On January 17, 2014, the Texas Supreme Court released its much-anticipated decision in the case of Ewing Construction Company v. Amerisure Insurance Company. The Court’s unanimous opinion answered one of the two questions certified from the United States Court of Appeals for the Fifth Circuit concerning coverage under a general contractor’s comprehensive general liability policy. The result: Texas contractors are breathing a collective sigh of relief. The Court answered the first certified question “No” making the second question moot:
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 underlying district court had previously granted summary judgment in favor of the insurance company. That court, relying on Gilbert Texas Construction L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118 (Tex. 2010), held that by entering into a construction contract, the insured had assumed liability for its own construction work such that it would be liable for failing to perform under the contract if its work was deficient, thereby triggering the Contractual Liability Exclusion. The district court interpreted the exclusion to apply “when an insured has entered into a contract and, by doing so, has assumed liability for its own performance under that contract.” Ewing Constr. Co. v. Amerisure Ins. Co., 814 F. Supp.2d 739, 746-48 (S.D. Tex. 2011). On appeal, the Fifth Circuit initially affirmed the district court’s judgment on this issue. After the insured petitioned for rehearing, the Fifth Circuit withdrew its opinion and certified the questions to the Texas Supreme Court. See, Ewing Constr. Co. v. Amerisure Ins. Co., 648 F.3d 512 (5th Cir. 2012), withdrawn by, 690 F.3d 628 (5th Cir. 2012).
In reaching its conclusion, the Texas Supreme Court noted that in Gilbert the insured assumed a contractual duty to repair or pay damages to property of third parties “resulting from a failure to comply with the requirements of [its] contract” that extended “beyond Gilbert’s obligations under general law.” By contrast, the insured’s contract in Ewing to “construct the [tennis] courts in a good and workmanlike manner did not add anything to the obligations it has under general law to comply with the contract’s terms and to exercise ordinary care in doing so.” Therefore the insured in Ewing did not assume liabilities any greater than what the common law already imposes on it. As such, the Court concluded that a construction contract in which a contractor “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.”
This decision confirms that contractors that enter into standard construction contracts, agreeing to perform their work in a good and workmanlike manner, no longer have to worry that such agreements bar coverage under their CGL policies by triggering the Contractual Liability Exclusion.