FIFTH CIRCUIT AFFIRMS DENIAL OF COVERAGE UNDER BUILDERS RISK POLICY EXCLUSION

The Fifth Circuit recently affirmed a summary judgment in favor of an insurer after coverage was denied under a builders-risk policy.  In Balfour Beatty Construction, L.L.C. v. Liberty Mutual Fire Insurance Company, 2020 WL 4435430, (5th Cir. Aug. 3, 2020), Balfour sought coverage for damage done to windows during a welding project on a commercial office building.  When Liberty denied coverage, Balfour sued for breach of contract and violations of the Texas Insurance Code.  Liberty removed to federal court and the parties cross-moved for summary judgment solely with respect to the breach of contract claim. The district court granted Liberty’s motion for summary judgment and denied Balfour’s motion.

On appeal, the parties agreed that the claim involved “direct physical loss or damage” that falls within an Exclusion because it resulted from an act of construction, workmanship, or installation. Therefore, absent the Exception to the Exclusion, Balfour is not entitled to coverage. The parties disputed whether the Exception to the Exclusion applies.  Balfour argued that the Exception reinstates coverage for their claim or, in the alternative, that the Exclusion and the Exception are ambiguous, and that the language of those clauses should be construed in their favor.

As an initial matter, the Fifth Circuit reasoned that they need not determine whether the Policy is an “all-risks” policy because each policy must be interpreted individually.  Second, the court found the ensuing loss Exception did not reinstate coverage because it would require two separate events to occur.  Here, the welding operation and falling slag that caused the damage were not two separate events.  The court also found that the Policy was not illusory because it would provide coverage in certain situations.  Further, the court concluded that any argument regarding ambiguity had been waived and the policy was not ambiguous.  The court found that the claim does not fall within the Exception and therefore was excluded. Summary Judgment in favor of the insurer was affirmed.