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Construction Subcontractors Celebrate Highly-Anticipated Texas Supreme Court Decision

The state supreme court hands down a decision that could set a precedent for contractors nationwide.

Wed January 29, 2014 - National Edition
Construction Equipment Guide

In a highly anticipated decision, the Supreme Court of Texas agreed with a contractor that its agreement to perform a construction project “in a good and workmanlike manner did not enlarge its obligations and was not an ’assumption of liability’ within the meaning of the [contractor’s insurance] policy’s contractual liability exclusion.”

Contractors in Texas and across the country were keeping a close eye on the outcome of the case of Ewing Construction Co. Inc. v. Amerisure Insurance Co., in which the Texas Supreme Court was charged with responding to two questions:

“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.’”

In its Jan. 17 opinion, the Texas Supreme Court wrote: “[W]e conclude 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. We answer the first question ’no’ and, therefore, need not answer the second question.”

In the case, Ewing, the general contractor, was faced with a lawsuit alleging defective construction of a tennis facility for a school district in Corpus Christi. Amerisure, Ewing’s CGL insurer, refused to defend, citing a litany of policy provisions, including the Contractual Liability Exclusion, as purported defenses. Although not directly addressed by the court, the Contractual Liability Exception to the Your Work Exclusion in the Amerisure policy provided coverage for the defective work performed by Ewing’s subcontractors.

In an amicus brief filed on Dec. 21, 2012, the American Subcontractors Association, ASA of Texas, and other construction industry trade organizations told the Texas Supreme Court that contractors are owed the coverage promised in their CGL policies in either case.

“Applying the Contractual Liability Exclusion to property damage to an insured contractor’s work simply because that property damage may breach its contract has a profoundly negative effect on CGL coverage for the construction industry,” the associations told the court. To decide otherwise would be “nothing short of a radical departure from the means by which CGL coverage has traditionally been provided by the insurance industry to contractors.”

The Court relied on its August 2007 opinion in Lamar Homes v. Mid-Continent Casualty, which held that coverages should be determined based on exclusions in the policy. ASA filed a brief in the Lamar Homes case in February 2006.

ASA’s Subcontractors Legal Defense Fund financed the brief. The SLDF supports ASA’s critical legal activities in precedent-setting cases to protect the interests of all subcontractors. ASA taps the SLDF to fund amicus briefs in appellate-level cases that would have a significant impact on subcontractor rights.

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