What Does CGL Insurance Cover Anyway?

The Texas courts continue to wrestle with the problem of what is covered by a CGL policy.Readers may recall that in September, 2012, I wrote a blog about a Texas case winding its way through the federal courts and then being shipped to the Texas Supreme Court for additional analysis. Well, earlier this year the Texas Supreme Court finally issued its opinion, finding that a CGL policy does cover faulty workmanship. This was a big win for contractors and the opposite result would have severely limited the application of CGL policies.

In this case, Ewing Construction Co. Inc. contracted to build a tennis court and other additions to a school. The contract called for Ewing to perform its work in a “good and workmanlike manner.” After construction was completed, the school complained that the courts were flaking, crumbling and cracking. The school sued, claiming that Ewing failed to perform its work in a good and workmanlike manner.

Ewing asked its insurer to defend it in the lawsuit, but the insurer refused. The insurance company claimed that there was no coverage because Ewing contracted to perform the work in a “good and workmanlike manner,” and that this contractual language caused the claim to fall within an exclusion in the policy that says that there is no insurance coverage when the insured is obligated to pay damages by reason of the assumption of liability in a contract. Ewing countered that argument by looking to an exception to the exclusion (yes, I know, stuff only an attorney could love) that said the exclusion did not apply when the contractor would have been liable absent the contract language.

The Texas Supreme Court ruled that the contract language that Ewing would do the work “in a good and workmanlike manner” did not expand a contractor’s common law duty to its client. All contractors are expected to do work in a good and workmanlike manner, so the inclusion of this language in the contract did not expand Ewing’s duties. Thus the exception to the exclusion applied and Ewing had coverage for the loss.

This is a very good result for contractors. If the court had found that a CGL policy does not apply to this type of situation, one would have to wonder what a CGL policy would cover.

Take Away: Insurance coverage continues to be very complicated. But in Texas, the path may be clearer in finding coverage under CGL policies.