A Texas appeals court recently upheld a district court’s finding that an insurer had no duty to defend or indemnify a subcontractor in a suit involving alleged construction defects. Adolfo Vela d/b/a Adelco Enterprises v. Catlin Specialty Ins. Co., et al., 2015 WL 1743455 (Tex. App.—Corpus Christi April 16, 2015).

A subcontractor sued a general contractor for breach of contract, alleging he was owed money for his work as a subcontractor. The general contractor counterclaimed asserting that the subcontractor’s work was defective. The subcontractor’s insurer originally denied coverage, but later agreed to defend under a reservation of rights, which the subcontractor declined. Prior to trial, the subcontractor non-suited the general contractor and both parties agreed to divide any sums acquired in subsequent litigation against the subcontractor’s insurer. Following a bench trial, the federal court entered judgment in favor of the general contractor on its counterclaim against the subcontractor, who then sued the subcontractor’s insurer alleging that the insurer negligently failed to defend or indemnify him. The trial court granted summary judgment and rendered a take-nothing judgment against the subcontractor who appealed.

The Texas appeals court affirmed, finding that allegations of an insured’s defective work are precluded under a CGL policy’s exclusions for damages resulting from “your work” and subsidence, or sinking, of land. The court held that the subcontractor’s insurer had no duty to defend. The court further found that the insurer had no duty to indemnify because the pre-trial agreement entered into between the subcontractor and the general contractor presented a “sham of adversity” and distorted the trial process.