The ever changing landscape of insurance coverage for contractors continues to be clarified in Texas. The Fifth Circuit Court of Appeals applied Texas law in Crownover v. Mid-Continent Casualty Company, concluding that contractors do have insurance coverage to cover claims that a project was not constructed in a good and workmanlike manner.
In this case, the Crownovers hired a contractor to build a house. The contract contained a warranty-to-repair clause. Shortly after construction was completed, cracks began to appear in the walls and foundation, and there were problems with the heating and air conditioning system. The Crownovers demanded that the contractor repair the problems and the contractor refused. The Crownovers brought an arbitration proceeding against the contractor and prevailed, obtaining a judgment that the contractor must pay for repairs to the foundation and HVAC system. The contractor then filed for bankruptcy and the bankruptcy court allowed the Crownovers to pursue their claim against the contractor’s insurer.
The Crownovers sued the contractor’s insurer and the insurer took the position the comprehensive general liability (“CGL”) policy did not cover the Crownovers’ claim because any liability of the contractor was based on the contract with the Crownovers and thus the contractual-liability exclusion applied. The trial court agreed and the Crownovers appealed to the Fifth Circuit Court of Appeals.
The Fifth Circuit Court of Appeals initially decided the case in June, affirming the trial court’s decision. The Crownovers asked the court to look at the issue again, and the court reversed itself this past October.
In ruling in favor of the Crownovers, the court found that the contractual-liability exclusion applied only in those instances where the contractor assumed additional responsibilities beyond those found at common law. Because common law establishes a duty for contractors to repair work that was not carried out in a good and workmanlike manner, the contractual-liability exclusion did not apply.
Take Away: CGL policies may very well provide coverage for faulty work. But, each state’s laws will control how the insurance policy is interpreted and whether coverage will be found.