In the recent opinion of Ewing Construction Company, Inc. v. Amerisure Insurance Co., the Texas Supreme Court construed a commercial general liability (CGL) insurance policy in favor of the insured. In Ewing, a school district hired a construction company to build tennis courts. The school district sued for construction defects based upon breach of contract and negligence. The construction company made a claim to its insurance company to defend the lawsuit on its behalf under its CGL policy. The insurance company denied coverage based upon the contractual liability exclusion in the policy. The construction company then sued the insurance company in federal court. The federal district court ruled in favor of the insurance company and an appeal followed. The Fifth Circuit Court of Appeals referred questions of Texas law to the Texas Supreme Court.
The Texas Supreme Court noted that an insurer’s duty to defend is based upon the eight corners rule. Under the rule, the court looks to the four corners of the language of the insurance policy, and the four corners of the allegations in the lawsuit. The Court noted that the allegations in the underlying lawsuit for construction defects included negligence and breach of contract theories. The court also noted that the construction contract expressly stated that the company would perform construction “in a good and workmanlike manner.” The insurance policy exclusion stated that the insured’s contractual assumption of liability was excluded from coverage unless one of two exceptions existed: (1) . . . “the insured’s liability for damages would exist absent the contract, and (2) where the contract is an insured contract.”
The Court interpreted the first exception to the contractual liability exclusion in the CGL policy as follows: a claim would be excluded only if the insured had signed a contract that assumed liability for damages that exceeded its liability under the law if the contract did not exist. The Court held that agreeing in a contract to perform construction work in a good and workmanlike manner, “without more, does not enlarge its duty to exercise ordinary care . . .” Therefore, the insured did not assume liability beyond its obligations under general law, and the exclusion did not apply. Accordingly, the insurance company was obligated under the CGL policy to defend the lawsuit on behalf of the insured. The link to the opinion is found here: http://www.supreme.courts.state.tx.us/historical/2014/jan/120661.pdf