INSURERS AND CONTRACTORS ALIKE EAGERLY AWAIT SUPREME COURT’S RULING ON CONTRACTUAL LIABILITY EXCLUSION

Perhaps the most anticipated Texas Supreme Court opinion of 2013 is that in Ewing Construction Co., Inc. v. Amerisure Ins. Co. In 2012, the Fifth Circuit made an unprecedented ruling to expand the contractual liability exclusion to preclude coverage for a contractor’s failure to construct a project in a good and workmanlike manner.

The contractual liability exclusion in a CGL policy precludes coverage for any claims an insured is required to pay due to an assumption of liability in a contract or agreement. The exclusion does not apply to liability the insured would have had absent the contract or through an assumed contract. The Fifth Circuit, analyzing a contract between a general contractor and a subcontractor, notably held that the contract’s clause that agreed to complete work in a workmanlike manner triggered the contractual liability exclusion in the Amerisure policy issued to the subcontractor. Ewing Construction Co., Inc. v. Amerisure Ins. Co. 684 F.3d 512, 519 (5th Cir. 2012). Seemingly realizing the major impact this would have on all insurance claims in a construction context, the Fifth Circuit later vacated this decision and certified two questions to the Texas Supreme Court.

These questions were: (1) Does a general contractor that enters into a contract in which it agrees to perform work in a good and workmanlike manner “assume liability” for damages arising out of the contractor’s defective work so as to trigger the contractual liability exclusion? And (2) If the answer is “yes” and the exclusion is triggered, do the allegations of the underlying lawsuit alleging the contract violated its duty to perform the contract in a careful, workmanlike and non-negligent manner” fall within the exception to the exclusion for “liability that would exist in the absence of contract”?

Oral arguments in the case occurred on February 27, 2013, and the final letter briefs have been submitted. Insurers and contractors alike are closely monitoring this case, as the answer to these questions could change the scope of insurance coverage.

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