Contractual Liability Exclusion does not Exclude CGL Coverage for Insured Contractor’s Breach of Contractual Warranty
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?
The Texas Supreme Court in an opinion handed down last Friday, answered no.
The contractual liability exclusion excludes coverage for some contract claims, including those an insured is “obligated to pay … by reason of the assumption of liability in a contract or agreement.” But he exclusion contains an exception. The exception reinstates coverage for obligations the insured would have owed regardless of the contract or those specified in an “insured contract.”
In this case, the plaintiff school district sued its general contractor alleging it breached its express contractual warranty to construct the school’s tennis courts in a good and workmanlike manner. The contractor tendered the defense to its CGL carrier, who declined coverage based on the policy’s contractual liability exclusion.
The Texas Supreme Court applied its earlier holding in Gilbert Construction v Underwriters at Lloyds London, and ruled that a contract in which a contractor promises to do work “in a good and workmanlike manner” does not trigger the exclusion. Said the court: the policy language “did not add anything to the obligation [the contractor] has under general law to comply with the contract’s terms and to exercise ordinary care in doing so.” Ewing Cont. Co, Inc, v Amerisure Ins. Co. (Tex. 2014) (on certified question from the federal fifth circuit).