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March 1, 2014

The Texas Supreme Court recently ruled in favor of a national home builder, Lennar Corporation, against its insurance company in a case where Lennar repaired construction defects in many new homes built by Lennar without the insurance company’s approval. The insurance company wanted to wait to see if the affected home owners would bring claims. Lennar believed it would be less expensive to replace all the defective work to prevent damages from getting worse and notified its insured that it expected to be reimbursed its’ cost.

There was a clause in the insurance policy prohibiting Lennar from voluntarily settling claims without the insured company’s consent which was not given. At trial the jury found that the insurance company had not been prejudiced and had the builder not taken steps to correct the defects the damages would have been greater. The Supreme Court ruled that because the jury found that the builder limited the damages that the insurance company was not prejudiced and ruled against the insurance company in favor of the builder.

This result is not uniform throughout the United States but seems to be becoming a trend in favor of policy holders against their insurers.