On January 17, 2014, the Texas Supreme Court resolved a long-debated controversy as to the scope of a contractual liability insurance exclusion in Ewing Construction Co. v. Amerisure Insurance Co. A contractual liability exclusion, a common clause, allows an insurance company to exclude liability for damages the insured assumes by contract or agreement unless another exception brings the claim back into coverage. The exclusion has the potential to extinguish coverage for construction defect suits—to the detriment of the construction industry.

In Ewing, Ewing Construction Company, Inc. (“Ewing”) contracted to construct tennis courts for Tuluso-Midway Independent School District in a good and workmanlike manner. The school district sued Ewing complaining that the courts were poorly constructed. Ewing tendered the lawsuit to its insurance company, Amerisure Insurance Company (“Amerisure”), under its commercial general liability insurance policy, but Amerisure denied coverage based on the contractual liability exclusion. Ewing sued Amerisure in Texas federal court seeking a declaration that Amerisure had a duty to defend and indemnify. The court held that the policy’s contractual liability exclusion precluded coverage by Amerisure. On appeal, the Fifth Circuit initially agreed that the exclusion applied but later, following a flurry of news articles and amici petitions for rehearing, withdrew its opinion and submitted certified questions to the Texas Supreme Court.

The Texas Supreme Court held that the contractual liability exclusion does not preclude coverage when a general contractor agrees to perform in a good and workmanlike manner. Specifically, the Court held that the contractual liability exclusion only applies if the insured assumes liability for damages that exceed the liability it would otherwise have under the general common law. The Court concluded that Ewing was covered as its agreement to perform in a good and workmanlike manner was substantively similar to Ewing’s duty to exercise ordinary care under common law.

A copy of the opinion can be found here.