FIFTH CIRCUIT EXPRESSLY LIMITS EWING

The Fifth Circuit tested the mettle of the Supreme Court’s ruling in Ewing Construction Co. v. Amerisure Ins. Co., 420 S.W.3d 30 (Tex. 2014), which had held, in a landmark ruling, that a general contractor that agreed to perform its work in a good and workmanlike manner did not “assume liability” such that the contractual liability exclusion in a CGL policy was triggered. In Crownover v. Mid-Continent Cas. Co., 2014 U.S. App. LEXIS 12158 (5th Cir. 2014), the Fifth Circuit put Ewing to the test, and, surprisingly, revealed some limitations to Ewing.

In Crownover, the Crownovers entered into a construction contract with Arrow to construct a home. The contract contained a warranty-to-repair clause, which held Arrow would properly correct work failing to conform to the requirements of the contract documents. The work was completed, but construction defects began to appear in the home one year after the completion. The Crownovers filed a claim for breach of the express warranty to repair; and subsequently, the Crownovers demanded that Arrow’s insurer Mid-Continent pay an arbitration award that was rendered in favor of the Crownovers against Arrow.

Citing to both Ewing and Gilbert Texas Construction, L.P. v. Underwriters at Lloyds London, 327 S.W.3d 118 (Tex. 2010), the court concluded that the contractual liability exclusion applied to preclude coverage for the Crownovers’ claim. Specifically, the arbitrator held Arrow liable for failing to repair their faulty work, and not for the faulty work performed initially. The court noted that Gilbert mandated the contractual liability exclusion would apply only if Arrow had assumed a duty to the Crownovers it did not already have under law. The court determined that the express warranty to repair was just such an extra duty. Because the contract stipulated this extra provision, instead of relying upon the implied warranty of good workmanship, and the arbitrator found that Arrow had breached that provision, the court determined that the contractual liability exclusion would apply.

Thus, in applying Ewing, the Fifth Circuit makes clear that Ewing is only applicable to warranties that would normally exist within a contract, such as the implied warranty of good workmanship. A breach of such a duty is not subject to the contractual liability exclusion, because it is not an extra duty that the contractor is assuming. But extra duties such as a warranty to repair could be subject to the exclusion, because such duties are not inherent in every contract. In Crownover, the Fifth Circuit has limited Ewing’s applicability, and made clear that a careful analysis of each and every contractual provision must occur when applying the contractual liability exclusion.

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