In a unanimous decision, the Texas Supreme Court recently sided with the contractor in an insurance coverage dispute involving allegations of faulty construction. In Ewing Construction Company, Inc. v. Amerisure Insurance Company, the Texas Supreme Court limited the scope of an insurance policy exclusion for liabilities that contractors assume through contracts.

Commercial General Liability (CGL) insurance policies often include a contractual liability exclusion, which is an exclusion from insurance coverage when the allegations in a lawsuit arise from duties that are undertaken in contracts other than duties that the insured would have had in the absence of the contract or agreement. The question before the Supreme Court was whether 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, “assumes liability” for damages arising out of the contractor’s defective work so as to trigger the contractual liability exclusion.

The coverage dispute between Ewing and Amerisure arose when a school district sued Ewing alleging that Ewing’s construction of tennis courts was defective. In its contract, Ewing agreed that it would build the tennis courts in a “good and workmanlike manner.” Relying on this provision in the contract, Amerisure argued that the contractual liability exclusion in its policy barred coverage for a lawsuit against Ewing over the defectively built tennis courts.

The Texas Supreme Court ruled that the contractual liability exclusion is not triggered by faulty construction suits when a general contractor agrees in a contract to perform construction work in a “good and workmanlike manner.” The Court stressed that the contractual liability exclusion only applies when construction companies assume liabilities in a contract that they would not have had under common law. Based on the Ewing opinion, the contractor’s agreement to carry out work in a good and workmanlike manner does not create any additional liabilities by contract that would trigger the contractual liability exclusion.

The Ewing decision clarified the Texas Supreme Court’s holding in Gilbert Texas Construction LP v. Underwriters at Lloyd’s London, a 2010 opinion that interpreted similar contractual liability exclusion. In its ruling, the Court distinguished Gilbert on the basis that Gilbert involved unusual circumstances because the contractor there had assumed liability through its contract that was greater than it would have had under general law.

The Ewing and Gilbert decisions exemplify the importance of thoughtfully drafted contract provisions and will impact the way contacts are written in Texas for both contractors and owners.

Cantey Hanger attorneys regularly review construction contracts for contractors, design professionals, and owners, either at the beginning of a construction project or in litigation that sometimes results. For more information, please contact Stephanie Harrison at 817-877-2838 or sharrison@staging.poised-team.flywheelsites.com.