Venture Encoding Service, Inc. v. Atlantic Mutual Insurance Co.

107 S.W.3d 729, 2003 Tex. App. LEXIS 3768, 2003 WL 2004361

• Court: Court of Appeals of Texas
• Decided: May 1, 2003
• Docket: 2-02-020-CV
• Status: Published

Opinions

JOHN CAYCE,

Chief Justice, dissenting.

I dissent to the court’s opinion denying appellee’s motion for rehearing. I would grant the motion and affirm the trial court’s summary judgment because Exclusion “1” of the printer’s E & 0 form specifically excludes from coverage replacement costs due to the insured’s faulty workmanship.

The clear and unambiguous intent of Exclusion “1” is to preclude from coverage replacement costs incurred by Venture Encoding Service Inc.’s faulty workmanship. This type of “business risk” exclusion is common in liability policies, the purpose of which is to “provide protection to the insured for personal injury or for property damage caused by the completed product, but not for the replacement and repair of that product.” T.C. Bateson Constr. Co. v. Lumbermens Mut. Cas. Co., 784 S.W.2d 692, 694-95 (Tex.App.-Houston [14th Dist.] 1989, writ denied) (emphasis supplied); see also Sarabia v. Aetna Cas. & Sur. Co., 749 S.W.2d 157, 157 (Tex.App.-El Paso 1988, no writ) (“It is uniformly held that a liability policy containing such an exclusion does not insure the policyholder against liability to repair or replace his own defective work or product....”); Travelers Ins. Co. v. Volentine, 578 S.W.2d 501, 503-04 (Tex.Civ.App.-Texarkana 1979, no writ) (same). The justification for treating these two risks differently “is that the insured can control the quality of the goods and services he supplies, while accidental injury to property or persons exposes him to almost limitless liability.” Bateson, 784 S.W.2d at 695. As the Bate-son court noted:

[T]he exclusions are designed to protect insurers from contractors’ attempts to recover funds to correct deficiencies caused by the contractors’ questionable performance. Their use demonstrates the insurers’ belief that the cost of not performing well is a cost of doing business and not considered part of the risk sharing scheme for which general liability policies are written.

Id. Thus, a contractor “cannot recover from the insurer for his own failure to perform his contract, but can recover for damages other than to his own work, whether or not that work is defective.” Hartford Cas. Co. v. Cruse, 938 F.2d 601, 603 (5th Cir.1991) (emphasis supplied) (internal quotation omitted).

The exception to Exclusion “1” provides coverage for bodily injury, property damage, or other economic loss resulting from Venture’s faulty workmanship. It does not, as the majority incorrectly holds, insure Venture against liability to replace its own defective work — coverage expressly precluded by Exclusion “1.” See Gulf Ins. Co. v. Parker Prods., Inc., 498 S.W.2d 676, 678-79 (Tex.1973) (explaining “sistership” exclusion); Gen. Mfg. Co. v. CNA Lloyd’s of Tex., 806 S.W.2d 297, 300 (Tex.App.-Dallas 1991, writ denied) (construing business risk exclusion); see also Taylor v. Travelers Ins. Co., 40 F.3d 79, 82 (5th Cir.1994) (holding that liability policy containing business risk exclusion does not insure the policy holder against liability to repair or replace his own defective work or product). The majority’s novel reading of the exception to provide coverage precluded by Exclusion “1” renders the exclusion meaningless and enlarges coverage beyond what the express terms of the policy provide.

For these reasons, I dissent.