Ewing signed a contract with a school district in Texas to build tennis courts in a good and workmanlike manner. Shortly after completion, the school district complained about a variety of problems with the quality of the tennis courts and ultimately filed suit against Ewing (and others) alleging faulty construction of the courts. Ewing provided notice to its CGL insurer (Amerisure). The insurer denied coverage on the grounds the contractual liability exclusion contained in the CGL policy precluded coverage because Ewing contractually undertook the obligation to construct tennis courts in a good and workmanlike manner and thereby assumed liability for damages if the construction did not meet that standard.
Ewing responded by bringing suit in the U.S. District Court for the Southern District of Texas arguing that its express agreement to perform the construction in a good and workmanlike manner did not enlarge its obligations and was not an “assumption of liability” within the meaning of the policy’s contractual liability exclusion. Amerisure prevailed at the district court and Ewing appealed to the U.S. Court of Appeals for the Fifth Circuit. The Fifth Circuit certified two questions for the Texas Supreme Court to decided regarding the scope of the contractual liability exclusion under Texas law.
The Texas Supreme Court disagreed with the insurer’s position regarding the scope of the contractual liability exclusion. Looking at the exceptions to the exclusion, which included situations where the insured’s liability for damages would exist absent the contract, the Court found that the requirement in the contract that the tennis courts be built in a “good and workmanlike manner” was substantively the same as an allegation that Ewing negligently performed the work under the contract. Accordingly, the Court concluded that “good and workmanlike” language was essentially superfluous because it did not heighten the contractor’s duty to perform beyond what would already be assumed in the absence of the contractual provision. Likewise, the Court rejected the insurer’s argument that refusing to apply the exclusion in this case would essentially transform CGL policies into a surety bond since they would open the door to any and all claims pertaining to the contracted for work in contravention of the intent of the exclusion. The Court stated that its ruling did not mean that other exclusions would not apply to exclude coverage.
The practical reality is that most CGL policies carry a “your work” exclusion, which specifically excludes claims involving damage to the contractual work that was provided and the insurer in Ewing likely would have prevailed if it had raised that exclusion. Nevertheless, this case is significant because it should provide some comfort to contractors and design professionals who frequently worry that these clauses will void their coverage in the event of an otherwise insured loss. The mere promise to meet the standard of “good and workmanlike manner” does not assume a duty that would not otherwise exist.
