Winter 2014

Construction Defect Liability

Construction Defect Liability 

Ewing Construction Company, Inc. (“Ewing”) entered into a contract with Tuloso-Midway Independent School District (“TMISD”), for construction of tennis courts. Soon after the tennis courts were completed, TMISD complained that the courts were cracking and flaking, rendering them unfit for playing tennis. TMISD filed suit against Ewing, the architect, and the structural engineer seeking damages for defective construction.
 
Ewing tendered defense of the lawsuit to Amerisure Insurance Company (“Amerisure”), its insurer under a Commercial General Liability (CGL) policy. Amerisure denied coverage based on the policy’s “contractual liability exclusion,” which provided that the insurance did not apply to “property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement.” Ewing sued, and the trial court found for Amerisure, holding that Amerisure owed no duty to defend or indemnify Ewing in the underlying lawsuit because the CGL policy’s contractual liability exclusion excluded coverage, and no exception to that exclusion revived coverage.
 
Ewing appealed and a divided panel of the Fifth Circuit Court of Appeals initially affirmed the district court’s judgment holding that Amerisure had no duty to defend. Ewing petitioned for rehearing, and the Fifth Circuit withdrew its ruling to certify the question at issue in the case to the Texas Supreme Court.
 
On February 11, 2013, LAF joined with other amici curiae filing a brief with the Texas Supreme Court. Oral Arguments were presented on February 27, 2013. On January 17, 2014, the Texas Supreme Court issued an opinion concluding 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. In other words, the contractual liability exclusion in a CGL policy does not exclude claims by an owner against a contractor for breach of the warranty to perform services in a good and workmanlike manner.
 
Ewing Construction Co. Inc. v. Amerisure Insurance Co., No. 12-0661 (Texas Supreme Court on certified questions from the Fifth Circuit Court of Appeals). LAF’s Attorney: Marc E. Gravely, Gravely & Pearson, L.L.P., San Antonio.