Lennar Corp., et al. v. Markel Am. Ins. Co., No. 11-0394 (Tex. Aug. 23, 2013): Texas Supreme Court Affirms 'All Sums' Allocation and Prejudice Requirement for 'Voluntary Payments' Under Texas Law

by Reed Smith

On August 23, 2013, in Lennar Corp., et al. v. Markel Am. Ins. Co., the Texas Supreme Court issued an opinion that confirms two important aspects of pro-policyholder insurance law, despite insurers’ repeated attempts to reverse and/or limit them. In the 1990s, Lennar Corporation built hundreds of homes using an exterior insulation and finish system ("EIFS"), marketed as an attractive alternative to traditional stucco. However, when installed on wood-frame homes, EIFS traps water in walls, causing rot, mildew, mold and termite infestations. After being inundated with consumer complaints, Lennar investigated and decided to replace all EIFS it had installed on homes and repair any damage in the homes caused by EIFS. Lennar spent several million dollars in this program, which took several years to complete.

Lennar notified its insurers that had issued liability policies in effect during the time EIFS had been in place and damaged homes, that it would seek indemnification of the program’s costs. None of the insurers consented to Lennar’s proactive and comprehensive efforts to fix the EIFS problems. All of the insurers denied coverage and Lennar sued. All but one of the insurers, Markel American Insurance Company, eventually settled with Lennar. Lennar and Markel tried the coverage case before a jury, which found in Lennar’s favor. The Texas Court of Appeals reversed the jury’s verdict on the grounds that Lennar had not complied with the Markel policy’s "voluntary payments" provisions, and that Lennar had not proved the amount of its loss "because of" property damage that "occurred during the policy period" as required by the policy.

The Texas Supreme Court reversed the Court of Appeals and reinstated the jury’s verdict. Although the policy prohibited Lennar from voluntarily making any payment, assuming any obligation, or incurring any expense without Markel’s consent, the Supreme Court noted that Texas law has long required an insurer to prove it was prejudiced by its insured’s payment without the insurer’s consent. The Supreme Court rejected Markel’s argument that it had been prejudiced as a matter of law because Lennar had solicited claims and thus made repairs to homes it would not otherwise have made. Instead, the Supreme Court found that prejudice was a fact-issue the jury had resolved in Lennar’s favor.

Markel argued that the policy’s definition of "ultimate net loss" also precluded recovery, because it stated that such loss "may be established by adjudication, arbitration, or a compromise to which we have previously agreed in writing." The Supreme Court held that Markel could not avoid the prejudice requirement by relying on the policy’s loss-establishment provision. The purpose of this provision is "exactly the same" as the "voluntary payments" provision, and therefore an insurer must prove it was prejudiced in order to avoid coverage under both provisions.

The policy requires that Lennar incur a loss "because of" property damage that "occurred during the policy period." Markel argued that the sums Lennar paid to find and determine the extent of damage caused by EIFS, as opposed to remediating the damage once found, were not covered. The Supreme Court, however, easily rejected this argument, finding that "under no reasonable construction of the phrase [‘because of’] can the cost of finding EIFS property damage in order to repair it not be considered to be ‘because of’ the damage." All of the homes at issue had been damaged to some extent, and thus Markel’s attempt to characterize the efforts to find the damage as "preventative measures" was not supported by the record.

Finally, the Supreme Court found that Markel’s policy obligation to pay the "total amount" of loss Lennar suffered because of the property damage meant that Markel had to pay all of the costs and expenses incurred in investigating and remediating the homes, not just the sums that could be linked to damage occurring during the policy period. The Supreme Court relied on its earlier holding in Am. Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842 (Tex. 1994), disagreeing with Markel that the relevant language in Garcia was mere dicta. The Supreme Court further held, again in reliance on Garcia, that Markel could not reduce its liability to Lennar in the first instance because other insurers shared responsibility for the loss. Instead, insurers must first pay the amounts owed under their policies, but may re-allocate such payments among themselves afterwards according to their subrogation rights.

The Texas Supreme Court’s decision in Lennar Corp. is an important affirmation of critical rules of contract interpretation favorable to policyholders under Texas law. At the same time, the opinion demonstrates that insurance companies are unceasing in their efforts to have such rules limited and/or reversed outright. Reed Smith’s Insurance Recovery Group constantly monitors courts nationwide for such efforts and is always up-to-date regarding the latest developments in insurance law.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Reed Smith | Attorney Advertising

Written by:

Reed Smith

Reed Smith on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.