40-Love. Contractual Liability Exclusion Inapplicable in Tennis Court Construction Defect
On certified questions from the Fifth Circuit, the Texas Supreme Court limited the scope of the contractual liability exclusion to situations where the liability is enlarged beyond its duty to exercise ordinary care in fulfilling its contract. In this matter, the policyholder contracted to construct certain additions to a school, including a tennis court. The contract required the policyholder to perform the work in a good and workmanlike manner. The tennis court was unusable for its intended purpose and the policyholder was sued. Its carrier denied coverage based on the contractual liability exclusion.
The exclusion barred coverage for any damage due to “the assumption of liability in a contract or agreement.” Finding that “assumption of liability” means a surplusage of liability the court deemed the exclusion inapplicable because performing the work in a good and workmanlike manner was “substantively the same as its claims that [the policyholder] negligently performed under the contract.”