D. = 2006);=20 Auto-Owners Ins. Co. v. Home Pride Cos., 684 N.W.2d 571, 577 = (Neb. = 2004).

^[16] L-J, Inc. v. Bituminous Fire & Marine Ins. Co., 621 S.E.2d 33, 36 (S.C.=20 2005).

^[17] See also Kvaerner Metals Div. of Kvaerner=20 U.S., Inc. v. Commercial Union Ins. Co., 908 A.2d 888, 899 (Pa. = 2006);=20 Burlington Ins. Co. v. Oceanic Design & Constr., Inc., 383 F.3d 940, 948 (9th = Cir.=20 2004); Corder v. William W. Smith = Excavating=20 Co., 556 S.E.2d 77, 82 (W.Va. 2001).

^[18] Commerce Ins. Co. v. Betty = Caplette Builders, Inc., 647 N.E.2d 1211, 1214 = (Mass. 1995); Dodson v. St. Paul = Ins.=20 Co., 812 P.2d 372, 378 (Okla. = 1991);=20 Peerless Ins. Co. v. Brennon, 564 = A.2d 383, 386=20 (Me.=20 1989).

^[19] See, e.g., Summit = Custom=20 Homes, Inc. v. Great Am. Lloyds Ins. Co., 202 S.W.3d 823 (Tex. = App.=96Dallas=20 2006, pet. pending); Ulico Cas. Co. v. Allied = Pilots Ass'n, 187 S.W.3d 91, 104 (Tex. App.-Fort = Worth 2005,=20 pet. pending); Serv. Lloyd's Ins. Co. v. J.C. = Wink,=20 Inc., 182 S.W.3d 19, 32-33 (Tex. App.-San Antonio 2005, pet.=20 pending).

^[20] =93Article 21.55 [the = prompt-payment statute]=20 applies only to claims that trigger the insurer's duty under the policy = to pay=20 the insured. See Tex. Rev.=20 Civ. Stat. Ann.=20 art. 21.55, =A7 8; see also Allstate Ins. Co. v. = Bonner, 51 S.W.3d 289, 291 (Tex. 2001) (required element of = action under=20 article 21.55 section 6 is =93a claim under an insurance = policy=94). It is=20 TIG's breach of the insuring policies, = rather than the=20 policies themselves, that obligates TIG to reimburse the Mavericks [the=20 insured]. Accordingly, neither the Mavericks=92 claim for a = defense nor its=20 claim for reimbursement of defense costs is a =91claim=92 as defined by = article=20 21.55.=94 TIG Ins. Co., 129 S.W.3d at=20 240.

^[21] See, e.g., = Rx.Com, Inc. v.=20 Hartford Fire Ins. Co., 364 F. Supp. 2d 609, 611-20 (S.D. Tex. 2005) = (holding insured's request for a defense from liability insurer was = first-party=20 claim for purposes of article 21.55); Hous.=20 Auth. of Dallas v. Northland Ins. Co., 333 F. Supp. 2d 595 (N.D. Tex. 2004) = (same);=20 Travelers Indem. Co. v. = Presbyterian=20 Healthcare Res., 313 F. Supp. 2d 648 (N.D. Tex. 2004) (same); = Westport=20 Ins. Group v. Atchley, Russell, Waldrop = & Hlavinka, L.L.P., 267 F. Supp. 2d 601, 632 = n.19 (E.D.=20 Tex. 2003) (same); Mt. Hawley Ins. Co. v. Steve Roberts Custom = Builders,=20 Inc., 215 F. Supp. 2d 783, 794 (E.D. Tex. 2002) (same); N. = County=20 Mut. Ins. Co. v. Davalos, 84 S.W.3d 314, 319 (Tex. App.-Corpus = Christi=20 2002), rev'd on other grounds, = 140=20 S.W.3d 685 (Tex. 2004).

^[22] Included on the statute=92s = list of=20 exempted types of insurance are: (1) workers=92 compensation insurance; = (2)=20 mortgage guaranty insurance; (3) title insurance; (4) fidelity, surety, = or=20 guaranty bonds; (5) certain marine insurance; and (6) a guaranty = association=20 created and operating under chapter 2602 of the insurance code. = Tex. Ins. = Code =A7 542.053.=20