When a construction project encounters unforeseen problems, contractors rely on their Commercial General Liability insurance to provide a critical financial shield against claims of defective work. However, the protection offered by a policy is only as good as the insurer’s adherence to its contractual and statutory obligations. A recent federal lawsuit filed by a Houston-based contractor, Elegant Reflections, LLC, operating as ER Contracting, against its surplus-lines insurer, Evanston Insurance Company, brings this very issue into sharp focus. The case highlights a dual-front legal battle, challenging not only the substantive basis for a claim denial but also the procedural timeline in which that decision was delivered. This dispute serves as a crucial examination of an insurer’s duties under Texas law, where the timeliness of a response can carry as much legal weight as the justification for the denial itself, potentially exposing insurers to significant penalties for what a policyholder alleges are unfair and bad-faith practices. The lawsuit scrutinizes the fine print of both the insurance policy and the Texas Insurance Code, setting the stage for a conflict with wide-ranging implications for how claims are handled in the state.
The Core of the Dispute
The legal conflict stems from a construction project that ER Contracting undertook for the Tupelo Children’s Mansion in Mississippi. The project, which began in December 2021, eventually became the source of significant contention. Following the completion of the work, Tupelo Children’s Mansion alleged that ER Contracting’s work was defective, specifically citing faulty footings that led to substantial consequential damage to the building’s foundation. These allegations escalated into a formal dispute, with the property owner bringing claims of both negligence and breach of contract against the contractor in an arbitration proceeding. Faced with potentially significant liability and legal costs, ER Contracting turned to its CGL policy for protection. On February 5, 2025, the contractor formally submitted a claim to Evanston Insurance Company, seeking both defense against the arbitration claims and indemnification for any potential damages awarded. This action initiated a process that would ultimately lead to the current federal lawsuit, transforming a construction dispute into a high-stakes legal battle over insurance coverage and claims-handling procedures.
Origins of the Claim
Upon receiving the claim from ER Contracting, Evanston Insurance Company acknowledged its receipt six days later, on February 11, 2025, a seemingly routine start to the claims process. However, the subsequent weeks unfolded in a manner that the contractor alleges was anything but routine. According to the lawsuit, a period of more than two months elapsed before the insurer rendered its final decision. On April 15, 2025, Evanston formally issued a denial of the claim. This significant delay between the initial notice and the ultimate denial forms a central pillar of ER Contracting’s legal challenge. The contractor argues that this timeline far exceeded the statutory requirements for claim handling in Texas, particularly for a surplus-lines insurer. The delay itself, independent of the reasons for the denial, is positioned as a breach of the insurer’s legal duties. This extended period of uncertainty left the contractor without the requested defense in the ongoing arbitration, forcing it to bear the initial costs and legal burdens while waiting for a coverage determination that it now contends was both incorrect and unlawfully late.
The insurer’s formal denial of coverage was based on a specific interpretation of the Commercial General Liability policy. Evanston asserted that the underlying allegations from the Tupelo Children’s Mansion project did not meet the policy’s definitions for key terms that trigger coverage. Specifically, the insurer argued that the alleged defective work did not constitute “property damage” that was caused by an “occurrence” as those terms are defined within the CGL policy framework. An “occurrence” is typically defined as an accident, and insurers often argue that faulty workmanship itself is not an accident and therefore not a covered event. Furthermore, Evanston cited several policy exclusions to bolster its denial. These exclusions are standard in CGL policies and are designed to limit coverage for business risks, such as the cost of repairing the contractor’s own faulty work. By invoking these provisions, Evanston contended that even if the event were considered an occurrence causing property damage, the specific circumstances of the claim fell squarely within the policy’s carved-out exceptions, relieving the company of its duty to defend or indemnify ER Contracting in the arbitration.
Contesting the Coverage Denial
In its lawsuit, ER Contracting presents a robust counterargument to the insurer’s interpretation of the policy language, contending that the claim is, in fact, covered. The contractor’s legal team argues that while CGL policies often exclude damage to the contractor’s own work, there are critical exceptions to these exclusions that restore coverage under specific circumstances. One such provision highlighted in the complaint is the “products-completed operations hazard” exception. This is designed to provide coverage for property damage or bodily injury that occurs after the contractor’s work on a project is finished and has been put to its intended use. ER Contracting argues that the consequential foundation damage, which occurred as a result of the allegedly defective footings, falls precisely within the scope of this coverage. Furthermore, the contractor challenges the applicability of the “Damage To Your Work” exclusion. It posits that this exclusion is intended to prevent a CGL policy from acting as a performance bond for the contractor’s own work, but it should not apply to damage caused to other parts of the property. Since the primary damage in question was consequential—affecting the foundation and other elements beyond the footings themselves—ER Contracting maintains that the exclusion is not applicable.
Allegations of Statutory Violations
Beyond the intricate arguments over policy language and coverage interpretations, ER Contracting’s lawsuit levels serious accusations regarding Evanston’s alleged failure to comply with Texas law. This second front of the legal battle shifts the focus from the merits of the claim itself to the insurer’s conduct during the claims-handling process. The contractor’s petition asserts that Evanston violated specific provisions of the Texas Insurance Code, which imposes strict deadlines and standards of conduct on insurers operating in the state. These allegations of statutory non-compliance elevate the dispute beyond a simple breach of contract claim, introducing the possibility of additional damages and penalties designed to punish unfair or deceptive insurance practices. By claiming that Evanston acted in bad faith, ER Contracting is not only seeking to have its original claim covered but is also aiming to hold the insurer accountable for what it describes as a fundamentally unfair and unlawful handling of its case.
A Matter of Timeliness
A cornerstone of the contractor’s case is the alleged violation of the Texas Prompt Payment of Claims Act, found in Chapter 542 of the Texas Insurance Code. This statute sets forth clear and stringent deadlines for insurers to act upon receiving a claim. For surplus-lines insurers like Evanston, the law is particularly explicit: the insurer must notify a claimant in writing of its acceptance or rejection of a claim no later than the 15th business day after receiving all the necessary information to secure a final proof of loss. Critically, if the insurer requires additional information from the claimant to evaluate the claim, it must request it within that same 15-business-day window. In its lawsuit, ER Contracting alleges that Evanston failed on both counts. The contractor states that the insurer never requested any additional information, which would have reset the statutory clock. Consequently, the 15-business-day deadline to accept or reject the claim began when the initial notice was filed. Evanston’s denial on April 15, 2025, came more than two months after the claim was submitted on February 5, a period that far surpasses the statutory limit. This alleged procedural failure is presented not as a minor oversight but as a clear breach of Texas law, entitling the policyholder to statutory penalties, including interest on the claim amount.
Accusations of Unfair Practices
The lawsuit further accuses Evanston of violating Section 541.060 of the Texas Insurance Code, which outlines a list of unfair settlement practices. This section of the code is designed to protect policyholders from insurers who fail to handle claims in a reasonable and fair manner. Among the prohibited acts is the failure to conduct a reasonable investigation of a claim before denying it. ER Contracting alleges that Evanston’s denial was not based on a thorough and objective assessment of the facts and the policy. The contractor suggests that the insurer engaged in an outcome-oriented review, seeking reasons to deny the claim rather than fairly evaluating its potential for coverage. This allegation implies that the insurer did not give due consideration to the policy provisions that favored the contractor, such as the exceptions that could restore coverage. By framing the denial as the result of an inadequate investigation, ER Contracting is building a case for common-law bad faith, arguing that the insurer breached its duty of good faith and fair dealing. This duty requires an insurer to treat its policyholder’s interests with the same level of consideration as its own. A successful claim under this section could entitle the contractor to damages beyond the policy limits, including attorneys’ fees and, in some cases, punitive damages.
Broader Implications for the Industry
This lawsuit ultimately requested that the court issue a declaration compelling Evanston Insurance Company to fulfill its contractual duties to defend and indemnify ER Contracting in the underlying arbitration. In addition, the contractor sought damages for breach of contract, breach of the duty to defend, and breach of the common-law duty of good faith and fair dealing, along with statutory penalties under the Texas Insurance Code. The case served as a significant reminder to insurance carriers and claims professionals, particularly those operating in Texas, about the dual nature of their obligations. It underscored the legal principle that procedural compliance with claims-handling statutes is not merely a bureaucratic formality but a fundamental legal requirement. The outcome of such disputes often reinforces the idea that the timeliness of a coverage decision can be as legally consequential as the substantive justification for it, with failures in either area exposing an insurer to substantial liability far beyond the original policy limits. The case highlighted the critical importance of adhering to statutory deadlines and conducting thorough, good-faith investigations in every claim.
