Court Opinion

ID: 4030004
Source: CourtListenerOpinion
Date Created: 2016-08-31 07:09:17.250661+00
Date Added: 2024-06-11T14:29:16.690445
License: Public Domain

REVERSE and REMAND; and Opinion Filed August 25, 2016.

                                        S   In The
                               Court of Appeals
                        Fifth District of Texas at Dallas
                                     No. 05-15-00230-CV

   GREAT AMERICAN LLOYDS INSURANCE COMPANY AND MID-CONTINENT
                   CASUALTY COMPANY, Appellants
                               V.

 VINES-HERRIN CUSTOM HOMES, L.L.C., HERRIN-CUSTOM HOMES, INC. AND
                    EMIL G. CERULLO, Appellees

                      On Appeal from the 44th Judicial District Court
                                  Dallas County, Texas
                           Trial Court Cause No. DC-03-6903

                            MEMORANDUM OPINION
                          Before Justices Lang, Brown, and Whitehill
                                  Opinion by Justice Brown
       This is the second appeal in this insurance coverage dispute which involves the standard

form Commercial General Liability (“CGL”) Insurance Policy. In the first appeal, appellees

Vines-Herrin Custom Homes, L.L.C., Herrin-Custom Homes, Inc., and Emil G. Cerullo

(collectively “Vines-Herrin”) appealed the trial court’s judgment in favor of Great American

Lloyds Insurance Company (“Great American”) and Mid-Continent Casualty Company (“Mid-

Continent”) (collectively “the Insurers”). In that appeal, Vines-Herrin asserted the trial court

erred in concluding the Insurers did not owe Vines-Herrin a duty to defend a construction defect

suit brought by Cerullo or a duty to indemnify Vines-Herrin for an arbitration award Cerullo

obtained in connection with that suit. We agreed with Vines-Herrin and concluded both Insurers
owed Vines-Herrin a duty to defend and that Great American’s duty to indemnify, at least, was

also triggered. As a consequence, we remanded to the trial court for further proceedings. On

remand, the trial court rendered judgment that Vines-Herrin recover from the Insurers, jointly

and severally, the expenses it incurred in defending Cerullo’s suit, the full amount of the

arbitration award, and its attorney’s fees it incurred prosecuting the coverage suit.

       In four issues, the Insurers generally assert (1) the evidence is legally and factually

insufficient to show they had a duty to indemnify Vines-Herrin, (2) the trial court erred in

rendering judgment over the policy limits, (3) the evidence is legally and factually insufficient to

support the trial court’s award of attorney’s fees, and (4) the trial court erred in finding the

Insurers jointly and severally liable.    For the following reasons, we reverse the trial court’s

judgment and remand for further proceedings consistent with this opinion.

                                          I. Background

       Under the standard terms of an occurrence-based CGL, like those at issue here, the

insurer agrees to defend the insured from suits alleging property damages caused by an

occurrence if the damages occurred during the policy period. The insurer also agrees to pay

those sums the insured becomes legally obligated to pay because of property damages that

occurred during the policy period.

       Between 1998 and 2002, Vines-Herrin, a residential builder, purchased four consecutive

CGL policies from the Insurers, each providing coverage for a period of one year. Great

American issued the first two policies, which together covered Vines-Herrin from November 9,

1998 to November 9, 2000. Mid-Continent issued the second two policies, which overlapped

briefly, but covered Vines-Herrin from November 9, 2000 through September 18, 2002.

       In 1998 or 1999, during Great American’s policy periods, Vines-Herrin built a residence

in Plano, Texas. In May 2000, Vines-Herrin sold that residence to Emil Cerullo. Cerullo began

                                                –2–
noticing problems with the house almost immediately.            The problems included water not

draining from the courtyard, doors not closing properly, damages to sheetrock and baseboards,

cracks in the ceiling, a window sinking into the frame, and finally, in 2002, the roof and the

ceiling began to sag.

        In January 2003, Cerullo sued Vines-Herrin alleging various construction defects caused

him damages. Vines-Herrin demanded the Insurers provide it a defense under the terms of the

CGLs. They both denied there was any coverage and refused to defend Vines-Herrin. Vines-

Herrin then brought this suit seeking a declaration that the Insurers owed it a duty to defend and

a duty to indemnify.

        Meanwhile, Cerullo’s suit proceeded. During the pendency of that action, Vines-Herrin

reiterated its request that the Insurers provide it a defense, to no avail. Then, in 2006, in order to

avoid a costly jury trial, Vines-Herrin and Cerullo agreed to arbitrate the dispute. Before doing

so, Vines-Herrin attempted to obtain the Insurers’ input. They both refused to take any position,

again denying their respective CGLs provided any coverage. Vines-Herrin nevertheless notified

the Insurers of the arbitration hearing and invited them to attend, but they declined.

        Following an evidentiary hearing, the arbitrator found in favor of Cerullo and awarded

him $2,487.507.77 in damages. After the arbitrator entered its award, Cerullo and Vines-Herrin

entered into a settlement agreement in which Cerullo agreed not to confirm the arbitration award

in exchange for an assignment of Vines-Herrin’s claims against the Insurers. Cerullo then

intervened in this suit.

        At a bench trial on coverage, arbitrator Russell Bowman testified that the arbitration

hearing was adversarial and was based on Cerullo’s allegations that the house contained various

construction defects that required numerous repairs. Bowman testified that Cerullo’s major

complaints concerned the roof structure, which was collapsing, moisture entering the house due

                                                 –3–
to stucco not being properly installed, windows not being properly installed, and foundation

problems.

       Cerullo testified he moved into the house in May 2000 and, within a week, noticed

problems with the house. For example, water would not drain from the courtyard area and doors

would not shut properly. Cerullo testified that around Thanksgiving 2000, he noticed windows

in the master bathroom area looked like they were sinking. He also testified it appeared the

master bathroom area was sinking into the stucco. In 2001, cracking occurred in other rooms.

       After the testimony closed, the trial court rendered judgment in favor of Vines-Herrin.

However, while the post-judgment motions were pending, the Texas Supreme Court decided

Don’s Building Supply Inc. v. OneBeacon Ins. Co., 267 S.W.3d 20 (Tex. 2008). In Don’s

Building, the supreme court adopted the “actual injury rule” for determining when property

damages occur under the CGL's policy period. Because the trial court concluded that Vines-

Herrin’s evidence was insufficient based on its understanding of the actual injury rule, the trial

court set aside its judgment. However, the trial court allowed Vines-Herrin to reopen the

evidence to show when Cerullo’s property damages occurred.

       At that time, Cerullo provided further testimony to show when the complained-of

damages had occurred.      For example, he testified to the dates he first noticed the flooding,

cracks, and structural failures he claimed were caused by Vines-Herrin’s negligence. Cerullo

also testified he was living in the house at the time and therefore knew that the damages occurred

on or about the dates he first noticed them.

       The trial court nevertheless rendered judgment that Vines-Herrin take-nothing,

interpreting Don’s Building as requiring expert testimony on causation and evidence of the exact

date property was physically injured. The trial court also concluded that the Insurers did not owe

                                               –4–
Vines-Herrin a duty to defend because Cerullo’s petition failed to allege the exact dates of a

physical injury.

        Vines-Herrin appealed and this Court reversed. Vines–Herrin Custom Homes, LLC v.

Great Amer. Lloyds Ins. Co., 357 S.W.3d 166, 174 (Tex. App.—Dallas 2011, pet. ref’d) (“Vines-

Herrin I”).   In that appeal, we first concluded that both Great American and Mid-Continent

owed Vines-Herrin a duty to defend because Cerullo’s petition alleged property damages that

potentially occurred during both Great American’s and Mid-Continent’s policy periods. Id. at

173. We also rejected the trial court’s conclusion that, in order to trigger the duty to indemnify,

Vines-Herrin was required to show the exact date of physical injury. Id. Instead, Vines-Herrin

was required to show only that damages occurred during the Insurer’s policy period or periods.

See id. We concluded the evidence showed that Great American’s duty to indemnify was

triggered because it issued policies that provided coverage to Vines-Herrin from the time before

the house was even built until the date Cerullo first noticed the damages. Id. As a consequence,

property damages necessarily occurred during one of Great American’s policy periods. Id. We

reversed the trial court’s judgment and remanded to the trial court for further proceedings.

       On remand, the trial court reversed course entirely and entered judgment in favor of

Vines-Herrin against both Great American and Mid-Continent, jointly and severally, for the

entire arbitration award. In its findings of fact and conclusions of law, the trial court found the

arbitrator’s award represented actual damages Cerullo suffered as a result of Vines-Herrin’s

negligent construction of the residence. The trial court also found that Cerullo had “noticed”

property damages during three policy periods at issue, the second Great American policy and

both of Mid-Continent’s policies. The trial court identified those damages as (1) flooding in the

courtyard after a rainstorm, (2) windows bowing around the pool area, and (3) ceilings and the

roof starting to sag. The trial court concluded each damaging event constituted an occurrence

                                               –5–
during one of the policies at issue and triggered the limits of that policy. The trial court found

that Vines-Herrin was not required to allocate the damages that occurred during the respective

policy periods because all of the damages were covered under one of the policies. The Insurers

requested the trial court to make additional findings of fact “and/or” conclusions of law with

respect to the specific dates property damages had occurred and the specific amount of money

the arbitrator awarded for specific property damages.        The trial court refused. The Insurers

brought this appeal.

                                       II. Duty to Indemnify

        In their first issue, the Insurers assert the evidence is legally and factually insufficient to

show either one of them of them owed Vines-Herrin a duty to indemnify or that they breached

their duty. Specifically, they assert the evidence is legally insufficient because (1) Vines-Herrin

failed to show property damages occurred during a specific policy period, (2) Vines-Herrin failed

to segregate the arbitration award and allocate the damages awarded to a particular policy period,

(3) Vines-Herrin never became “legally obligated” to pay the arbitration award because it was

never confirmed to judgment, and (4) the arbitration award was not the product of a “fully

adversarial trial.”

                                        A. Standard of Review

        In an appeal from a judgment rendered after a bench trial, the trial court’s findings of fact

have the same weight as a jury’s verdict, and we review the legal and factual sufficiency of the

evidence to support them as we would review a jury’s findings. See Catalina v. Blasdel, 881
S.W.2d 295, 297 (Tex. 1994). It is presumed that all fact findings needed to support the

judgment were made by the trial court. See Carter v. William Sommerville & Son, Inc., 584
S.W.2d 274, 276 (Tex. 1979). When the trial court’s express findings of fact do not address all

grounds for recovery or defenses, an appellate court implies findings of fact regarding the

                                                 –6–
omitted grounds or defenses that are needed to support the judgment. Pulley v. Milberger, 198
S.W.3d 418, 427 (Tex. App.—Dallas 2006, pet. denied). However, if a party requests the trial

court to make additional fact findings, and the trial court refuses, we may not presume the trial

court made the refused findings.         Boy Scouts of Am. v. Responsive Terminal Sys., Inc., 790
S.W.2d 738, 742–43 (Tex. App.—Dallas 1990, writ dism’d). However, a trial court is not

required to make findings on undisputed facts or on issues that are evidentiary or incidental.

Guar. Bond State Bank v. Tucker, 462 S.W.2d 398, 404–05 (Tex. Civ. App.—Dallas 1970, writ

ref’d n.r.e.). An evidentiary issue is one the trial court may consider in deciding the controlling

issue, but it is not a controlling issue itself. Id.

         In reviewing the legal sufficiency of the evidence to support a trial court’s finding of fact,

we view the evidence in the light most favorable to the finding, crediting favorable evidence if a

reasonable fact finder could and disregarding contrary evidence unless a reasonable fact finder

could not. City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005). We must assume the trial

court made all reasonable inferences in favor of its findings. Ford Motor Co. v. Castillo, 444
S.W.3d 616, 621 (Tex. 2014). In a factual sufficiency review, we examine all the evidence in the

record, both supporting and contrary to the trial court’s finding, and reverse only if the evidence

supporting the finding is so weak or the finding is so against the great weight of the evidence as

to be clearly wrong and unjust. Ortiz v. Jones, 917 S.W.2d 770, 772 (Tex. 1996) (per curium);

In re Marriage of C.A.S. and D.P.S., 405 S.W.3d 373, 382–83 (Tex. App.—Dallas 2013, no

pet.).

         We independently evaluate the trial court’s conclusions of law to determine whether the

trial court correctly drew the legal conclusions from the facts.            Bundren v. Holly Oaks

Townhomes Ass’n, Inc., 347 S.W.3d 421, 430 (Tex. 2011). We must uphold the trial court’s

conclusions of law if any legal theory supported by the evidence sustains the judgment. Inwood

                                                       –7–
Nat'l Bank v. Wells Fargo Bank, N.A., 463 S.W.3d 228, 234–35 (Tex. App.—Dallas 2015, no

pet.).

                                          B. Applicable Law

         Under the CGL policies at issue here, the Insurers had two responsibilities relating to

coverage, the duty to defend and the duty to indemnify. See D.R. Horton–Tex., Ltd. v. Markel

Int’l Ins. Co., 300 S.W.3d 740, 743 (Tex. 2009).         An insurer’s duty to defend arises when a

third party sues the insured on allegations that, if taken as true, potentially state a cause of action

within the terms of the policy.     Gehan Homes, Ltd. v. Employers Mut. Cas. Co., 146 S.W.3d
833, 838 (Tex. App.—Dallas 2004, pet. denied).

         The duty to indemnify means the insurer will pay all covered claims and judgments

against an insured. Mid-Continent Cas. Co. v. Castagna, 410 S.W.3d 445, 449–50 (Tex. App.—

Dallas 2013, pet. denied). The Insurer’s duty to indemnify is triggered not by allegations in the

pleadings but by whether a plaintiff ultimately prevails on a claim covered by the policy. Vines–

Herrin Custom Homes, 357 S.W.3d at 172. The duty to indemnify is “determined based on the

facts actually established in the underlying suit.”     Burlington N. & Santa Fe Ry. Co. v. Nat’l

Union Fire Ins. Co. of Pittsburgh, Pa., 334 S.W.3d 217, 219 (Tex. 2011). The actual facts can

be established in an arbitration proceeding. Castagna, 410 S.W.3d at 452.

                            C. The CGL & the “Actual Injury” Rule

         Under the CGL, the insurer agrees to pay those sums the insured becomes legally

obligated to pay “because of” property damage to which the insurance applies. The insurance

applies to property damages only if (1) the property damages are caused by an occurrence and

(2) the property damages occur during the policy period. An “occurrence” means an accident,

including continuous or repeated exposure to substantially the same general harmful conditions.

                                                 –8–
“Property damage” means “physical injury to tangible property, including all resulting loss of

use of that property.

       In Don’s Building, the supreme court adopted what is known as the “actual injury”

approach in determining when property damages occur during the CGL’s policy period. In that

case, the insured was sued by homeowners for wood rot damages that were caused by exposure

to moisture. See Don’s Bldg., 267 S.W.3d at 22-23. The insurer brought a declaratory judgment

action seeking a ruling that it had no duty to defend or indemnify under the CGL policies that

covered the insured during a three-year period during which the homeowners’ residences were

initially exposed to the moisture that caused wood rot and other damages. Id. at 23. However,

the homeowners did not discover the damages for several years, well after the policy periods of

the applicable CGLs. See id. at 22-23. On certified question from the Fifth Circuit, the Texas

Supreme Court was asked to resolve a split of authority amongst the courts of appeals regarding

when property damages occur under the CGL and specifically if property damages occur when

property is exposed to a harmful condition or if they occur when the damages manifest. Id. at

23.

       The supreme court responded that neither was the appropriate inquiry. Instead, relying

on the CGL’s definition of property damages as “physical injury” to property, the supreme court

held property damages occur at the time property suffers actual physically injury, not when

property is exposed to conditions that later cause physical injury or when property damages

become manifest. Id. at 23, 29.

                                         D. Application

                         i.       Property Damage During Policy Period

       In this case, the Insurers do not challenge whether Vines-Herrin showed the property

damages were caused by an “occurrence.” Instead, their complaints are directed entirely to

                                             –9–
whether Vines-Herrin showed property damages occurred during the applicable policy periods.

However, as noted above, in Vines-Herrin I, this Court held Great American’s duty to indemnify

was triggered. As a consequence, we reversed the trial court’s judgment that Vines-Herrin take

nothing on its indemnity claim. The Insurers filed a petition for discretionary review to the

supreme court, which was denied. The Insurers now ask that we render the same judgment we

reversed in Vines-Herrin I, with respect to both Great American and Mid-Continent, because

neither of their duties to indemnify were triggered.

       Under the “law of the case” doctrine, questions of law decided on appeal to a court of last

resort will govern the case throughout its subsequent stages. In re Assurances Generales Banque

Nationale, 334 S.W.3d 323, 325 (Tex. App.–Dallas 2010, no pet.). The doctrine applies when

the issues of law and fact are substantially the same in the second proceeding as the first.

Siemens AG v. Houston Cas. Co., 127 S.W.3d 436, 442 (Tex. App.–Dallas 2004, pet. dism’d). In

such cases, we will not again pass upon matters that were decided on in a prior appeal. Grant

Thornton LLP v. Suntrust Bank, 133 S.W.3d 342, 362 (Tex. App.–Dallas 2004, pet. denied).

       The Insurers now assert that, on remand, the trial court should have rendered judgment

that Vines-Herrin take nothing because it failed to show either Great American or Mid-

Continent’s duty to indemnify was triggered. In an apparent effort to avoid our prior ruling as to

Great American, the Insurers assert the trial court did not make a finding of fact we specifically

relied on in reaching our conclusion in Vines-Herrin I. In its findings of fact in Vines-Herrin I,

the trial court found the property damages stemmed “at least in part” from defective framing. In

its written judgment, the trial court also noted that Vines-Herrin had presented evidence of expert

reports showing the damages were caused by defective framing. Regardless, in Vines-Herrin I,

we referenced the trial court’s finding regarding the cause of the damages only to explain that

                                               –10–
property damages had to have occurred during the Great American’s policy period because the

house was both framed and suffered property damages during Great American’s policy periods.

          After the case was remanded and trial court rendered judgment in favor of Vines-Herrin,

the trial court found the arbitration award was for damages caused by negligent construction

generally, but did not specifically find the damages were caused by defective framing.

Regardless, the legal and factual import of that finding is no different than the finding we

referenced in Vines-Herrin I. 1 In other words, Great American provided coverage to Vines-

Herring during the entire period the house was constructed until the time damages first

manifested. As consequence, “actual damages must have occurred during the coverage provided

by Great American.” Id. at 173. Therefore, as this Court has already held, Great American owed

Vines-Herrin a duty to indemnify. We will not revisit that holding here.                                             Siemens AG v.

Houston Cas. Co., 127 S.W.3d 436, 442 (Tex. App.–Dallas 2004, pet. dism’d).

          We now turn to whether Vines-Herrin presented sufficient evidence to show Mid-

Continent’s duty to indemnify was triggered. Under the CGL, Mid-Continent agreed to pay

those sums Vines-Herrin became legally obligated to pay because of property damage caused by

an occurrence, if the property damage occurred during its policy periods. In its findings of fact

and conclusions of law, the trial court found that Cerullo noticed property damages during both

of Mid-Continent’s policy periods and also that the property damages occurred during those

policy periods. The trial court specifically referenced Cerullo’s testimony regarding when he

noticed his windows in the pool area starting to bow and his ceiling and roof starting to sag.

According to the Insurers, the trial court’s findings reflect it applied the wrong legal standard in

     1
       In any event, assuming that finding was necessary to support the trial court’s judgment, we must presume the trial court made it. See
Pulley v. Milberger, 198 S.W.3d 418, 427 (Tex. App.—Dallas 2006, pet. denied).

                                                                  –11–
determining when property damages occur under the CGL and specifically that trial court

applied the defunct “manifestation rule” rather than the “actual injury rule.”

                Initially, we disagree with the Insurers that the trial court’s findings of fact, with respect

to when Cerullo noticed visible property damages, shows the trial court disregarded Don’s

Building and applied the “manifestation rule” rather than the “actual injury rule.” In fact, in

Don’s Building, the supreme court expressly recognized that when damages are not latent (i.e.

are visible) the actual injury rule and the manifestation rule are, for all practical purposes, the

same. 2 See Don’s Bldg., 267 S.W.3d at 26 (actual injury rule and manifestation rules “diverge”

when damages are latent). We further conclude the evidence is legally sufficient to support the

trial court’s findings that property damages occurred during Mid-Continent’s policy periods. At

trial, Cerullo testified he noticed cracks in ceilings, his windows begin to bow, and his ceilings

beginning to sag during Mid-Continent’s policy periods.                                          See Lamar Homes, Inc. v. Mid-

Continent Cas. Co., 242 S.W.3d 1, 10 (Tex. 2007) (cracks in sheetrock and stone veneer

constitute “physical injury” to “tangible property”). Cerullo also testified he was living in the

house at the time of the property damages and therefore knew they occurred at about the same

time he noticed them. Viewing that evidence in the light most favorable to the trial court’s

findings, as we must, we conclude there is more than a scintilla of evidence from which the trial

court could have rationally found property damages occurred during Mid-Continent’s policy

periods.               Therefore, the evidence is legally sufficient to show Mid-Continent’s duty to

indemnify was triggered.

                   The Insurers also generally assert the evidence is factually insufficient to show property

damages occurred during the Insurers’ policy periods. The Insurers presented no evidence that

         2
             The property damages at issue in Don’s Building were hidden during the entire policy period. They did not manifest until several years
later.

                                                                        –12–
the damages did not occur within either Mid-Continent’s or Great American’s policy periods. 3

Thus, the trial court’s findings are not against the great weight and preponderance of the

evidence. We also conclude the evidence is not so weak that the trial court’s findings are clearly

wrong and unjust.

                                            ii. Allocation of Arbitrator’s Award

           Finally, the Insurers assert the evidence is legally and factually insufficient to support the

trial court’s judgment because Vines-Herrin presented no evidence allocating the damages the

arbitrator awarded to the specific policy period in which they occurred. According to the

Insurers, Vines-Herrin’s failure to do so entitles them to rendition of a take-nothing judgment.

           To show allocation was required, the Insurers rely on the plain terms of the CGL, which

provides coverage only for property damages that occur “during the policy period.” At the same

time, for purposes of this issue, the Insurers do not dispute property damages occurred during

policy periods they covered Vines-Herrin. However, they assert that, even if the evidence shows

they should have indemnified Vines-Herrin in some amount, Vines-Herrin’s failure to present

evidence showing what that amount was is fatal it its recovery. Vines-Herrin, on the other hand,

contends the evidence is both legally and factually sufficient to support the trial court’s judgment

that the Insurer’s each had the duty to indemnify Vines-Herrin for the entire arbitration award.

We disagree with both the Insurers and Vines-Herrin.

           When “covered and non-covered perils combine to create a loss, the insured is entitled to

recover only that portion of the damage caused solely by the covered peril(s).” Travelers Indem.

Co. v. McKillip, 469 S.W.2d 160, 163 (Tex. 1971). In such cases, to show the insurer should

have provided coverage in any amount, evidence is necessary to show damages were caused by

     3
        In that regard, we note that it appears to have been the Insurers’ strategy not to present any evidence that the property damages did not
occur during their respective policy periods. Had they done so, they would have provided evidence that the damages occurred during the other’s
policy periods.

                                                                    –13–
solely by the covered peril. See id.   According to the Insurers, the same principle applies here

and required Vines-Herrin to apportion the arbitration award in order to show coverage. We

have previously held those principles do not apply when multiple insures have been shown to

have liability for a loss. See Castagna, 410 S.W.3d at 454. We relied on the principle that:

                       If a single occurrence triggers more than one policy,
               covering different policy periods, then different limits may have
               applied at different times. In such a case, the insured’s indemnity
               limit should be whatever limit applied at the single point in time
               during the coverage periods of the triggered policies when the
               insured’s limit was highest. The insured is generally in the best
               position to identify the policy or policies that would maximize
               coverage. Once the applicable limit is identified, all insurers
               whose policies are triggered must allocate funding of the
               indemnity limit among themselves according to their subrogation
               rights.

Am. Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842, 855 (Tex. 1994).

       As noted above, Vines-Herrin showed both Insurers’ duty to indemnify was triggered.

As a consequence, it met its burden to prove coverage.        The Insurers complaints regarding

Vines-Herrin’s failure to segregate implicates damages, not coverage. An unsegregated damages

award is some evidence of damages. See Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299,

314 (Tex. 2006).

       However, we agree with the Insurers that the trial court’s findings do not support a

judgment against both Great American and Mid-Continent, jointly and severally, for the entire

arbitration award. The trial court’s judgment reflects that it did not base its judgment on a

finding of a single occurrence that caused damages to property over multiple policy periods.

Rather, it found separate occurrences, each of which caused damages in a single policy period.

We agree with the Insurers that they were not required to indemnify Vines-Herrin for property

damages caused by occurrences and damages, both of which occurred outside their respective

policy periods. Therefore, we again reverse the trial court’s judgment and remand to the trial

                                              –14–
court to determine the amount of indemnification. Because our disposition of this issue requires

us to remand to the trial court to determine the proper amount of indemnification, we need only

consider the Insurers’ remaining points that would entitle them to a rendition of judgment.

                                  iii. Legal Obligation to Pay

       The Insurers assert they are entitled to rendition of a take-nothing judgment because an

arbitration award does not constitute a legal obligation to pay damages. The insurers were

obligated to pay sums Vines Herrin became “legally obligated to pay” as damages because of

property damages caused by an occurrence.

       As noted, after Cerullo sued Vines-Herrin, they agreed to arbitrate the dispute, the result

of which was an arbitration award in favor of Cerullo. After the award was entered, the parties

entered into a settlement agreement, by which Cerullo agreed not to confirm the arbitration

award and Vines-Herrin assigned Cerullo its claims against the Insurers. According to the

Insurers, because the arbitration award was never confirmed, Vines-Herrin never became

“legally obligated” to pay damages to Cerullo.

       The term “legally obligated” is not defined in the policy. However, the term is not

limited to obligations that are immediately enforceable and subject to execution as a judgment.

It includes obligations established in a judgment, as well as obligations created by settlement

agreements and statutes. See Lennar Corp. v. Great Am. Ins. Co., 200 S.W.3d 651, 680 (Tex.

App.—Houston [14th Dist.] 2006, pet. denied). Here, the Insurers do not dispute that Vines-

Herrin and Cerullo engaged in binding arbitration. Nor do the Insurers contend Vines-Herrin

had any grounds on which it could have vacated the arbitrator’s award. We nevertheless note

Vines-Herrin’s attorney testified at trial that he did not believe Vines-Herrin had any such

grounds. As a result, Vines-Herrin asked Cerullo if he would agree not to confirm the arbitration

                                              –15–
award in exchange for Vines-Herrin’s assignment of its claims against the Insurers. Cerullo

agreed.

          Because a trial court is required to confirm an award absent grounds for vacateur, we

conclude an arbitration award constitutes a legal obligation to pay the award. See TEX. CIV.

PRAC. & REM. CODE ANN. § 171.087 (West 2011) (unless grounds are offered for vacating,

modifying, or correcting an award court shall confirm the award); TEX. CIV. PRAC. & REM. CODE

ANN. § 171.088 (West 2011) (grounds for vacating arbitration award). At a minimum, it can

reasonably be construed as such. JAW The Pointe, L.L.C. v. Lexington Ins. Co., 460 S.W.3d 597,

603 (Tex. 2015) (when terms in an insurance policy are subject to more than one reasonable

construction, we interpret the terms in favor of coverage).

                                   iv. Actual Trial Requirement

          Finally, the Insurers assert we should render judgment against Vines-Herrin because the

arbitration award was not entered after an “actual trial” or a fully “adversarial trial.” They rely

on State Farm Fire & Cas. v. Gandy, 925 S.W.2d 696, 700-01 (Tex. 1996), which concerns

when certain assignments of causes of action are unenforceable for public policy reasons.

          As this Court has previously held, the Insurers breached their duties to Vines-Herrin by

refusing to defend Cerullo’s suit. As a consequence, Vines-Herrin was forced to defend itself at

its own expense. To avoid a costly trial, Vines-Herrin and Cerullo agreed to arbitrate. Before

Vines-Herrin did so, it attempted to confer with the Insurers. The Insurers refused to provide any

input, insisting there was no coverage. The Insurers now complain about how Vines-Herrin

defended itself and its decision to arbitrate. The Insurers further claim the record shows the

arbitration was less than “fully adversarial.”

          The trial court, however, found the arbitration proceeding was “fully adversarial.” That

finding is supported by the evidence, including both Cerullo’s and the arbitrator’s testimony.

                                                 –16–
The Insurers ignore that testimony and instead generally suggest Vines-Herrin’s agreement to

arbitrate was inherently suspect. However, Texas law both favors and encourages arbitration.

G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502, 512 (Tex. 2015). Moreover, it

is well-settled that an insurance company may not insist on an actual trial requirement when it

has breached its duty to defend its insured. See Evanston Ins. Co. v. ATOFINA Petrochemicals,

Inc., 256 S.W.3d 660, 672 (Tex. 2008). Here, the Insurers had every opportunity to protect their

interests by offering Vines-Herrin a defense, and indeed they had the duty to do so. Because

they refused to provide a defense and denied all coverage, Vines-Herrin sought arbitration to

reduce its litigation costs and, after it obtained an unfavorable result, it protected itself by

assigning its claims to Cerullo in exchange for his agreement not to confirm the award. For the

foregoing reasons, we reverse the trial court’s judgment and remand for further proceedings

consistent with this opinion.

                                                  /Ada Brown/
                                                  ADA BROWN
                                                  JUSTICE

150230F.P05

                                             –17–
                                        S
                               Court of Appeals
                        Fifth District of Texas at Dallas
                                       JUDGMENT

GREAT AMERICAN LLOYDS                               On Appeal from the 44th Judicial District
INSURANCE COMPANY AND MID-                          Court, Dallas County, Texas
CONTINENT CASUALTY COMPANY,                         Trial Court Cause No. DC-03-6903.
Appellants                                          Opinion delivered by Justice Brown. Justices
                                                    Lang and Whitehill participating.
No. 05-15-00230-CV         V.

VINES-HERRIN CUSTOM HOMES
L.L.C., HERRIN-CUSTOM HOMES, INC.
AND EMIL G. CERULLO, Appellees

        In accordance with this Court’s opinion of this date, the judgment of the trial court is
REVERSED and this cause is REMANDED to the trial court for further proceedings consistent
with this opinion.

       It is ORDERED that the parties each bear their own costs of this appeal.

Judgment entered this 25th day of August, 2016.

                                             –18–