The Fifth Circuit has certified questions to the Texas Supreme Court in Ewing Construction Co. v. Amerisure Ins. Co., 2012 WL 3205557 (Fifth Circuit, August 8, 2012) which remain unanswered as of this date. At issue is whether the “contract exclusion” in the standard Commercial General Liability (CGL) insurance policy excludes coverage for faulty construction when the general contractor enters into a contract in which it agrees to perform its construction work in a good and workmanlike manner without more specific provisions enlarging this obligation, so as to “assume liability” in the contract for damages arising out of the contractor’s defective work which triggers the “contract exclusion” in the policy.
In a long held legal principle by the Texas Supreme Court, if the damages go to the subject matter of the contract, then the plaintiff has a cause of action in contract and not in tort. If that is the case, then the general contractor will be faced with the possibility of no insurance coverage. Both insurers and construction companies have a huge financial stake in what the Texas Supreme Court responds to the Fifth Circuit. If these issues affect you, this will be an important case to watch for in 2013.