{"id":459271,"date":"2015-02-04T06:40:56","date_gmt":"2015-02-04T13:40:56","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=459271"},"modified":"2015-01-29T09:41:43","modified_gmt":"2015-01-29T16:41:43","slug":"rumors-revival-greatly-exaggerated-fifth-circuit-reverses-opinion-contractual-liability-exclusion","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/rumors-revival-greatly-exaggerated-fifth-circuit-reverses-opinion-contractual-liability-exclusion\/","title":{"rendered":"Rumors of Revival were Greatly Exaggerated: Fifth Circuit Reverses Opinion on Contractual Liability Exclusion"},"content":{"rendered":"

Meredith Whigham Caiafa | Carlton Fields Jorden Burt | January 15, 2015<\/p>\n

We\u00a0previously discussed\u00a0the opinion of the U.S. Court of Appeals for the Fifth Circuit in\u00a0Crownover v. Mid-Continent Cas. Co.,\u00a0No. 11-10166 (5th Cir June 27, 2014)\u2014an opinion that seemed to revive the contractual liability exclusion by distinguishing a landmark Texas decision that had narrowed the exclusion\u2019s scope.\u00a0 That was then.\u00a0 Late last year, the U.S. Court of Appeals for the Fifth Circuit withdrew that order and issued a\u00a0new opinion on rehearing.\u00a0 The new opinion follows the Texas precedent, and it holds that the\u00a0contractual liability exclusion does not bar coverage in a construction defect case.\u00a0 Late last month, the court confirmed that decision by refusing a second motion for rehearing.<\/p>\n

Back in June<\/strong><\/p>\n

Ewing Construction Co. v. Amerisure Insurance Co., 420 S.W.3d 30 (Tex. 2014), involved a claim that a contractor had violated a\u00a0contractual obligation to perform work in a good and workmanlike manner.\u00a0 The Supreme Court of Texas held that this obligation was duplicative of the duty that the contractor already owed under the common law.\u00a0 For that reason, a claim that a contractor violated this obligation\u00a0did not\u00a0fall within the contractual liability exclusion of its insurance policy.<\/p>\n

In its original opinion in\u00a0Crownover, the Fifth Circuit drew a distinction between (i) a contractual obligation to perform in a workmanlike manner and (ii) an agreement\u00a0to repair damage\u00a0that results from\u00a0a failure to comply with the requirements of the contract.\u00a0 Because the arbitration award against the contractor in\u00a0Crownover\u00a0had based liability solely on its failure to repair damage that did not comply with the contract, and because no such duty existed under common law, the Fifth Circuit held that coverage for the claim was barred under the contractual liability exclusion in the contractor\u2019s policy.<\/p>\n

As we\u00a0noted at the time,\u00a0the facts of\u00a0Crownover\u00a0did not present a clear-cut example of the distinction the court was making.\u00a0 The insured contractor agreed to build a home for the Crownovers, and their claim against the contractor was based on cracks in the walls and HVAC problems\u2014issues that arguably implicated the contractor\u2019s common law duty to perform in a good and workmanlike manner.\u00a0 Additionally, the court provided little in the way of guidance about how future cases should distinguish claims seeking the cost of repairs for breach of the common law duty from claims enforcing a promise to make such repairs.<\/p>\n

Uh Oh<\/strong><\/p>\n

In October, the three-judge panel that had unanimously decided\u00a0Crownover\u00a0granted the policyholders\u2019 petition for rehearing, on the ground that the June opinion conflicted with\u00a0Ewing. The Court withdrew its prior opinion and issued a\u00a0new order, awarding summary judgment to the policyholders.<\/p>\n

Where the June opinion had focused on the fact that the arbitrator had found the insured liable solely for breach of a duty that originated in a contract, the new opinion focuses on whether that duty actually imposed any obligations that the contractor did not already owe under the common law:<\/p>\n

Just as Mid\u2013Continent must establish more than that the duty to repair is an express duty found in the contract, Mid\u2013Continent cannot avoid indemnification\u00a0merely by noting that the duty to repair refers to the requirements of the contract documents.\u00a0We must determine whether that duty actually represents an expansion of obligations as applied.<\/p>\n

Finding that the \u201cgeneral law creates a duty to perform under the terms of a contract with reasonable care[,]\u201d the Court concluded that the contractual liability exclusion did not apply, because the insurer was unable to point to \u201cany relevant element of liability that was increased due to [the contractor\u2019s] failure to comply with the duty to repair clause\u00a0[of its contract].\u201d<\/p>\n

It\u2019s the Law<\/strong><\/p>\n

The critical factor in disputes over whether a contractual liability exclusion will apply in construction defect cases is therefore\u00a0the scope of the obligations imposed by the common law.\u00a0 If the insurer cannot show that the contractual duty underlying a claim against the insured imposes obligations that go\u00a0beyond the requirements of the common law, then the exclusion will not excuse coverage.<\/p>\n

In November, Mid-Continent moved for rehearing, arguing that the cost of repairing defective work (which was what the arbitrator awarded) is not the same as the remedy for property damage under Texas law. In a\u00a0per curiamorder issued on December 18, the Fifth Circuit denied rehearing without comment.<\/p>\n

via Rumors of revival were greatly exaggerated: Fifth Circuit reverses opinion on contractual liability exclusion – Lexology<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Meredith Whigham Caiafa | Carlton Fields Jorden Burt | January 15, 2015 We\u00a0previously discussed\u00a0the opinion of the U.S. Court of Appeals for the Fifth Circuit in\u00a0Crownover v. Mid-Continent Cas. Co.,\u00a0No. 11-10166 (5th Cir June 27, 2014)\u2014an opinion that seemed to revive the contractual liability exclusion by distinguishing a landmark Texas decision that had narrowed the… Continue reading Rumors of Revival were Greatly Exaggerated: Fifth Circuit Reverses Opinion 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":[4],"tags":[24,497,6598],"class_list":["post-459271","post","type-post","status-publish","format-standard","hentry","category-construction-defects","tag-construction-defect","tag-contractual-liability-exclusion","tag-duty-to-repair","entry"],"jetpack_publicize_connections":[],"yoast_head":"\nRumors of Revival were Greatly Exaggerated: Fifth Circuit Reverses Opinion 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\/rumors-revival-greatly-exaggerated-fifth-circuit-reverses-opinion-contractual-liability-exclusion\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Rumors of Revival were Greatly Exaggerated: Fifth Circuit Reverses Opinion on Contractual Liability Exclusion - Advise & Consult, Inc.\" \/>\n<meta property=\"og:description\" content=\"Meredith Whigham Caiafa | Carlton Fields Jorden Burt | January 15, 2015 We\u00a0previously discussed\u00a0the opinion of the U.S. Court of Appeals for the Fifth Circuit in\u00a0Crownover v. 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