Texas
crumbling and cracking, rendering them unsuitable for the intended purpose of hosting competitive tennis events. The underlying claimant sought
damages against the policyholder on two theories:
breach of contract and negligence.
The January 2014 Texas Supreme Court ruling in
Ewing Construction is the latest in a series of Texas
Supreme Court decisions relating to the availability of insurance for a general contractor facing
a claim for defective construction. A victory for
policyholders, the Ewing Construction case limits
the ability of insurance companies to assert the
contractual liability exclusion as a basis for denying
insurance. Unless the contract enlarges the scope of
the policyholder’s liability beyond general negligence law, the contractual liability exclusion should
not be invoked.
To arrive at its decision, the Texas Supreme
Court relied in large part on its 2010 decision in
Gilbert Texas Construction, L.P. v. Underwriters
at Lloyd’s London, 327 S.W.3d 118 (Tex. 2010).
The Texas Supreme Court explained that Gilbert
interpreted the term “assumption of liability” in
a comprehensive general liability policy to re-
Ewing Construction v. Amerisure Insurance Co.,
No. 12-0661, 2014 WL 185035 (Tex. Jan. 17, 2014)
and Lennar Corporation v. Markel American Insurance Company, No. 11-0394 (Tex. August 23, 2013)
Under Texas law, the insuring agreement of a comprehensive general liability policy includes insurance for claims asserting property damage caused
by an insured’s defective performance or faulty
workmanship when the property damage results
from the unexpected or unforeseen happening or
consequence of the policyholder’s negligent behavior. Lamar Homes v. Mid-Continent Casualty Co.,
242 S.W.3d 1, 16 (2007). Should insurance companies wish to narrow the scope of coverage they can
“restrict and shape the coverage otherwise afforded” through the use of policy exclusions. Id. at 10.
One of the policy exclusions relied on by insurance
companies in the claims of faulty workmanship is
the contractual liability exclusion that precludes
insurance for:
“Bodily injury” or “property damage” for
which the insured is obligated to pay damages by reason of the assumption of liability
in a contract or agreement. This exclusion
does not apply to liability for damages: (1)
Assumed in a contract or agreement that
is an “insured contract,” or (2) The insured
would have in the absence of the contract or
agreement.
The scope of the contractual liability exclusion
took center stage in the Ewing Construction decision. At issue was whether the exclusion precluded
insurance for a lawsuit alleging that tennis courts
constructed by a general contractor were flaking,
“
If a triggered
insurance policy promises
to pay all sums for which
the insured is liable,
then that insurance
company must cover
the entire amount of the
policyholder’s loss
(up to the policy limits)
even if the damage
occurred prior to, or after,
that policy period. ... .
”
quire “that the insured has assumed a liability for
damages that exceeds the liability it would have
under general law.” The Ewing Construction
court then explained 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.” Therefore,
the Ewing Construction court concluded that
the contractual liability exclusion did not apply,
because there was no “assumption of liability in a
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