In Pine Oak Builders, Inc. v. Great American Lloyds Insurance Company, ___S.W.3d___, 2009 WL 353526 (Tex. 2009), the Texas Supreme Court upheld three recent opinions relating to coverage under a contractor’s commercial general liability policy. Specifically, the court affirmed its recent rulings in Lamar Homes, Inc. v. Mid-Continent Casualty Co., 242 S.W.3d 1 (Tex. 2007) (holding that an allegation of faulty workmanship constituted an "occurrence" triggering "property definition" within the meaning of the policy language), Don’s Building Supply, Inc. v. OneBeacon Insurance Co., 267 S.W.3d 20 (Tex. 2008) (rejecting the "manifestation" trigger and adopting the "injury in fact" trigger), and GuideOne Elite Ins. Co. v. Fielder Road Baptist Church, 197 S.W.3d 305 (Tex. 2006) (holding that extrinsic evidence was not admissible on issues which were relevant both to insurance coverage and the merits of the underlying claim). The most significant of these points was the court’s discussion regarding the GuideOne case.

      In Pine Oak Builders, a homeowner sued a residential construction contractor alleging that the defendant failed to construct certain portions of the home in a good and workmanlike manner, and negligently and unsuccessfully attempted to effectuate repairs to the defectively constructed improvements. Importantly, the homeowner did not allege in its lawsuit that the defective work made the basis of the suit was performed by a subcontractor.

      As a result of the allegations raised by the homeowner (or more aptly not raised by the homeowner), the insurer refused to assume the duty to defend the contractor and argued that, since its duty to defend was only triggered by allegations in the pleadings, it did not have a duty to defend because the defective work allegedly performed by the contractor was excluded by the "your work" exclusion found in the insurance policy. In response, the contractor sought to introduce evidence at trial that, notwithstanding the allegations in the pleadings, would have established that the defective work at issue was performed by a subcontractor and, thus, covered under the completed operations hazard. The court rejected this evidence and ruled that the insurer had no duty to defend or indemnify the contractor if the pleadings alleged no claims covered by the policy.

      On appeal, the contractor argued that the trial court should have considered evidence that the defective work was actually performed by a subcontractor. In response, the insurer argued that it could not be obliged to provide indemnity for claims which it never had a duty to defend. In ruling, the court noted that the insurer was only bound to defend against claims actually asserted in the lawsuit which were covered under the applicable insurance policy and, since the homeowner plaintiff alleged only claims excluded by the policy, there was no duty to defend. Moreover, the court stated that, in the absence of a duty to defend, there could be no duty to indemnify.