Meritage Homes of Texas, Florida, and Meritage Homes Corporation (collectively, “Meritage”), a national residential homebuilder, brought suit against its umbrella insurer, AIG Specialty Insurance Company (“AIG”), over coverage for more than 1,300 stucco system construction defect claims asserted by homeowners in Florida and Texas.
On July 8, 2025, Judge David Alan Ezra in Meritage Homes of Texas, LLC v. AIG Specialty Ins. Co., No. 1:22-CV-01375-DAE (W.D. Tex. July 8, 2025), addressed three critical issues: (1) whether the stucco claims qualified as “property damage”; (2) whether the claims constituted one or many “occurrences” under 12 umbrella policies issued between 2005 and 2018; and (3) whether Meritage satisfied its self-insured retention (SIR) obligations to trigger AIG’s indemnity duty.
Meritage sought declaratory relief establishing AIG’s coverage obligations and also alleged breach of contract for AIG’s refusal to fund certain settlements. AIG filed counterclaims, arguing that the claims involved multiple occurrences across policy years, each requiring separate SIRs.
Property Damage and Occurrence
The Court first held that each stucco claim involved “property damage” under Texas law. Relying on Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1, 10 (Tex. 2007), the Court also found that unintended faulty workmanship under liability policies can qualify as an “occurrence.” Because the damage continued into the 2017–18 policy period, the policies’ temporal coverage requirements were satisfied.
Single Occurrence Clause (“SOC”) Endorsement
The central dispute concerned the 2017–18 SOC endorsement, which allowed multiple claims “arising out of a single act or a series of related acts or causes” to be treated as one occurrence. Meritage argued that the widespread stucco defects all stemmed from the same defective installation practices, including violations of nationally recognized ASTM construction standards. The Court agreed, concluding that the claims were both logically and causally connected. Importantly, the Court rejected AIG’s effort to divide the claims by state or by policy year. Instead, the Court held that the SOC endorsement’s broad wording required all claims with property damage during the 2017–18 policy period to be treated as a single occurrence. At the core of the dispute was the 2017–18 SOC endorsement, which allows batching of “a series of related acts or causes” into a single occurrence.
In reaching this conclusion, the Court emphasized that endorsements control when they conflict with other policy language, and that “related acts or causes” must be given their plain and expansive meaning. The Court also noted the systemic nature of the construction practices at issue, observing that all of the defects shared a common thread in their noncompliance with building standards. By enforcing the SOC endorsement in this way, the Court significantly limited the number of SIRs Meritage had to satisfy, collapsing more than a thousand homeowner claims into one occurrence.
Although Meritage also sought to place all claims exclusively into the 2006–07 policy year under the SOC’s “deeming clause,” the Court declined to grant that relief because it had not been properly pled in the complaint.
Self-Insured Retention (SIR)
Another key issue was whether Meritage had satisfied the policies’ self-insured retention obligations so as to trigger AIG’s indemnity duty. Bearing the burden of proving SIR exhaustion, Meritage presented evidence that it had paid more than $11 million in settlements to resolve underlying homeowner claims. In response, AIG argued that these payments could not properly exhaust the SIR because Meritage subsequently recovered approximately the same amount from subcontractors and their insurers through indemnity agreements and third-party claims. According to AIG, such reimbursements effectively nullified Meritage’s payments, leaving the SIR unsatisfied.
The Court rejected AIG’s position, emphasizing that the plain language of the policies defined “Loss” to include judgments and settlements actually paid by Meritage, and required only that such sums be “paid by” the insured. The Court observed that the policies did not contain any qualifying language requiring that the insured’s payments be “net of recovery,” “unreimbursed,” or “borne solely by the insured.”
Because Meritage had in fact made direct payments to homeowners to settle covered claims, the SIR was deemed satisfied notwithstanding subsequent reimbursements.
In reaching this conclusion, the Court noted that Texas law does not permit courts to rewrite insurance contracts to include limitations that the parties themselves did not adopt. Had AIG intended to preclude the erosion of the SIR by reimbursed payments, it could have expressly included such restrictive wording.
Duty to Defend
“Finally, the Court granted AIG summary judgment with respect to its defense obligations, holding that upon exhaustion of the SIR through payment of ‘Loss,’ AIG retained the right, but not the duty, to assume Meritage’s defense.”
This ruling demonstrates how Texas federal courts interpret single occurrence endorsements in construction defect cases, even when thousands of homes suffer systemic defects. Courts may broadly construe “related acts or causes” to batch widespread defect claims into a single occurrence, limiting an insurer’s ability to multiply SIR obligations across years or jurisdictions. Insurers should ensure defense provisions are consistent with the carrier’s intended role in large-scale construction defect litigation. The decision also reflects the importance of how reimbursements from subcontractors may not negate SIR exhaustion.
*Bonus Reading*: Arising out of the largest multidistrict litigation in U.S. history, the Delaware Supreme Court recently held that only the Aearo entities specifically listed as “Named Insureds” could satisfy the self-insured retentions (SIRs) in their liability policies. Payments by 3M, Aearo’s parent company, could not be credited toward the SIRs because 3M was not a Named Insured. The Court concluded that the SIRs operated as conditions precedent to coverage, and because they were never satisfied by the proper insureds, the insurers’ coverage obligations were not triggered. See Order here.
