In Lamar Homes, Inc. v. Mid-Continent Casualty Company, the Supreme Court of Texas expanded the scope of commercial general liability (“CGL”) coverage for construction and product defects in favor of policyholders. Deciding a hotly-debated insurance issue in Texas at that time, the Lamar Homes majority held that a homeowner’s allegations of construction defects resulting in damage or loss of use of the home triggered the duty to defend or indemnify, as “property damage” caused by an “occurrence,” under the CGL policy. Lamar Homes, 242 S.W.3d 1 (Tex. 2007).
Eight years later, in U.S. Metals Inc. v. Liberty Mutual Group Inc., the court addressed a policyholder’s effort to significantly expand CGL policies to cover construction and product defects. Focused less on the scope of the insuring agreement as in Lamar Homes and more on the meaning of “physical injury” in the exclusions, the court held that “physical injury requires tangible, manifest harm and does not result merely upon the installation of a defective component in a product or system.” U.S. Metals, 2015 WL 7792557 (Tex. Dec. 4, 2015). This conclusion is consistent with the majority of state high courts that previously considered the “incorporation theory.”
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