WARNING TO GENERAL CONTRACTORS! BE CAREFUL WITH YOUR CONTRACT

WARNING TO GENERAL CONTRACTORS! BE CAREFUL WITH YOUR CONTRACT

July 9, 2014

“General Contractor’s Agreement To Perform In Good And Workmanlike Manner Is Not An Assumption Of Liability For Defective Work.

FACTUAL BACKGROUND

In 2008, a contractor entered an agreement to serve as general contractor to renovate and build additions to a school in Corpus Christi, including constructing tennis courts. Shortly after construction of the tennis courts was completed, there were complaints that the courts started flaking, crumbling, and cracking, rendering them unusable for their intended purpose of hosting competitive tennis events. The original contract included an agreement to complete the work in a “good and workmanlike manner”. The contractor’s insurance policy had an exclusion for contractual liability “assumed in a contract.”

The owner of the Courts filed suit in Texas state court. Its damage claims were based on faulty construction of the courts and its theories of liability were breach of contract and negligence. Naturally, the insurer argued that the contractual liability exclusion applied.

THE LAW

It is well settled Texas law that a “common law duty to perform with care and skill accompanies every contract. See Montgomery Ward & Co. v. Scharrenbeck, 146 Tex. 153, 204 S.W.2d 508, 510 (1947); see also Melody Home Mfg. Co., 741 S.W.2d at 354.7.  On January 17, 2014, in Ewing Const. Co., Inc. v. Amerisure Ins. Co., 420 S.W.3d 30, 32 (Tex. 2014), the Texas Supreme Court decided the facts above when it answered a certified question from the U.S. Fifth Circuit Court of Appeals. The question was:

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?

Ewing Const. Co., Inc. 420 S.W.3d at 32.

THE DECISION

During its analysis the Texas Supreme Court referred to its prior holding in Gilbert Texas Construction, L.P. v. Underwriters at Lloyd’s, London, 327 S.W.3d 118 (Tex. 2010). There the Court held that a contract exclusion did apply. However, the Court reasoned that the contractor in Gilbert assumed—to repair or pay for damage to property of third parties…“resulting from a failure to comply with the requirements of this contract”—extended “beyond Gilbert’s obligations under general law.” Gilbert, 327 S.W.3d at 127.

In applying Gilbert’s reasoning in the present case the Court held 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. We answer the first question “no” and, therefore, need not answer the second question. Ewing Const. Co., Inc. v. Amerisure Ins. Co., 420 S.W.3d 30, 38 (Tex. 2014)

WHAT IT MEANS FOR YOU

This decision should be a warning for all general contractors. Do not expand your duties beyond that of the common law unless you are positive that your insurance policies cover those expanded duties. Have a good lawyer draft and a review your contracts so that you are not unknowingly exposing yourself to additional liability.

For questions or contract issues feel free to email me info@kestephenslaw or call my office at 832-930-0529.

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