TEXAS SUPREME COURT AGAIN RULES IN FAVOR OF CONTRACTOR

With little time to absorb the obvious ramifications of Lennar, the Texas Supreme Court has again ruled in favor of the insured in Ewing Constr. Co. v. Amerisure Ins. Co., 2014 Tex. LEXIS 39 (Tex. 2014). In another recent case extending coverage to insureds which are found liable for construction defects, the Texas Supreme Court held in January 2014 that a contractor which entered into a contract to construct a building in a “good and workmanlike manner” did not assume any liability as required for the contractual liability exclusion to apply.

Ewing Construction built tennis courts for its client Tuluso-Midway Independent School District (“TMISD”), however, after the courts were complete, they began to show numerous defects. TMISD filed suit against Ewing, and claimed damages based upon faulty construction of the courts. TMISD’s theories of liability were breach of contract and negligence. Ewing tendered its suit to its commercial general liability carrier, Amerisure Insurance Company; which denied coverage.

Ewing claimed that coverage was not available for the suit based upon the contractual liability exclusion. This exclusion excludes claims for damages based upon an insured’s contractual assumption of liability except for two instances: (1) where an insured’s liability for damages would exist absent the contract, and (2) whether the contract is an insured contract. The Texas Supreme Court stated that the exclusion means what it says: it excludes liability for damages the insured assumes by contract unless the exceptions bring the claim back into coverage.

However, the Court found that TMISD’s allegations that Ewing failed to perform in a good and workmanlike manner were substantively the same as its claims that Ewing negligently performed under the contract, because they contain the same factual allegations and alleged misconduct. Thus, the Court concluded 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.

The Court further found that the contractor does not “assume liability” for damages arising out of defective work so as to trigger the contractual liability exclusion. The Court found in favor of Ewing, and in dicta, further noted that because an insurance policy contains exclusions that may apply to exclude coverage in a case for breach of contract due to faulty workmanship, their decision is not inconsistent with the view that CGL policies are not performance bonds.

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