In Other Words
Contractual Liability Exclusion?
Commercial General Liability (CGL) insurance protects business owners against claims of liability for bodily injury and property damage. The contractual liability exclusion in a CGL policy typically excludes coverage for bodily injury or property damage that the business owner is obligated to pay because he assumed liability in a contract or agreement. The exclusion contains an exception for damages that one would have assumed in the absence of the contract or agreement.
For example, a contractor agrees to complete the construction of a school building within a specified amount of time. The contract requires the payment of liquidated damages if the building is not completed in time. Because of the contractual liability exclusion, the contractor’s CGL policy will not provide coverage for any damages the contractor must pay for failure to meet the deadline because the contractor assumed liability for the liquidated damages in the contract and he would not have assumed that liability absent the contract.
In Ewing Construction Co. Inc. v. Amerisure Insurance Co., Ewing argued that its express agreement to construct the school district’s tennis courts in a good and workmanlike manner did not enlarge its obligations under its contract and was not an “assumption of liability” within the meaning of its CGL policy’s contractual liability exclusion. The Texas Supreme Court agreed.