The Fifth Circuit, applying Texas law, recently considered whether certain alleged damages qualified as “property damage” for the purpose of a general liability policy.
In PPI Technology Services, L.P. v. Liberty Mutual Insurance Co., Royal Production Company, Inc. retained the insured, PPI Technology Services, L.P., to assist in well planning and to oversee the drilling of wells. Royal sued PPI, alleging that PPI drilled a well on the wrong lease which resulted in the drilling of a dry hole. This hole was ultimately plugged and abandoned. PPI was named as a defendant in two lawsuits relating to the incident, both of which were referred to arbitration and consolidated into a single case.
Royal sought to compel arbitration of its claim by alleging that PPI’s negligence resulted in “property damage.” PPI tendered the underlying lawsuits to its CGL carrier, Liberty Mutual, for defense and indemnification. The Liberty Mutual CGL policy provided coverage for “property damage” caused by an “occurrence” and contained a standard general definition of “property damage”:
Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or
Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the “occurrence” that caused it.
PPI asserted that the mere reference to “property damage” in one of the arbitration petitions triggered coverage. Liberty Mutual responded that it had no duty to defend or indemnify PPI because the underlying lawsuits did not contain factual allegations of “property damage” caused by an “occurrence” as required by the policy.
The Fifth Circuit agreed with Liberty Mutual, relying on the “eight corners” rule, which requires courts to focus on the factual allegations contained in the underlying suits. When a petition does not allege facts within the scope of coverage, an insurer owes no duty to defend.
The court did “not consider mere use of the phrase ‘property damage’ and parroted Policy language as sufficient factual allegations.” The court explained that under Texas law “a cause of action’s label does not determine whether an insurer has a duty to defend,” “property damage” is “more appropriately a label or legal theory and not a factual allegation.” Thus, the court held that the underlying lawsuits’ allegations of “property damage” were not factual allegations triggering Liberty Mutual’ s duty to defend. The remaining allegations were also devoid of any factual allegations falling within the definition of “property damage.”
So, in the Fifth Circuit (as well as many others), general allegations of “property damage,” without specifying what harm or damage the property has suffered, are insufficient to trigger coverage.