TX Supreme Court: Contractual Liability Exclusion Not Triggered by General Warranty for Workmanlike Performance | Practical Law

TX Supreme Court: Contractual Liability Exclusion Not Triggered by General Warranty for Workmanlike Performance | Practical Law

In Ewing Construction Co., Inc. v. Amerisure Insurance Co., the Supreme Court of Texas determined that without specific provisions expanding a general contractor's obligations beyond a standard performance warranty, the contractual liability exclusion in an general contractor's Commercial General Liability (CGL) is not triggered to preclude coverage.

TX Supreme Court: Contractual Liability Exclusion Not Triggered by General Warranty for Workmanlike Performance

by Practical Law Commercial
Published on 11 Feb 2014 • Texas
In Ewing Construction Co., Inc. v. Amerisure Insurance Co., the Supreme Court of Texas determined that without specific provisions expanding a general contractor's obligations beyond a standard performance warranty, the contractual liability exclusion in an general contractor's Commercial General Liability (CGL) is not triggered to preclude coverage.
On January 17, 2014, the Supreme Court of Texas held, in Ewing Construction Co., Inc. v. Amerisure Insurance Co. (Ewing Construction), that without a specific provision expanding its liability, a general contractor does not assume liability for damages arising out of defective work so as to trigger the contractual liability exclusion of its Commercial General Liability (CGL) policy by making a standard warranty to perform its construction in a good and workmanlike manner (12-0661, (Tex. Jan. 17. 2014)).

Background

Ewing Construction Company (Ewing) entered into a standard American Institute of Architects contract with Tuluso-Midway Independent School District (TMISD) to serve as the general contractor for building renovations and additions, which included the construction of new tennis courts. The contract included a warranty that Ewing would perform the construction in a good and workmanlike manner. Shortly after the tennis courts were completed, TMISD complained that the courts were unusable because of flaking, crumbing and cracking and filed suit against Ewing in Texas state court for breach of contract and negligence.
Ewing tendered defense of this suit to its insurer, Amerisure Insurance Company, which provided Ewing's CGL coverage. The policy included a standard contractual liability exclusion that precluded coverage for either bodily injury or property damage for which the insured (Ewing) was obligated to pay damages because of an assumption of liability in a contract or agreement. Amerisure denied coverage based on that exclusion. Ewing then filed suit in the US District Court for the Southern District of Texas claiming that Amerisure had breached the following duties to Ewing:
  • To defend it against any lawsuits by TMISD.
  • To indemnify it for any damages awarded to TMISD.

Outcome

The Supreme Court of Texas held that the contractual liability exclusion in a contractor's CGL policy is not triggered by a standard performance warranty.
According to the court, Ewing's contractual liability to TMISD was no greater than it would have been had the warranty for workmanlike performance not been present in their agreement. General contract law principles required Ewing to perform its work for TMISD in a workmanlike manner and the warranty's inclusion did not increase any obligation or liability it had already assumed by entering the agreement.

Texas State Law Questions Presented by Gilbert v. Underwriters Clarified

The question certified to the Texas Supreme Court in Ewing Construction was an unsettled question of state law in light of that court's decision in Gilbert Texas Construction, L.P. v. Underwriters at Lloyd's of London, 327 S.W.3d 118 (Tex. 2010).
Like Ewing Construction, the issue on appeal in Gilbert was whether the liability exclusion in the general contractor's CGL policy's contract, which was substantially similar to Ewing's, precluded coverage. However, unlike Ewing Construction, the general contractor in Gilbert explicitly agreed to undertake duties that are greater than duties implied under Texas law by assuming liability for third-party property claims resulting from its breach of contract.
Therefore, the Gilbert court held that the contractual liability exclusion was triggered to preclude coverage.

Practical Implications

Under the Gilbert and Ewing Construction decisions, general warranties for workmanlike performance do not trigger standard contractual liability exclusions. The court noted that not all contractual liability provisions are identical, but that in cases of standard industry contract provisions and insurance policies the combined rule from these cases applies.
For information on contractual liability exclusions in the "Coverage A" of CGL policies, see Practice Note, Commercial General Liability Insurance Policies: Property Damage and Bodily Injury Coverage (Coverage A): Contractual Liability Exclusion.
For information on contractual liability exclusions in the "Coverage B" of CGL policies, see Practice Note, Commercial General Liability Insurance Policies: Personal and Advertising Injury Coverage (Coverage B): Contractual Liability Exclusion.
For general information on warranties, see Practice Notes, Representations, Warranties, Covenants, Rights and Conditions: What is a Warranty? and Relationship between Representations, Warranties, Covenants, Rights and Conditions.