Insurance Law Blog

January 17, 2014
Dear Colleague,

In what only can be described as a classic movie, The Jerk, Steve Martin excitedly reported to all that "the new phone books are here . . . the new phone books are here!"  Well, as fate would have it, the same thing happened this morning. Doug started running down the hall yelling, "The Ewing decision is out . . . the Ewing decision is out!" I quickly responded: "Did we win?"  Doug replied, "I don't know, I'm just so excited that it's out."  Josh, our new associate, was overhead calling his wife to tell her that it looks like he would be keeping his job. That is when we knew . . . all was well with the world.

In a unanimous opinion authored by Justice Phil Johnson, also the author of the Gilbert Texas Construction, L.P. v. Underwriters at Lloyd's London, 327 S.W.3d 118 (Tex. 2010), decision, the Supreme Court of Texas answered the first certified question presented to it by the U.S. Fifth Circuit Court of Appeals in Ewing Construction Co., Inc. v. Amerisure Insurance Co. As a refresher, the following two questions were certified to the Court:

1. Does a general contractor that 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, “assume liability” for damages arising out of the contractor’s defective work so as to trigger the Contractual Liability Exclusion.

2. If the answer to question one is “Yes” and the contractual liability exclusion is triggered, do the allegations in the underlying lawsuit alleging that the contractor violated its common law duty to perform the contract in a careful, workmanlike, and non-negligent manner fall within the exception to the contractual liability exclusion for “liability that would exist in the absence of contract.”

Answering the first certified question in the negative, the Court did not reach the second question. The Court explained that its response was guided by its earlier decision in Gilbert -- although that case dealt with the duty to indemnify and the issue before the Court in Ewing involved both the duty to defend and the duty to indemnify. The Court emphasized that, in Gilbert, the contractor assumed a liability to repair or pay for damage to the property of third parties "resulting from a failure to comply with the requirements of [its] contract," which extended "beyond Gilbert's obligations under general law." In comparison, in Ewing, the contract "to construct the [tennis] courts in a good and workmanlike manner did not add anything to the obligations it has under general law to comply with the contract's terms and to exercise ordinary care in doing so." In other words, the construction contract did not enlarge the duty of ordinary care that is implicit within every contractual undertaking.

The Court noted that the School District's allegations that Ewing failed to perform in a good and workmanlike manner are substantively the same as its claims that Ewing negligently performed under the contract because they contain the same factual allegations and alleged misconduct. And, although the Court expressly disavowed any retreat from its prior holdings on the "economic loss" rule, it appears clear that the Court did not care whether Ewing's liability sounded in tort, warranty or contract. Rather, the issue -- as argued by Ewing and as adopted by the Court -- is whether the construction contract adds duties that do not ordinarily exist. 

As a bonus, the Court took issue with Amerisure's attempt to rehash the old argument that a CGL policy is not a performance bond. The Court, relying on Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1 (Tex. 2007), explained that other policy exclusions may apply to exclude coverage in certain circumstances.

Importantly, it seems clear that the Court intended for its holding to apply to both the duty to defend and the duty to indemnify. There are several cases currently abated across Texas that were awaiting this opinion. Accordingly, we should see, in short order, the impact of this opinion. More to follow . . . 

So Let it Be Written; So Let it Be Done. Oh, and in a less biblical sense, We've Got You Covered.

P.S. Doug and I may be unavailable for any substantive legal advice today.


Lee Shidlofsky
Member of Shidlofsky Law Firm

Douglas P. Skelley
Member of Shidlofsky Law Firm