Posts Tagged ‘Texas’

Straight Talking in Texas: The Contractual Liability Exclusion Means What It Says and Says What It Means

Friday, January 17th, 2014

By Kimberly Steele, Sedgwick Dallas

According to prominent insurance commentator, Randy Maniloff, Ewing Construction Co., Inc. v. Amerisure Insurance Co. was “probably the most closely watched coverage case in the country” in 2013.  This is no longer, as the Texas Supreme Court issued its opinion today, reversing the Southern District of Texas’ 2011 decision and holding that the contractual liability exclusion found within the standard CGL policy does not apply to a general contractor’s contractual promise to perform its work in a good and workmanlike manner. Ewing Const. Co., Inc. v. Amerisure Ins. Co., — S.W.3d —- (Tex. Jan 17, 2014) (NO. 12-0661).

Ewing was the general contractor hired by the Tuloso-Midway Independent School District to renovate and build additions to a school in Corpus Christi, Texas, including the construction of tennis courts at the school.  Shortly after Ewing’s completion of the tennis courts, the District complained that the courts were flaking crumbling and cracking.  It eventually sued Ewing for faulty construction, asserting claims for breach of contract and negligence, among others. Ewing tendered the lawsuit to its CGL carrier, Amerisure, seeking a defense and indemnity. Amerisure denied any duty to defend arguing, in part, that coverage was precluded by the “contractual liability” exclusion in its policy because Ewing had agreed in its contract with the District to build the tennis courts in a good and workmanlike manner, and failed to do so.  As a result, Ewing filed suit against Amerisure seeking a declaration that it had an obligation to defend Ewing, and in failing to do so Amerisure breached its duty to defend and violated Texas’ Prompt Payment of Claims Act. Amerisure counterclaimed, seeking a declaration that it had no duty to defend or indemnify Ewing.

Judge Janis Graham Jack of the Southern District of Texas broadly construed the Texas Supreme Court’s decision in Gilbert Texas Construction, L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118 (Tex. 2010), and held that the contractual liability exclusion applied to preclude coverage for the claims against Ewing because “Ewing assumed liability with respect to its own work on the subject matter of the contract, the tennis courts, such that it would be liable for failure to perform under the contract if that work was deficient.” Ewing appealed that decision to the Fifth Circuit Court of Appeals which initially affirmed, but then on rehearing changed course, and withdrew its opinion and certified two questions to the Supreme Court of Texas:

1. 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.

2. If the answer to question one is “Yes” and the contractual liability exclusion is triggered, do the allegations in the underlying lawsuit alleging that the contractor violated its common law duty to perform the contract in a careful, workmanlike, and non-negligent manner fall within the exception to the contractual liability exclusion for “liability that would exist in the absence of contract.”

The Supreme Court answered “no” to the first question, thereby mooting the second.

The contractual liability exclusion in the Amerisure policy excluded claims for damage premised upon an insured’s contractual assumption of liability except when: (1) the insured’s liability would exist absent the contract, and (2) the contract is an “insured contract.”  Ewing maintained that its agreement to construct the tennis courts in a good and workmanlike manner did not add anything to its general obligation to comply with the contract’s terms and exercise ordinary care in doing so.  As a result, it argued that its express agreement to perform the construction in a good and workmanlike manner was not an “assumption of liability” within the meaning of the policy’s contractual liability exclusion.  The Supreme Court agreed, concluding that the allegations that Ewing failed to perform in a good and workmanlike manner were substantively the same as its claims that it negligently performed under the contract. The court ultimately held 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, thus it does not ‘assume liability’ for damages arising out of its defective work so as to trigger the contractual liability exclusion.”

The Supreme Court’s message in the Ewing decision is clear: the contractual liability exclusion will not apply to exclude coverage for a contractor’s violation of duties generally owed to its clients, irrespective of its contract.  Rather, it will only apply in cases where the contractor assumed atypical liabilities more akin to the contractual duties at issue in Gilbert.

S.B. 112 – Proposed Property Insurance Reform Bill in Texas

Monday, February 11th, 2013

By Lisa M. Henderson, Sedgwick Dallas

A Texas State Senator has introduced legislation that would require residential property insurance carriers to include on the declarations page a dollar amount and explanation for every deductible.  The Senator, Eddie Lucio Jr., believes the bill is necessary to eliminate the confusion caused by deductibles that are listed as percentages, as opposed to a certain dollar amount.  Mr. Lucio believes that policyholders often assume that the deductible is a percentage of their loss when, in fact, the deductible is a percentage of the insured value of the residence.  The bill would require that declarations pages: (1) list and explain each type of deductible under the residential insurance policy; and (2) list the exact dollar amount of each deductible under the residential property insurance policy.  The bill was approved by the Business & Commerce Committee on February 6, 2013.  If enacted, the bill will apply to all residential property insurance policies issued in Texas on or after January 1, 2014. 

We will continue to track S.B. 112 and post any developments.

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