U.S. Appeals Court Withdraws Prior Opinion in Texas CGL Case

Wed November 12, 2014 - National Edition
CEG




After the American Subcontractors Association and others in the construction industry argued that an appeals court opinion called into question whether subcontractors can depend on their commercial general liability insurance policies for coverage — coverage previously upheld by other courts — a U.S. appeals court on Oct. 29, 2014, withdrew its prior opinion and granted a rehearing, saying the contractual liability exclusion does not exclude coverage for property damage arising out of breach of a contractor’s duty to repair.

In the U.S. Court of Appeals for the 5th Circuit’s Opinion on Rehearing in the case of Doug Crownover and Karen Crownover v. Mid-Continent Casualty Company, the court essentially equated it to the same type of liability for breach of the implied warranty of performance of the work in a good and workmanlike manner under Texas law. That liability does not impose extra liability beyond general law. The opinion amounts to another limitation of the attempt to improperly apply the contractual liability exclusion in the construction context. It includes a discussion of other issues, all of which were resolved in favor of coverage for the insured contractor.

“This case will have big picture significance because it sets out another example of a court beating down the effort to extend the contractual liability exclusion to general breaches of contract,” said Patrick J. Wielinski, an attorney with Cokinos, Bosien & Young in Irving, Texas, who prepared an ASA amici brief. “In addition, it also clarifies the scope of the ’your work’ exclusion to explicitly include damage to the named insured’s defective work and preserving coverage if it was performed by a subcontractor.”

Wielinski noted that the opinion indicates that the amount of property damage need not be excessive.

“This could open up coverage where a relatively small amount of property damage can give rise to significant consequential damages such as delay,” he said. “All in all, it was a good case for construction policyholders, and it may serve to cause the insurance industry to think twice about pursuing this line of argument, particularly since it lost again in the state where it had gained the most traction in the Gilbert case.”

In the amici curiae brief filed on July 18, 2014, ASA, the Texas Building Branch of the Associated General Contractors of America, and the Texas Association of Builders asked the U.S. appeals court for a panel rehearing to decide whether damages for warranty claims due to an “occurrence” are covered under a standard CGL policy or are excluded from coverage by the “contractual liability” exclusion.

“This Court’s opinion … denying coverage for defects in the construction of the Crownover home will have a profoundly negative effect, not only upon the construction industry and the insurance brokers and agents that service it, but also upon the ’consumer’ side of the industry, that is, owners of projects, whether commercial, public or residential,” ASA, AGC-TBB and TAB wrote in the brief. “Amici Curiae respectfully submit that the Court’s opinion misapprehends the scope of the coverage available to a contractor or builder for completed operations losses under its CGL policy. In applying the Contractual Liability Exclusion to the express warranty context before it, the Court over-extended the exclusion’s scope far beyond the Texas Supreme Court’s opinion in Gilbert …, as clarified and limited by Ewing …. Read together, those two opinions establish that the ’assumption of liability’ that is excluded must exceed the insured contractor’s liability under general law (Gilbert) and that the implied warranty against defects, equivalent to the implied warranty of good workmanship, does not constitute such an assumption in excess of general law (Ewing).”

For more information, visit www.asaonline.com.