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From Products Liability Law Daily, February 21, 2014

EIFS installer’s settlement of claims nixes recovery of statutory indemnity from manufacturer

By Pamela C. Maloney, J.D.

A manufacturer of exterior insulations and finishing systems (EIFS) had no statutory duty to indemnify a company that installed its EIFS on homes because damages paid by the installer to homeowners were not a result of products liability actions, a Texas court of appeals ruled, dismissing the installer’s indemnity claims (Fresh Coat, Inc. v. Parexlahabra, Inc., February 20, 2014, Horton, H.).

Background. Fresh Coat, Inc., was hired by Life Forms, Inc., a production home builder, to install EIFS on the exterior walls of homes that were sold in Montgomery County, Texas. Forty-nine of those homeowners “brought claims or filed suit” against Fresh Coat for damages to their homes caused by defective EIFS cladding. After Fresh Coat paid to settle the homeowners’ claims and lawsuits, it filed suit seeking indemnity against a number of EIFS manufacturers including Parexlahabra, Inc. (Parex), which sought traditional summary judgment on all of Fresh Coat’s claims and a finding of no evidence, arguing that Fresh Coat failed to provide evidence showing that it had settled a “products liability action.”

Definition of action. Under Texas law, a manufacturer has a duty to indemnify sellers against losses arising out of a products liability action. It had already been established that EIFS was a product and that Fresh Coat was a seller of the product. The issues in this case were whether a “products liability action” was limited to lawsuits, and whether the damages for which Fresh Coat sought indemnity resulted from lawsuits filed against it.

Fresh Coat claimed that a seller did not have to be sued to invoke the manufacturer’s statutory duty and that it had produced sufficient evidence to show that it was seeking to be indemnified for damages paid for products liability actions. In addressing the issue of whether the term “action” was limited to lawsuits, as Parex claimed, the court noted that the term had not been defined in the Texas products liability statute. Therefore, the court was required to construe the term using its common meaning. Both Black’s Law Dictionary and Webster’s Third New International Dictionary generally use the term to indicate a legal proceeding. In addition, other Texas laws referring to products liability actions consider the filing of a lawsuit as an “action.”

According to the court, the settlement amounts paid by Fresh Coat did not qualify as actions under the common use of the term because the homeowners with whom Fresh Coat settled had not filed lawsuits. Without a lawsuit it was impossible for the court to determine the nature of the homeowner’s claims and the homeowner claim letters received by Fresh Coat were not sufficient to establish products liability claims.

The court also rejected the various release agreements used to settle claims in which lawsuits had been filed as insufficient to establish that damages paid resulted from products liability actions. The release of claims forms that the homeowners’ had signed included a laundry list of claims that fell outside the manufacturer’s statutory indemnity obligation and did not state that the claims which were being released resulted from products liability claims that had been filed against Fresh Coat in lawsuits.

Finally, neither the product inventory sheets nor an affidavit filed by Fresh Coat’s former president showing that Parex-supplied EIFS were used on several of the homes constituted evidence that the indemnity claim arose from products liability actions. While these documents did provide some evidence that Parex supplied the allegedly defective EIFS, it did not define the legal theories for any causes of action, nor did it indicate that any of the homeowners had filed lawsuits. Furthermore, the affidavit contained no evidence that the former president had personal knowledge regarding what types of claims were encompassed in the lawsuits referenced in the affidavit.

Thus, Fresh Coat failed to produce any evidence showing that it suffered losses by virtue of settling products liability actions, and, therefore, Parex’s no-evidence motion was granted.

The case number is 09-13-00067-CV.

Attorneys: J. Mark Little (Bracewell & Giuliani LLP) for Parexlahabra, Inc. Adam Brett Chambers (Bateman  Pugh  Chambers, PLLC) for Fresh Coat, Inc.

Companies: Parexlahabra, Inc.; Fresh Coat, Inc.

MainStory: TopStory DamagesNews BuildingConstructionNews TexasNews

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