George B. Hall, Jr. – Phelps Dunbar LLP
On certified questions from the U.S. Fifth Circuit Court of Appeals, the Texas Supreme Court held that a contractor’s agreement to complete its work in a “good and workmanlike manner” does not enlarge its duty to exercise ordinary care in fulfilling its contract, and thus does not assume liability for damages arising out of its defective work that would otherwise trigger a contractual liability exclusion. Ewing Construction Co., Inc. v. Amerisure Ins. Co., No. 2014 WL 185035 (Tex. Jan. 17, 2014).
A contractor constructed tennis courts for an independent school district. The school district complained that the courts began cracking and flaking, making them unusable for their intended use, and filed suit against the contractor. The contractor’s contract with the school district included an agreement to complete its work in a “good and workmanlike manner.” The contractor’s CGL policy included an exclusion for contractual liability “assumed in a contract.” In the litigation that ensued, the insurer took the position that the failure to complete the work in a “good and workmanlike manner” triggered the exclusion. This position was based, in part, on the Texas Supreme Court’s earlier dicta in Gilbert Texas Construction, L.P. v. Underwriters at Lloyd’s, London, 327 S.W.3d 118 (Tex 2010). The Texas Supreme Court held that a contractor’s promise to complete its work in a “good and workmanlike manner” was not an agreement to assume liability, and that the contractual liability exclusion would not apply. This decision effectively overrules the Texas Supreme Court’s prior suggestion in Gilbert that breach of contract could trigger a contractual liability exclusion.