5th Circuit: Insurer Has Duty to Defend Lawsuit Over Leaky Roof Despite Policy Exclusion

Siplast Inc., a Dallas-area manufacturer of roof membranes, purchased a liability policy that excluded coverage for any damages to its own work or products.

That doesn’t mean the insurer has no duty defend its policyholder against a lawsuit that alleges Siplast’s failure to honor its guarantee caused more than $5 million in water damage to a Catholic high school in the Bronx, a panel of the 5th Circuit Court of Appeals ruled Tuesday.

The panel reversed a decision by a US District Court judge that found under Texas law, Employers Mutual Casualty Co. was not required to defend Siplast because the damages alleged in the lawsuit were excluded from coverage. The published opinion says that if “read liberally,” the lawsuit filed by the Archdiocese of New York against Siplast could be understood to allege damages beyond replacement of the roof.

In that case, the “your product/your work” exclusion does not apply.

“Therefore, there is a duty to defend based on those allegations,” the court said. “And since the underlying complaint includes allegations of damage to both non-covered and covered property, that duty to defend extends to the entire suit.”

The archdiocese hired Vema Enterprises to replace the roof over Cardinal Spellman High School in the Bronx is 2012. Vema used a roofing membrane manufactured by Siplast, which provided a guarantee that the product would remain watertight for 20 years.

Instead, the roof started leaking four years after it was installed, according to the archdiocese’s lawsuit. The suit says school officials reported water damage to the ceiling tiles thought the high school after a November rainstorm. Vema attempted to make repairs, but the leaking grew worse. Vema eventually told school officials that Siplast was responsible for the defect. Siplast disagreed and refused to honor its guarantee.

The high school hired a consultant who determined that defects in both workmanship and Siplast’s membrane were causing the leaks. The archdiocese. Siplast asked EMCC to defend it. The insurer refused, so Siplast sued.

Attorneys for both sides asked for summary judgment. US District Judge Ada Brown in Dallas found in favor of the insurer and dismissed the lawsuit.

The appellate panel said the trial court judge’s reading of the archdiocese’s lawsuit was “overly narrow.” EMCC’s lawyers had argued that it was clear that the school was seeking at least $5 million to replace the roof and nothing more, but the panel’s opinion says that’s not the case.

For one thing, the lawsuit notes damage to the ceiling tiles below the roof. The suit also says that “additional property damage” occurred even after the contractor attempted to make repairs. The opinion says that makes it clear the lawsuit is alleging damages other than replacing the roof.

The court noted that while policyholders are required to prove that they suffered damages that were covered under an insurance contract, insurers have the burden of proving that any exclusions apply. In Texas, as in most states, any ties go to the insured, the opinion says.

About the photo: The Cardinal Spellman High School is shown in a photo posted on Sullivan Engineering’s website. The company says it developed designs and specifications for a roof replacement project in 2018.