* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion

should not be published and is not precedent except under the limited

circumstances set forth in 5TH CIR. R. 47.5.4.

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_______________

No. 96-20130

Summary Calendar

_______________

LAWRENCE D. STERN and RENEE FREEDMAN STERN,

Plaintiffs-Appellants,

VERSUS

TRANSCONTINENTAL INSURANCE COMPANY,

Defendant-Appellee.

_________________________

Appeal from the United States District Court

for the Southern District of Texas

(CA-H-94-2383) 

_________________________

September 4, 1996

Before SMITH, BENAVIDES, and DENNIS, Circuit Judges.

JERRY E. SMITH, Circuit Judge:*

Lawrence and Renee Stern appeal the grant of summary judgment

in favor of Transcontinental Insurance Company. Finding no error,

we affirm.
1 The Texas Supreme Court recently prohibited the assignment of claims

against insurance companies in similar circumstances. See State Farm Fire &

Casualty Co. v. Gandy, No. 94-0781, 1996 WL 391215 (Tex. July 12, 1996).

Assuming arguendo that Gandy would invalidate the instant assignment, we find

that it does not apply to this case, as Homes transferred its claims before the

supreme court decided Gandy, and Transcontinental did not preserve the error

prior to that time. See id. at *30 (stating that the court’s holding does not

invalidate a prior assignment unless the insurance company already has preserved

the error).

2

I.

The Sterns hired A.J. Homes, Inc. (“Homes”), to build their

dream home, but Homes resigned as contractor before completing it.

The Sterns filed suit in state court, alleging that Homes, inter

alia, employed shoddy workmanship and substandard building

materials; left the uncompleted house open to the elements, causing

it to deteriorate to such an extent that the Sterns had to demolish

it; made various misrepresentations; and slandered the Sterns’

title.

Homes sought defense and indemnification from Transcontinental, its general liability insurer. Transcontinental declined

coverage and refused to defend, however, and Homes settled the suit

for judgment in the amount of $74,500 and an assignment of its

claims against Transcontinental.1

The Sterns filed this action against Transcontinental, seeking

to recover Homes’s defense costs and to collect the judgment

against Homes. After the parties filed competing motions for

summary judgment, the district court granted Transcontinental’s

motion and denied the Sterns’.
2 The Sterns’ appellate briefs could be construed to assert that Homes’s

defective workmanship was an “occurrence” giving rise to a duty to defend. In

their summary judgment briefs in the district court, however, the Sterns raised

only claims stemming from weather damage and slander of title. Thus, the Sterns

3

II.

The Sterns contend that Transcontinental had a duty to defend

Homes because (1) the Sterns’ alleged damages fall within the

policy’s “products-completed operations hazard” coverage; (2) any

exclusions apply only to defective work; (3) the policy’s coverage

for personal and advertising injury covers the Sterns’ claims for

slander of title; (4) the policy’s provisions for personal and

bodily injury provide compensation for the Sterns’ mental anguish;

(5) the Sterns’ injuries were not substantially certain to follow

from Homes’s intentional conduct; and (6) Transcontinental’s

failure to assert various policy exclusions at the time that it

denied coverage estopped it from relying upon them in this

litigation.

The magistrate judge provided a thorough and well-reasoned

Amended Memorandum and Recommendation that the district court

adopted. We affirm essentially for the reasons stated in that

memorandum, adding only the following comments.

A.

The Sterns contend that deterioration of the unfinished

residence caused by weather conditions constitutes an “occurrence.”2 The policy covers bodily injury and property damage only
abandoned any argument based upon deficient performance of construction services

by failing to present it. See Cupit v. Whitley, 28 F.3d 532, 535 & n.5 (5th Cir.

1994), cert. denied, 115 S. Ct. 1128 (1995) (holding that arguments not raised

before magistrate judge issues his report and recommendation are waived).

4

if they result from an “occurrence,” see Commercial General

Liability Coverage Form [hereinafter “Policy”] § I.A.1.b(1), and it

defines “occurrence” as “an accident, including continuous or

repeated exposure to substantially the same general harmful

conditions,” id. at V.9. In addition, the policy excludes injuries

that were “expected or intended from the standpoint of the insured”

from coverage. Id. at I.A.2.a. Thus, the Sterns may recover only

if the injury was not a “natural and probable” consequence of

Homes’s intentional actions. See Bituminous Casualty Corp. v.

Vacuum Tanks, Inc., 75 F.3d 1048, 1054 (5th Cir. 1996).

The Sterns argue that Homes could not have expected that the

structure would deteriorate to such an extent that the Sterns would

have to demolish it. In other words, while the injury was a

natural and probable consequence of abandonment of the project, the

extent of that injury was not.

There is little authority on point, but two cases hold that

“[t]he requisite accident may inhere in the scope of damages.” See

Hartford Casualty Co. v. Cruse, 938 F.2d 601, 605 (5th Cir. 1991);

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

App.SSTexarkana 1979, no writ). While the present case involves a

foreseeable injury to the house as a whole, however, Cruse and
5

Volentine involved defects in a discrete product that unexpectedly

caused significant damage to a much larger entity. See Cruse, 938

F.2d at 602, 605 (defects in foundation of house that caused

“extensive” damage to entire home); Volentine, 578 S.W.2d at 503

(malfunction of one valve that destroyed entire engine).

The holdings of Cruse and Volentine have only limited

applicability outside of the products liability context. First, a

defective product’s destruction of a larger entity causes essentially two injuries: a likely one to the product itself and an

unanticipated one to the larger entity. Second, it is reasonable

to assume, in products cases, that damage beyond the specific

product is often difficult to foresee. In the present case,

however, there is a single, foreseeable injury.

Extending Cruse and Volentine to this case would radically

expand the scope of insurance coverage. As it would be impossible

to determine precisely how much damage to each part of the home is

foreseeable, a builder could always argue that he reasonably

expected slightly less damage than actually occurred. Extending

coverage to such cases is counterintuitive: In general, the extent

of an injury is relevant only to the amount for which a defendant

is liable, not the threshold determination of liability itself.

In short, the principle that “[t]he requisite accident may

inhere in the scope of damages” is sensible in the context of

defective products, but it lacks a limiting principle in cases such
6

as the present one. We agree with the magistrate judge that as

“Homes’[s] intended conduct inevitably and predictably caused the

weather deterioration,” the ensuing damage did not result from an

“occurrence.”

B.

The Sterns contend that their claims fall within the policy’s

“products-completed operations hazard” coverage. As the magistrate

judge explained, however, the policy provides no such coverage.

Instead, the policy uses the expression “products-completed

operations hazard” as a term of art in delineating various

exclusions from the policy’s coverage for, among other things,

bodily injury and property damage.

The Sterns contend that the 1992 renewal declaration for the

policy shows that the policy provides coverage for productscompleted operations hazards. First, they observe that under the

heading “Limits of Insurance,” the declaration specifies a

“Products-Completed Operations Aggregate Limit” of $500,000. The

policy states that the “Products-Completed Operations Aggregate

Limit” is the most that Transcontinental will pay under the

coverage for bodily injury and property damage if the liability

falls within the definition of “products-completed operations

hazard.” See Policy § III.3.

Second, they point to a portion of the declaration showing a
7

premium paid for “ContractorsSSExecutive Supervisors or Executive

Superintendents Including Products and/or Completed Operations.”

Once again, however, the declaration simply reflects that coverage

for bodily injury and property damage includes coverage for

completed operations; it in no way purports to override the

policy’s requirement of an “occurrence.”

As the Sterns have not shown that their damages resulted from

an “occurrence,” they are not entitled to recover for injury

resulting from completed operations. The judgment is AFFIRMED.