Opinion issued August 15, 2013




                                 In The

                           Court of Appeals
                                 For The

                       First District of Texas
                        ————————————
                           NO. 01-12-00587-CV
                         ———————————
  MID-CONTINENT CASUALTY COMPANY, Appellant/Cross-Appellee
                                   V.
           ROBERT E. KROLCZYK, Appellee/Cross-Appellant



                 On Appeal from the 155th District Court
                          Waller County, Texas
                    Trial Court Case No. XX-XXXXXXX
                         OPINION ON REHEARING *

      In this agreed interlocutory appeal, we must determine whether the insurer,

Mid-Continent Casualty Company, owed its insured, Robert Krolczyk, a duty to

defend in a suit involving damage to a road built by Krolczyk. Mid-Continent

contends that it had no duty to defend because two exclusions in its commercial

general liability policy barred insurance coverage.      Because the allegations

potentially support a covered claim outside the exclusions, we render a declaratory

judgment in favor of Krolczyk.

                                  Background

      This case arises from a dispute about the construction of a road built for a

subdivision and the insurance coverage for damage to that road. Krolczyk owned a

tract of land in Waller County, which he subdivided into seven lots and sold to

purchasers for home sites.    As part of the development and sale of the lots,

Krolczyk built Hunter’s Ridge Road through the center of the subdivision. He

completed the base of the road in the year 2000, and he completed the paving and

sealing of the road in 2003. In 2006, Krolczyk sued the subdivision’s homeowners

association, named as the Hunter’s Ridge Maintenance Association, for damage to

the road. He alleged that the home owners had moved between 50 and 125

*
      Appellant Mid-Continent Casualty Company moved for rehearing of our
      June 6, 2013 opinion and judgment. We deny the motion for rehearing. We
      withdraw our prior opinion and judgment and issue the following opinion
      and judgment in their stead. All other pending motions are denied as moot.
                                        2
dumptruck-loads of earth over his objection, damaging the road.          He sought

declaratory relief to determine the rights and responsibilities of the parties for

repairs.   The Hunter’s Ridge Homeowners Association, representing the

homeowners as an unincorporated association, intervened and filed counterclaims

against Krolczyk, alleging that he agreed to provide a paved road, but the road he

built was “totally inadequate” due to faulty construction. The Association’s factual

allegations pertinent to Krolczyk’s construction of the road include:

      14. Hunter’s Ridge Road was not built as a single project, but as
      three separate projects.

      15. The first segment of the project constituted the construction of
      the drainage ditches and base for the entire project, and the laying of
      the asphalt for the first 1/3 of the length of the road.

      16. The second 1/3 of the project was completed approximately 18
      months after the initial phase.

      17. The second 1/3 of Hunter’s Ridge Road’s construction
      consisted of the laying of the asphalt surface but with no additional
      compaction or reworking of the road base.

      18. The last phase of Hunter’s Ridge Road was completed after the
      second, again without reworking of the base after extended exposure
      to the elements.

      19. Krolczyk utilized washed concrete instead of stabilized
      concrete as part of the base.

      20. The drainage alongside the Hunter’s Ridge Road was not
      adequate to prevent rain water from washing out some of the base
      which had been exposed to the elements.



                                         3
      21. As a result of the inadequate base material used, the extended
      exposure of the base to the elements, and the poor drainage
      construction, the base under the Hunter’s Ridge Road failed.

      22. The failure of the base of Hunter’s Ridge Road has caused the
      asphalt surface to crack and pothole after less than one year of use.

      ....

      27. Hunter’s Ridge Road, as constructed and in its current
      condition, does not meet the county standards of Waller County, even
      for the limited traffic it will handle.

      28. Much of the current roadway was overlaid once before without
      success of correcting the problems which were present at that time.

      29. One of the causes for the lateral cracking found in the road bed
      is poor joint construction.

Based on these allegations, the Association asserted causes of action against

Krolczyk for breach of contract, deceptive trade practices, common-law fraud,

negligent misrepresentation, and fraud in a real estate transaction. The Association

sought damages to replace two-thirds of the road.

      Krolczyk tendered the Association’s claims to his insurer, Mid-Continent.

In June 2009, Mid-Continent responded with a reservation-of-rights letter, noting

that the Association alleged that the road had been poorly constructed and that this

may limit or preclude coverage under the policy. Krolczyk filed an answer to the

Association’s claims, asserting a defense of contributory negligence for the

damage to the road. Later, Mid-Continent sent a letter acknowledging that its duty

to defend Krolczyk had been triggered, but it continued to reserve its right to

                                         4
determine whether insurance coverage was limited by the policy.              Although

Krolczyk had selected his own attorney, Mid-Continent attempted to select another

attorney to defend the lawsuit. Krolczyk’s attorney informed Mid-Continent that it

had created a conflict of interest when it issued the reservation-of-rights letter, and

therefore Krolczyk was entitled to select his own attorney.

      A few weeks later, Mid-Continent informed Krolczyk that it had determined

that the policy did not cover the damages sought in the lawsuit. In response,

Krolczyk filed a petition seeking a declaratory judgment that he was entitled to a

defense under the insurance policies. Mid-Continent asserted a defense that a

property-damage exclusion in the policy, called the “your work” exclusion, applied

to preclude coverage. Krolczyk filed a motion for summary judgment, which the

trial court denied. After asserting that an additional “earth movement” exclusion

also applied, Mid-Continent filed its own motion for summary judgment. The trial

court denied all motions for summary judgment.

      Krolczyk and Mid-Continent then jointly moved for permission to pursue an

interlocutory appeal. See Act of May 11, 2005, 79th Leg., R.S., ch. 97, § 5, sec.

10.3, 2005 Tex. Gen. Law 180 (amended 2011) (current version at TEX. CIV. PRAC.

& REM. CODE ANN. § 51.014(d) (West Supp. 2012)). The trial court granted the

motion and stayed litigation pending the appeal. The controlling issue as identified




                                          5
by the parties is whether Mid-Continent owes Krolczyk a duty to defend under the

insurance policy.

                                      Analysis

      We review the trial court’s ruling on a summary-judgment motion de novo.

Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848

(Tex. 2009). In our review of cross-motions for summary judgment, we review the

summary-judgment evidence presented by each party, determine all questions

presented, and render the judgment that the trial court should have rendered. Tex.

Mun. Power Agency v. Pub. Util. Comm’n, 253 S.W.3d 184, 192 (Tex. 2007).

      When determining whether an insurer has a duty to defend, we follow the

eight-corners rule by looking at the four corners of the complaint for alleged facts

that could possibly come within the scope of coverage in the four corners of the

insurance policy. Evanston Ins. Co. v. Legacy of Life, Inc., 370 S.W.3d 377, 380

(Tex. 2012). The duty to defend is broader than, and distinct from, the duty to

indemnify. Utica Nat’l Ins. Co. of Tex. v. Am. Indem. Co., 141 S.W.3d 198, 203

(Tex. 2004). The duty to defend does not depend on the truth or falsity of the

allegations; a plaintiff’s factual allegations that could potentially support a covered

claim are all that is needed to invoke the insurer’s duty to defend. GuideOne Elite

Ins. Co. v. Fielder Road Baptist Church, 197 S.W.3d 305, 310 (Tex. 2006).

Insureds are favored when examining both the complaint and the policy. Legacy of


                                          6
Life, 370 S.W.3d at 380. If the complaint includes even one covered claim, the

insurer must defend the entire suit. Zurich Am. Ins. Co. v. Nokia, Inc., 268 S.W.3d

487, 491 (Tex. 2008).

      Initially, the insured has the burden of establishing coverage under the terms

of the policy. Ulico Cas. Co. v. Allied Pilots Ass’n, 262 S.W.3d 773, 782 (Tex.

2008). If the insured proves coverage, then to avoid liability the insurer must

prove that the loss falls within an exclusion. Id. at 778. “When interpreting an

insurance contract, we ‘must adopt the construction of an exclusionary clause

urged by the insured as long as that construction is not unreasonable, even if the

construction urged by the insurer appears to be more reasonable or a more accurate

reflection of the parties’ intent.’” Evanston Ins. Co. v. ATOFINA Petrochems.,

Inc., 256 S.W.3d 660, 668 & n.25 (Tex. 2008) (quoting Nat’l Union Fire Ins. Co.

v. Hudson Energy Co., 811 S.W.2d 552, 555 (Tex. 1991)). Any limitations on

liability are strictly construed against the insurer and in favor of the insured, and

the insurer must express any intent to exclude coverage in clear and unambiguous

language. Id.

      Although conceding that the underlying policy terms provide coverage, Mid-

Continent asserts that two exclusions apply: one for “your work,” excluding

coverage for damage to the work performed by Krolczyk, and another for “earth

movement.”

                                         7
I.    The “your work” exclusion

      The “your work” exclusion, listed as term 2(j)(6) in the policy, provides that

the CGL insurance does not apply to:

      “Property damage” to:

      ...

      (6) That particular part of any property that must be restored, repaired
      or replaced because “your work” was incorrectly performed on it. 1

“Your work” is defined, in relevant part, as “Work or operations performed by you

or on your behalf.” The “your work” exclusion is a business-risk exclusion, a

common feature in CGL insurance policies that is designed to exclude coverage for

defective work performed by the insured. Mid-Continent Cas. Co. v. JHP Dev.,

Inc., 557 F.3d 207, 211 (5th Cir. 2009). While the general purpose of business-risk

exclusions is to preclude coverage for damage to an insured’s own work, the actual

coverage for the type of risk depends on the policy’s specific language. Lamar

Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1, 13–14 (Tex. 2007).




1
      Mid-Continent asserts that Krolczyk waived the issue of challenging the
      application of the “your work” exclusion because he inadequately briefed it
      in his cross-appellant’s brief. Krolczyk, however, presented the argument in
      his cross-appellee’s brief that the exclusion does not defeat the duty to
      defend when defective work by the insured causes damage to nondefective
      work by the insured. As Krolczyk substantially complied with the rules for
      briefing by acquainting us with his argument and proper authorities, he has
      not waived this issue. See TEX. R. APP. P. 38.9.

                                         8
      Under the “your work” exclusion, liability coverage does not apply only

when two requirements are met: (1) the property damage is to “[t]hat particular

part” that must be restored, repaired, or replaced (2) because the insured

incorrectly performed work on it. JHP Dev., 557 F.3d at 215. When an insurance

contract’s term is susceptible to more than one interpretation, we adopt the

construction that most favors the insured. Nat’l Union Fire Ins., 811 S.W.2d at

555. An exclusion that unambiguously precludes coverage for all property damage

caused by the defective work of the insured should omit the limiting language

referencing a “particular part of any property,” and instead it should state

something like: “Property damage to property that must be restored, repaired or

replaced because your work was incorrectly performed on any part of it.” See

Gore Design Completions, Ltd. v. Hartford Fire Ins. Co., 538 F.3d 365, 371–72

(5th Cir. 2008) (construing the “that particular part” language not to exclude

coverage for the insured’s nondefective work damaged by defective work

performed elsewhere in the same project). The exclusion only precludes coverage

for repairing or replacing the insured’s defective work; “it does not exclude

coverage for damage to other property resulting from the defective work.”

Wilshire Ins. Co. v. RJT Const., L.L.C., 581 F.3d 222, 226 (5th Cir. 2009) (citing

Travelers Ins. Co. v. Volentine, 578 S.W.2d 501, 503 (Tex. Civ. App.—Texarkana

1979, no writ)); see also Mid-Continent Cas. Co. v. Bay Rock Operating Co., 614

                                        9
F.3d 105, 115–16 (5th Cir. 2010) (holding that the j(6) term restricts the exclusion

to property damage to that particular part of the project that was subject to the

insured’s defective work); Gore Design, 538 F.3d at 371–72 (same).

      We look to the factual allegations of the underlying suit to determine

whether the insurer has a duty to defend. Zurich Am., 268 S.W.3d at 495. “The

duty to defend is not negated by the inclusion of claims that are not covered;

rather, it is triggered by the inclusion of claims that might be covered.” Id. at 495–

96. The relevant allegations in the underlying suit were that Krolczyk had built the

road in three phases. In the first phase Krolczyk built drainage ditches and the

base of the whole road, and he laid asphalt to surface the first third of the road

length. Eighteen months later, he laid asphalt for the second third of the road

length, but he did not rework the road base. Finally, “after extended exposure to

the elements,” he surfaced the remaining length of the road, but again he did not

rework the base. The Association also alleged that the drainage alongside the road

was “not adequate to prevent rain water from washing out some of the base.” The

road base allegedly “failed” as a result of Krolczyk’s failure to rework the base or

construct adequate drainage, and this failure allegedly “caused the asphalt surface

to crack and pothole after less than one year of use.” The road was rendered

useless and unable to meet the standards of Waller County.




                                         10
      In Mid-Continent Casualty Co. v. JHP Development, Inc., 557 F.3d 207,

214–15 (5th Cir. 2009), which presented a similar question, the Fifth Circuit

interpreted the same exclusion not to preclude coverage for the insured’s

nondefective work damaged by the insured’s own defectively performed work. A

construction company installed concrete firewalls, exterior finishes, electrical

wiring, stud framing, interior drywall, and wood flooring for a condominium

project. Id. at 210. The builder failed to water-seal the exterior finishes and

firewalls, which later allowed rain to severely damage both the defective exterior

work and the nondefective interior work it had performed. Id. Even though the

insured had performed both the defective work and the nondefective work, the

court held that the insurer had a duty to defend: “[E]xclusion j(6) bars coverage

only for property damage to parts of a property that were themselves the subject of

defective work by the insured; the exclusion does not bar coverage for damage to

parts of a property that were the subject of only nondefective work by the insured

and were damaged as a result of defective work by the insured on other parts of the

property.” Id. at 215; see also Am. Home Assur. Co. v. Cat Tech, L.L.C., 660 F.3d

216, 223 (5th Cir. 2011).

      In JHP Development, there was no allegation that the builder had performed

defective work on the interior portions of the project. See JHP Dev., 557 F.3d at

217. Attempting to distinguish JHP Development on this basis, Mid-Continent

                                        11
asserts that the Association here alleged that all of Krolczyk’s work on the road

was defectively performed. But the allegations here are unclear as to whether all

of the work was defectively performed by Krolczyk. An insurer must defend the

suit “[i]f a complaint potentially includes a covered claim.” Zurich Am., 268

S.W.3d at 491. Although we do not look outside the pleadings or “imagine factual

scenarios which might trigger coverage,” we interpret the allegations in the suit

liberally to favor the insured. Nat’l Union Fire Ins. Co. v. Merch. Fast Motor

Lines, Inc., 939 S.W.2d 139, 141–42 (Tex. 1997). Additionally, “we may draw

inferences from the petition that may lead to a finding of coverage.” Gore Design,

538 F.3d at 369 (quoting Gen. Star Indem. Co. v. Gulf Coast Marine Assocs., 252

S.W.3d 450, 456 (Tex. App.—Houston [14th Dist.] 2008, pet. denied)).

      Construing the Association’s petition liberally in favor of Krolczyk and

without regard to the truth or falsity of the allegations, the allegations suggest that

there is a potentially covered claim. The Association alleged that Krolczyk laid

asphalt on the surface of the road, which “after less than one year of use” cracked

and formed potholes due to the “failure of the base.”           There is no specific

allegation that the surfacing work was performed defectively; instead, the

allegations state that the surface became damaged due to defects in the work

performed on the road base, such as failing to perform “additional compaction or

reworking of the road base” after it had lain dormant with “extended exposure to

                                          12
the elements,” the use of “washed concrete instead of stabilized concrete as part of

the base,” and the failure to provide adequate drainage “to prevent rain water from

washing out” the exposed base. The Association also alleged that “[o]ne of the

causes for the lateral cracking found in the road bed is poor joint construction.”

      Under these alleged facts, “that particular part” of the work that was

defectively performed would be excluded from coverage, such as Krolczyk’s

construction of the road base, while parts of the work that were not defectively

performed by Krolczyk would be covered, such as his later work paving or

repaving the road. Dorchester Dev. Corp. v. Safeco Ins. Co., 737 S.W.2d 380, 382

(Tex. App.—Dallas 1987, no writ) (“[I]f defective work is performed by or on

behalf of the insured, and such defective work causes damage to other work of the

insured which was not defective, then there would be coverage for repair,

replacement or restoration of the work which was not defective.”), abrogated on

other grounds by Don’s Bldg. Supply, Inc. v. OneBeacon Ins. Co., 267 S.W.3d 20,

26 (Tex. 2008). Although the allegations describing Krolczyk’s work paving the

road include allegations that he failed to rework the road base, under a liberal

reading, these do not necessarily mean that Krolczyk performed the paving work

defectively; rather, mention of the failure to rework the base could have simply

been an explanation how the paving work was damaged by the defective work on

the base.

                                          13
      Mid-Continent urges that we consider the road as a unitary whole, so the

“that particular part” language would necessarily refer to Krolczyk’s work on the

road altogether rather than to separate parts of the road project. 2 Two factors lead

us to reject this interpretation. First, the allegations themselves expressly divide

the road into three distinct phases. They also separately describe different aspects

of the project, including construction of the base, providing adequate drainage, and

surfacing the road. Second, construction of a road is a large project that can be


2
      Mid-Continent references Gar-Tex Construction Co. v. Employers Casualty
      Co., 771 S.W.2d 639 (Tex. App.—Dallas 1989, writ denied), as an example
      of a case in which a large construction project, a clearwell, was held to not
      have separate parts for insurance purposes. The case is inapposite. Gar-Tex
      was not a duty-to-defend case, but an indemnity case in which the
      construction company was found to have caused the damage due to its faulty
      work on the clearwell site. Id. at 643. Thus, there was no nondefective
      work to which a “that particular part” exclusion would not have applied. See
      id. at 643–44 (distinguishing those cases in which the insured’s faulty work
      damages nondefective work because the damage to the clearwell was a
      direct result of Gar-Tex’s failure to follow specifications).

      The other Texas case that Mid-Continent offers to support its argument that
      the road must be considered an indivisible whole, Southwest Tank & Treater
      Manufacturing Co. v. Mid-Continent Casualty Co., 243 F. Supp. 2d 597
      (E.D. Tex. 2003), was rejected as applying to multi-part construction
      projects such as in this case. Gore Design Comp., Ltd. v. Hartford Fire Ins.
      Co., 538 F.3d 365, 371 n.8 (5th Cir. 2008) (“The only case cited for that
      proposition [that the exclusion applies to the entire project, not just the
      electrical system in question] is Sw. Tank & Treater Mfg. Co. v. Mid-
      Continent Cas. Co., 243 F. Supp. 2d 597, 603–04 (E.D. Tex. 2003). That
      case is not binding precedent on this court, and it has not been relied upon as
      authority by this court. The court there also focused on the insured’s work
      on the entire tank that was damaged, rather than on a particular part.”).

                                         14
completed using varied construction techniques, equipment, and materials. This

makes the application of the “your work” exclusion to a road construction project

comparable to other authorities which have applied the exclusion to large projects

with several major subparts. 3    Likewise, the construction of a road is not

comparable to a small, unitary item that lacks separate parts on which different

types of work are performed. 4     Favoring the insured in construing both the

complaint and the policy, we conclude that the road project was not an indivisible

whole under these allegations, but instead it was composed of several particular

parts to which the j(6) exclusion may or may not apply.




3
      See, e.g., Mid-Continent Cas. Co. v. Bay Rock Operating Co., 614 F.3d 105,
      115–16 (5th Cir. 2010) (holding an intermediate casing seat and surrounding
      formation was validly found to be separate part of oil well for liability
      purposes); Mid-Continent Cas. Co. v. JHP Dev., Inc., 557 F.3d 209, 215 (5th
      Cir. 2009) (considering exterior walls of condominium project as different
      particular part than interior drywall and electrical work); Gore Design, 538
      F.3d at 371 (component of electrical system different particular part from
      aircraft as a whole).
4
      See, e.g., Vinsant Elec. Contractors v. Aetna Cas. & Sur. Co., 530 S.W.2d
      76, 76–77 (Tenn. 1975) (holding a switchboard is a “unit of property within
      itself, self-contained” and constituted one “particular part” for purposes of
      policy exclusion, although it was composed of many smaller electrical
      components).

                                        15
      Thus, under a liberal reading, the Association’s complaint potentially

includes a covered claim, and the “your work” exclusion does not abrogate Mid-

Continent’s duty to defend the suit.5

II.   The “earth movement” exclusion

      Mid-Continent also argues that the “earth movement” exclusion applies to

bar coverage in the suit. That exclusion states:

      This insurance does not apply to . . . “property damage” . . . arising
      out of, caused by, resulting from, contributed to, aggravated by, or
      related to earthquake, landslide, mudflow, subsidence, settling,
      slipping, falling away, shrinking, expansion, caving in, shifting,
      eroding, rising, tilting or any other movement of land, earth or mud.

Mid-Continent urges us to adopt a construction of the exclusion to include minor

movements of the earth caused by rain or the elements, noting that Webster’s Ninth

New Collegiate Dictionary defines “erode” as “to wear away by the action of

water, wind, or glacial ice.” The Association alleged that some of the damage to

the road was caused by the “washing out [of] some of the base which had been

exposed to the elements.” The Association attributed the failure of the base of the

road, and ultimately the road itself, partially to “the extended exposure of the base

to the elements.” Thus, Mid-Continent argues that all of the property damage that


5
      Because we conclude that the j(6) “your work” exclusion does not abrogate
      Mid-Continent’s duty to defend, we need not examine the parties’ additional
      arguments about Krolczyk’s contention that a “products-hazard operations”
      exception applies to the exclusion.

                                         16
allegedly occurred in the underlying case was at least “related to” the “movement

of land, earth or mud.” Krolczyk responds by pointing out that the exclusion states

that the movement must be that “of land, earth or mud,” but the allegations are that

the road base was made of man-made materials including concrete. Aside from the

allegations concerning the road base, there is no allegation that the road damage

was related to the movement of land, earth, or mud.

       We apply the ordinary and generally-accepted meaning of a policy’s terms,

unless the policy shows the words were meant in a technical or other sense.

Gilbert Texas Constr., L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118,

126 (Tex. 2010). For the “earth movement” exclusion to apply, the property

damage must be related to the movement “of land, earth or mud.” The ordinary

meanings of land, earth, and mud do not encompass concrete or other man-made

materials. Favoring the insured as we must when examining the eight corners of

the petition and the insurance policy, we adopt Krolczyk’s interpretation of the

exclusion that it does not apply to the movement of man-made materials, as his

construction is not unreasonable. See ATOFINA Petrochems., Inc., 256 S.W.3d at

668.

       As for the allegations contained in the pleadings, they do not specify

whether the “part of the base” of the road that was “exposed to the elements” and

washed out by rain water was built of land, earth, or mud. The only other aspect of

                                        17
the pleading which relates to the potential application of the earth-movement

exclusion is that “Krolczyk utilized washed concrete instead of stabilized concrete

as part of the road base.” When the allegations in the pleadings do not state facts

sufficient to clearly bring the case within or without the coverage, the insurer is

obligated to defend as long as there is potentially a covered claim under the

pleadings. Lexington Ins., 355 S.W.3d at 210–11. As the road base could have

been built of materials other than earth, land, or mud, and the allegations do not

mention any other earth movement, the allegations do not clearly establish that the

exclusion does or does not apply.     Accordingly, we conclude that the “earth

movement” exclusion does not abrogate Mid-Continent’s duty to defend Krolczyk.




                                        18
                                   Conclusion

      Mid-Continent has not proven that the exclusions in its commercial general

liability insurance policy bar coverage of the claims in the underlying suit.

Accordingly, it owes Krolczyk a duty to defend against the claims asserted by the

Association. We hold that the trial court improperly denied summary judgment to

Krolczyk, although it properly denied summary judgment in favor of Mid-

Continent. We therefore render a declaratory judgment that Mid-Continent owes a

duty of defense to Krolczyk.



                                             Michael Massengale
                                             Justice

Panel consists of Justices Jennings, Bland, and Massengale.




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