Liability Insurance Exclusions

Attorneys handling insurance law will want to keep up with how the courts are interpreting insurance exclusions. The Austin American Statesman ran an article in January 2014 that is interesting reading. Here is what it tells us.
The Texas Supreme Court issued a key ruling Friday that should boost consumer confidence in the liability insurance coverage that builders and general contractors carry.
Writing for the court, Justice Phil Johnson denied an insurance company’s attempt to avoid paying a claim based on language found in most commercial general liability insurance policies. The court’s decision was one of the most anticipated insurance cases in the country because Texas decisions often influence other courts across the nation, said Randy Maniloff, an insurance law expert at the White and Williams law firm in Philadelphia.
If the Texas Supreme Court had ruled in favor of the insurance company, coverage of construction mistakes in Texas would have virtually disappeared.
“Many contractors don’t have the wherewithal to make good on their construction defects, so a lot of times insurance is the make-or-break issue for purposes of somebody getting compensation,” Maniloff said. “This decision helps homeowners keep that insurance in place.”
Most general liability policies have a clause that allows the insurance company to exclude liability claims when a contractor assumes liability “in a contract or agreement.” Insurance companies often require contractors to buy additional coverage when they take on greater risk.
But that clause also comes with an exception that the insurance company must pay liability claims for property damage resulting from a general liability that would apply in the absence of a contract.
In the case of Ewing Construction Co. v. Amerisure Insurance Co., Ewing signed a contract with Tuloso-Midway Independent School District to build a tennis court and then hired a subcontractor to do the work. The work was poorly done, and the court began to break apart, prompting the school district to ask Ewing to pay for the damage.
Ewing filed a claim with Amerisure, but the company denied it because of the contract between Ewing and the school district, citing what is called the “contractual liability exclusion.” Ewing sued Amerisure, and Amerisure had won rulings in federal court. The case worked its way through the federal courts to the 5th U.S. Circuit Court of Appeals, which asked the Texas Supreme Court to clarify what the exclusions should mean.
Johnson wrote that the contractual liability exclusion did not allow the insurance company to avoid paying on claims that the policy would have covered absent a contract.
The exclusion applies only when “the insured has assumed a liability for damages that exceeds the liability it would have under general law,” he said.
Maniloff said he did not expect the decision to affect insurance rates in Texas, since the court ruled that the policy provides coverage most people thought they already had. But he did reiterate the need for consumers to make sure their contractors carry insurance before they begin any work.

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