Texas Supreme Court Rejects Contractual Liability Exclusion for Construction Defect Case

In a significant, highly-anticipated new opinion regarding insurance coverage for construction defects, the Texas Supreme Court in Ewing Construction Co. Inc. v. Amerisure Insurance Co. held that the contractual liability exclusion in commercial general liability (“CGL”) policies does not operate to bar coverage for ordinary breach of contract claims alleging that the contractor failed to perform its work in a good and workmanlike manner.

The facts in Ewing Construction Co. Inc. v. Amerisure Insurance Co. are relatively simple.  Ewing Construction Company, Inc. (“Ewing”) contracted 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 building new tennis courts. Shortly after completion, TMISD sued Ewing claiming that the courts started flaking, crumbling, cracking, and were unusable for their intended purpose of hosting competitive tennis events. TMISD alleged breach of contract and negligence.

Ewing tendered defense of the suit to Amerisure Insurance Co., its insurer under a commercial package policy that included CGL coverage. Amerisure denied coverage based on the contractual liability exclusion.  Ewing sued Amerisure seeking a declaration that Amerisure had a duty to defend and indemnify.  The U.S. district court granted Amerisure’s motion for summary judgment based on the contractual liability exclusion.

After the decision of the district court was appealed, the U.S. Court of Appeals for 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 Court answered the question “no” stating that a general contractor who agrees to perform its construction work in a good and workmanlike manner, without more, does not enlarge its duty to exercise ordinary care in fulfilling its contract, thus it does not ‘assume liability’ for damages arising out of its defective work so as to trigger the contractual liability exclusion. In so holding, the Court clarified its decision in Gilbert Texas Construction, L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118 (Tex. 2010), explaining that the contractual liability exclusion applied in that case based on the unique facts because the contractor undertook obligations beyond those imposed under general law – to repair or pay for damage to property of third parties.

The Ewing decision clarifies that the contractual liability exclusion in a CGL policy does not invalidate coverage for claims alleging that a contractor failed to construct a project in a good and workmanlike manner as required by the construction contract.

This Blog is made available by Laurie & Brennan, LLP for general educational purposes only. The purpose of the Blog is not to provide specific legal advice on any particular matter. By using this Blog site you understand that there is no attorney client relationship between you and this firm and the authors or members of the firm. This Blog should not be used as a substitute for competent legal advice from a licensed professional attorney in your state. Under rules applicable to the professional conduct of attorneys in various jurisdictions, the material on this Blog may be considered advertising material.