{"id":191305,"date":"2014-11-18T06:46:24","date_gmt":"2014-11-18T13:46:24","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=191305"},"modified":"2014-11-12T14:46:50","modified_gmt":"2014-11-12T21:46:50","slug":"more-texas-justice-for-policyholder-on-contractual-liability-exclusion","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/more-texas-justice-for-policyholder-on-contractual-liability-exclusion\/","title":{"rendered":"More \u201cTexas Justice\u201d For Policyholder On Contractual Liability Exclusion"},"content":{"rendered":"

Nathan Lander\u00a0| Risk and Recovery: Legal Insights for the Insured | November 4, 2014<\/p>\n

On October 29, the Fifth Circuit reversed itself for the second time this year in a case involving the interpretation of a contractual liability exclusion in a CGL policy.\u00a0 This recent decision by the Fifth Circuit in Crownover v. Mid-Continent Casualty Co., coupled with decisions from the Texas Supreme Court and Fifth Circuit earlier this year in Ewing Constr. Co. v. Amerisure Ins. Co., is of major significance to the construction industry in Texas.\u00a0 These decisions ensure that the valuable protection that contractors, builders, and their customers depend on from CGL policies is not swallowed up by an overly broad interpretation of a standard exclusion.<\/p>\n

Many CGL policies exclude damages \u201cfor which the insured is obligated to pay by reason of the assumption of liability in a contract or agreement.\u201d\u00a0 This standard exclusion has a carve-out, however, for liability \u201c[t]hat the insured would have in the absence of the contract or agreement.\u201d<\/p>\n

In most jurisdictions, courts have construed this exclusion as limiting coverage only when the insured has agreed to assume the liability of a third party.\u00a0 This is also how the average policyholder would generally understand the exclusion.<\/p>\n

Earlier this year, however, a pair of Texas federal courts interpreted the exclusion in a much different and broader manner.\u00a0 In both Ewing and Crownover, the district court held that the exclusion applies anytime \u201can insured has entered into a contract and, by doing so, has assumed liability for its own performance under the contract.\u201d\u00a0 So if the contract promises that the contractor will perform work in a certain manner, and the contractor is sued for breaching that warranty, the claim is excluded.\u00a0 The Fifth Circuit initially affirmed each of these decisions before agreeing in Ewing to certify the proper interpretation of the exclusion to the Texas Supreme Court.<\/p>\n

If allowed to stand, these decisions would have been devastating to the construction industry in Texas.\u00a0 In virtually all construction contracts, the builder or contractor agrees to perform its work in a good and workmanlike manner (or other similar promise).\u00a0 Interpreting the contractual liability exclusion as barring coverage whenever such a promise is made would have left Texas builders and contractors with little coverage at all.<\/p>\n

And the harm from the decisions would not have ended there.\u00a0 Many contractors do not have the financial resources to pay for damages caused by construction mistakes.\u00a0 They, and in turn the businesses and homeowners who utilize their services, rely on the availability of insurance to cover mistakes that are made.<\/p>\n

Fortunately, the Texas Supreme Court said \u201cnot so fast\u201d to the strained and commercially unreasonable interpretation of the exclusion reached by the federal courts.\u00a0 It held that the exclusion can apply only when a policyholder assumes a liability \u201cthat exceeds the liability it would have under general law.\u201d<\/p>\n

Contractors are under a common law duty to perform their contracts with skill and care. Thus, the Texas Supreme Court concluded, \u201ca 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 \u2018assume liability\u2019 for damages arising out of its defective work so as to trigger the Contractual Liability Exclusion.\u201d<\/p>\n

After the Texas Supreme Court issued its decision in Ewing, the Fifth Circuit reversed its earlier decision in that case and held that the policyholder\u2019s claim was not barred by the contractual liability exclusion.<\/p>\n

Now, the Fifth Circuit has done the same in Crownover.\u00a0 Reversing its earlier decision, the Court began by explaining that in Texas, as elsewhere, exclusions must be narrowly construed against the insurer.\u00a0 The saying \u201ceverything is bigger in Texas\u201d does not apply to exclusions.<\/p>\n

Applying this well-settled rule for interpreting exclusions, and the Texas Supreme Court\u2019s guidance in Ewing, the Fifth Circuit found the exclusion did not apply to claims against the insured in Crownover for breaching a \u201cduty to repair\u201d warranty in a construction contract.\u00a0 Under the general law, the policyholder already had a duty to repair work that was not performed in a good and workmanlike manner.\u00a0 Promising to do so in the contract, thus, did not in any way enlarge the insured\u2019s liability.<\/p>\n

Insurers that issue CGL policies to contractors promise to cover them for losses caused by mistakes made in the construction process.\u00a0 These contractors depend on this liability protection, as do consumers who enlist their services in construction projects.\u00a0 The fact that a contractor promises when hired to do a good job should not provide a get out of jail free card to its insurer if a construction mistake is later made.\u00a0 Now that the Crownhover decision has been reversed, along with the Ewing decision, \u201cTexas justice\u201d has been restored on this issue.<\/p>\n

via More \u201cTexas Justice\u201d For Policyholder On Contractual Liability Exclusion | Risk and Recovery: Legal Insights for the Insured<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Nathan Lander\u00a0| Risk and Recovery: Legal Insights for the Insured | November 4, 2014 On October 29, the Fifth Circuit reversed itself for the second time this year in a case involving the interpretation of a contractual liability exclusion in a CGL policy.\u00a0 This recent decision by the Fifth Circuit in Crownover v. Mid-Continent Casualty… Continue reading More \u201cTexas Justice\u201d For Policyholder On Contractual Liability Exclusion<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[9,4,30,3],"tags":[270,3,155],"class_list":["post-191305","post","type-post","status-publish","format-standard","hentry","category-construction-contracts","category-construction-defects","category-general-liability-policy","category-insurance-claims","tag-cgl-insurance-policy","tag-insurance-claims","tag-texas","entry"],"jetpack_publicize_connections":[],"yoast_head":"\nMore \u201cTexas Justice\u201d For Policyholder On Contractual Liability Exclusion - Advise & Consult, Inc.<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.myconstructionexpert.com\/blog\/more-texas-justice-for-policyholder-on-contractual-liability-exclusion\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"More \u201cTexas Justice\u201d For Policyholder On Contractual Liability Exclusion - Advise & Consult, Inc.\" \/>\n<meta property=\"og:description\" content=\"Nathan Lander\u00a0| Risk and Recovery: Legal Insights for the Insured | November 4, 2014 On October 29, the Fifth Circuit reversed itself for the second time this year in a case involving the interpretation of a contractual liability exclusion in a CGL policy.\u00a0 This recent decision by the Fifth Circuit in Crownover v. 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