Texas Supreme Court Decides that Contractual Liability Exclusion Did Not Bar Coverage of Construction Defect Claims against General ContractorFebruary 28, 2014 |
The Texas Supreme Court, answering a question certified to it by the U.S. Court of Appeals for the Fifth Circuit, has ruled that a general contractor that entered into a contract in which it agreed to perform its construction work in a good and workmanlike manner, without more specific provisions enlarging this obligation, did not “assume liability” for damages arising out of the contractor’s allegedly defective work so as to trigger its commercial general liability (“CGL”) insurance policy’s contractual liability exclusion.
Ewing Construction Company, Inc., entered into a standard American Institute of Architects contract with Tuluso-Midway Independent School District (“TMISD”) to serve as general contractor to renovate and build additions to a school in Corpus Christi, Texas, including constructing tennis courts. Shortly after construction of the tennis courts was completed, TMISD complained that the courts started flaking, crumbling, and cracking, rendering them unusable for their intended purpose of hosting competitive tennis events. TMISD sued Ewing, alleging faulty construction of the courts and asserting that Ewing had failed to perform in a good and workmanlike manner, in breach of the parties’ contract.
Ewing tendered defense of the suit to its CGL insurer, Amerisure Insurance Company. Amerisure denied coverage, contending that the policy’s contractual liability exclusion, which excluded claims when the insured assumed liability for damages in a contract or agreement, barred coverage because Ewing contractually had undertaken the obligation to construct the tennis courts in a good and workmanlike manner and, thereby, had assumed liability for damages if the construction did not meet that standard. Ewing sued.
The district court granted Amerisure’s motion for summary judgment based on the policy’s contractual liability exclusion, and the Fifth Circuit certified the following question to the Texas Supreme Court:
Does a general contractor that enters into a contract in which it agrees to perform its construction work in a good and workmanlike manner, without more specific provisions enlarging this obligation, “assume liability” for damages arising out of the contractor’s defective work so as to trigger the Contractual Liability Exclusion.
The Texas Supreme Court’s Decision
The court answered the certified question “no.”
The court reasoned that a general contractor who agreed to perform its construction work in a “good and workmanlike manner,” without more, did not enlarge its duty to exercise ordinary care in fulfilling its contract. Therefore, the court decided, the contractor did not “assume liability” for damages arising out of its defective work so as to trigger the contractual liability exclusion.
The case is Ewing Construction Co., Inc. v. Amerisure Ins. Co., No. 12-0661 (Tex. Jan. 17, 2014).
Rivkin Radler Comment
The decision of the Texas Supreme Court did not end the case, or resolve the question of coverage. The Amerisure policy contained other exclusions that might apply to exclude coverage in a case for breach of contract due to faulty workmanship. Those issues are back before the district court.