Source: http://www.lexology.com, November 25, 2014
By: Phelps Dunbar LLP
The U.S. Fifth Circuit Court of Appeals recently granted a motion for reconsideration and then withdrew and reversed its earlier opinion based upon answers to a certified question from the Texas Supreme Court in another case. The Fifth Circuit’s panel explained that it did not understand an arbitrator’s ruling in the underlying arbitration over construction defects as the basis for its reversal. Crownover v. Mid-Continent Casualty Co., 2014 WL 5473084 (5th Cir. Oct. 29, 2014).
The central issue was whether a provision in a construction contract between homeowners and their contractor which obligated the contractor to repair its faulty work was an “assumption of liability” that exceeded the contractor’s liability under general Texas law, thereby triggering a contractual liability exclusion in its insurance policy. The Fifth Circuit originally found that the contractual liability exclusion applied, and the exception to the exclusion for “when the insured would be liable absent the contract or agreement” did not, and granted summary judgment for the insurer.
The motion for reconsideration argued that the court could have still found that there was also a breach of an implied warranty of construction in a good and workmanlike manner, which would be a liability that the contractor would have had in the absence of the contract. The Fifth Circuit agreed that the arbitrator must have implicitly found that the contractor did not perform its work in a good and workmanlike manner. Based upon the Texas Supreme Court’s answer to a question that the Firth Circuit certified in Ewing Constr. Co., Inc. v. Amerisure Ins. Co., 420 S.W.3d 30 (Tex. 2014) that a contract into which a contractor enters whereby it agrees to perform its work in a good and workmanlike manner is not an “assumption of liability” for purposes of a contractual liability exclusion, it held that the liability was one the contractor would have had in the absence of a contract.