AUSTIN (CN) - Language in existing general liability insurance policies does not let insurers skate on construction defect claims, the Texas Supreme Court ruled Friday in a closely followed case.
The case stems from crumbling and poorly constructed new tennis courts that led the Tuluso-Midway Independent School District to sue Ewing Construction Company.
Ewing had signed a construction contract with the district and hired a subcontractor to perform the work.
Amerisure Insurance later cited a contractual liability exclusion that prevents such claims if a contractor assumes liability in a contract when it refused to either defend or indemnify Ewing against the claims.
A federal judge in Houston eventually found, and the 5th Circuit affirmed, that Amerisure had a duty to defend, but the appellate panel remanded regarding the separate duty to indemnify.
The construction industry balked as the ruling was poised to eliminate coverage of construction defects in Texas, but the New Orleans-based federal appeals court later withdrew its opinion and asked the Texas high court to clarify the nature of the contractual liability exclusions.
Answering that question Friday, the Texas Supreme Court said the exclusions prevent insurers from rejecting claims that the policy would have covered if there was not a contract.
"We conclude that a general contractor who agrees to perform its construction work in a good and workmanlike manner, without more, does not enlarge its duty to exercise ordinary care in fulfilling its contract, thus it does not 'assume liability' for damages arising out of its defective work so as to trigger the contractual liability exclusion," Justice Phil Johnson wrote for the court.
Attorney Randy Maniloff, with White Williams in Philadelphia, told the Associated Press that many contractors do not have the means to repair their construction defects.
"So a lot of times insurance is the make-or-break issue for purposes of somebody getting compensation," Maniloff reportedly said. "This decision helps homeowners keep that insurance in place."
Amerisure told Courthouse News on Tuesday that it joined the 5th Circuit's inquiry at the request of the construction industry "to seek greater clarity related to the contractual liability exclusion."