Insurance company cannot exclude coverage for alleged defective work.

Insurance company cannot exclude coverage for alleged defective work.

In Ewing Constr. Co v. Amerisure Insurance, the insurance company was denying coverage for alleged defective work claims against the contractor.  Texas supreme Court addressed the following two questions: (1) did a contractor who agreed to work in a good and workmanlike manner assume liability arising out of defective work so as to trigger its insurance policy’s contractual liability exclusion (CLE); and (2) if yes, did Plaintiff’s allegations of violating the common law obligation to perform in a careful, workmanlike, and non-negligent manner fall within an exception for liability existing absent a contract.

The Court answered the first question stating that when a contractor enters into a contract and agrees to perform its work in a good and workmanlike manner, and makes not further statements regarding workmanship, the contractor does not “assume liability” for a claims of defective workmanship.  Meaning the contractor’s insurance company cannot exclude coverage for construction defect claims.

This is a win for the construction industry, had the Court ruled that an insurance company could exclude defect claims, residential construction would suffer.  Not only would contract prices increase, but many contractors would be unable to assume the risk for defect claims, thus likely those contractors would cease business.  In an already slow construction recovery, such an adverse ruling would have been devastating.