Texas Supreme Court Holds “Contractual Liability” Exclusion Inapplicable

By: Roberta D. Anderson, K&L Gates, Pittsburgh

In a highly anticipated decision issued on January 17, the Texas Supreme Court held that the standard commercial general liability (CGL) “contractual liability” exclusion does not void coverage for claims alleging that a contractor failed to construct a project in a “good and workmanlike manner” as required by the construction contract in Ewing Construction Company, Inc. v. Amerisure Insurance Company.

Had the Court answered “yes” to the Fifth Circuit’s certified question, there would have been a radical expansion of the standard contractual liability exclusion that would have been unsupported by — indeed, would have been contrary to — the court’s 2010 decision in Gilbert.  The implications to the construction industry may have been severe.  Coverage for a wide range of construction defects and other mistakes would have effectively disappeared under Texas law.  Many contractors would have faced the concern of potential uninsured liability resulting from the contract work.  And many consumers would have been left without realistic compensation for construction mistakes.

Fortunately, the Court correctly answered “no.”

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