A Liberty Mutual Insurance Group unit has prevailed in litigation over a damaged Houston skyscraper because the damage does not meet the requirements of ensuing loss provision, says a federal appeals court, in affirming a lower court ruling.

An ensuing loss provision involves situations where a noncovered loss leads to a covered loss, according to Monday’s ruling by the 5th U.S. Circuit Court of Appeals in New Orleans in Balfour Beatty Construction LLC; Milestone Metals Inc. vs. Liberty Mutual Fire Insurance Co.

TCH Energy Corridor Venture LLC, a unit of Dallas-based Trammel Crow Co., the developer of a commercial office building in Houston known as Energy Center 5, selected Dallas-based Balfour Beatty Construction Ltd. as its general contractor.

Balfour, in turn, subcontracted with Houston-based Milestone Metals Inc. for the erection of the project’s structural steel, stairs and ornamental steel on the project, according to the ruling.

Trammel Crow, which was required to procure builder’s risk insurance for the project, obtained a commercial inland marine policy that included builders’ risk coverage from Liberty Mutual and Balfour and Milestone became added insureds under the coverage. The coverage was effective from July 10, 2014, to August 10, 2016.

In October 2015, Milestone welded a two-inch metal plate to external tubing on the building’s 18th floor. Several months later, welding slag from the project fell down on the side of the building and damaged glass windows on the lower floors’ exterior.

Liberty Mutual denied coverage, and Milestone and Balfour ultimately replaced the windows for Trammel Crow at a cost of about $686,976.88, according to the ruling.

Balfour and Milestone then filed suit charging breach of contract against Liberty Mutual in U.S. District Court in Houston, which ruled in the insurer’s favor. The ruling was upheld by a unanimous three-judge appeals court panel.

Liberty Mutual’s policy had an exclusion for losses resulting from defects, errors or omission relating to construction, according to the ruling.

However, under an exception to the exclusion, the ensuing loss provision, Liberty would pay any loss that resulted in a covered peril, the ruling said.

The parties disagreed as to whether the ensuing loss provision applied, according to the ruling. An “ensuing loss provision like the one presented here is only triggered when one (excluded) peril results in a distinct (covered peril) meaning there must be two separate events for the Exception to trigger,” the ruling said.

That did not occur here, the decision concluded. “Put simply, Appellant’s welding operation involved falling slag, which damaged the exterior glass of Energy Center 5. The welding operation is inseparable from the falling slag; they are not two separate events. The falling slag is not an independent event that” that resulted in a covered peril, the ruling said.

There was “only one cause for the loss in this case – appellant’s welding operation,” said the ruling in affirming the lower court’s decision.

Attorneys in the case did not respond to a request for comment.

In June, a federal appeals court ruled a subcontractor cannot recover under a property owner’s Liberty Mutual Insurance Group unit’s builders risk policy because of the coverage’s exclusion for defective workmanship.