Court Opinion

ID: 806261
Source: CourtListenerOpinion
Date Created: 2012-08-08 23:09:48+00
Date Added: 2024-06-11T18:00:19.479259
License: Public Domain

Case: 11-40512        Document: 00511950540         Page: 1    Date Filed: 08/08/2012

             IN THE UNITED STATES COURT OF APPEALS
                      FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                      Fifth Circuit

                                                                              FILED
                                                                             August 8, 2012

                                          No. 11-40512                       Lyle W. Cayce
                                                                                  Clerk

EWING CONSTRUCTION COMPANY, INCORPORATED,

                                                     Plaintiff - Appellant
v.

AMERISURE INSURANCE COMPANY,

                                                     Defendant - Appellee

                       Appeal from the United States District Court
                            for the Southern District of Texas

Before JOLLY, DAVIS, and BARKSDALE, Circuit Judges.
PER CURIAM:
         The original opinion in this case was filed on June 15, 2012.1 Because this
Texas diversity law case involves important and determinative questions of
Texas law as to which there is no controlling Texas Supreme Court precedent,
the panel unanimously withdraws the previous opinion and substitutes the
following certified questions to the Supreme Court of Texas.

         1
             Ewing Construction Co. v. Amerisure Ins. Co., 2012 U.S. App. Lexis 12154 (5th Cir.
2012).
   Case: 11-40512    Document: 00511950540         Page: 2   Date Filed: 08/08/2012

                                   No. 11-40512

      CERTIFICATION FROM THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT TO THE SUPREME COURT OF TEXAS,
PURSUANT TO THE TEXAS CONSTITUTION ART. 5, § 3-C AND TEXAS
RULE OF APPELLATE PROCEDURE 58.1.

      TO THE SUPREME COURT OF TEXAS AND THE HONORABLE
JUSTICES THEREOF:

                 I. Style of the Case: Parties and Counsel
      The style of the case is Ewing Construction Company, Incorporated,
Plaintiff–Appellant     v.    Legacy   of       Amerisure    Insurance    Company,
Defendant–Appellee, Case No. 11-40512, in the United States Court of Appeals
for the Fifth Circuit, on appeal from the judgment of the United States District
Court for the Southern District of Texas, Corpus Christi Division. Federal
jurisdiction is based on diversity of citizenship.
      The names of all the parties to the case, each of whom is represented by
counsel, and the respective names, addresses and telephone numbers of their
counsel, are as follows: Ewing Construction Company, Incorporated, plaintiff in
the district court, appellant in this court, represented by Lee H. Shidlofsky of
Shidlofsky Law Firm PLLC, 7200 North Mopac Expressway, Austin, Texas
78731, Tel. 512-685-1400; and Amerisure Insurance Company, defendant in the
district court and appellee in this court, represented by R. Brent Cooper, Cooper
& Scully, P.C., 900 Jackson Street, Dallas, Texas, 75202, Tel. 214-712-9500.
                             II. Statement of the Case
      In June 2008, Ewing Construction Company, Inc. (“Ewing”) entered a
contract with Tuloso-Midway Independent School District (“the School District”),
in which Ewing agreed to construct tennis courts at a school in Corpus Christi,

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                                        No. 11-40512

Texas.2 Ewing subcontracted all or part of the work. Soon after the tennis
courts were completed, the School District complained that the courts were
cracking and flaking, rendering them unfit for playing tennis. On February 25,
2010, the School District filed a petition (“the underlying lawsuit”) in Texas state
court, seeking damages for defective construction, and naming Ewing, the
architect, and the structural engineer as defendants.3
       Ewing tendered defense of the underlying lawsuit to Amerisure Insurance
Company (“Amerisure”), its insurer under a Commercial General Liability (CGL)
policy. The CGL policy states that Amerisure must defend Ewing against any
suit seeking “damages because of ‘bodily injury’ or ‘property damage’” if the
“‘bodily injury’ or ‘property damage’ is caused by an ‘occurrence’ that takes place

       2
        According to the underlying petition, Ewing was to build the tennis courts according
to the plans of Architect LaMarr Womack, who had hired Jaster-Quintanilla to provide
structural engineering plans and specifications. Womack and Jaster-Quintanilla were also
named defendants in the underlying suit.
       3
         In the petition in the underlying lawsuit, the school district alleged that Ewing
breached its contract and performed negligently, as follows:
       On information and belief, Plaintiff says that Defendant Ewing and/or its
       subcontractors breached its contract in the following respects:
               a) Failing to complete construction in accordance with the contract plans
               and specifications;
               b) Failing to exercise ordinary care in the preparation, management and
               execution of construction;
               c) Failing to perform in a good and workmanlike manner; and
               d) Failing to properly retain and supervise subcontractors.
       Furthermore, Defendant Ewing Construction and/or its subcontractors
       was/were guilty of negligence proximately causing damage to Plaintiff in the
       following respects:
               a) Failing to properly prepare for and manage the construction;
               b) Failing to properly retain and oversee subcontractors;
               c) Failing to perform in a good and workmanlike manner; and
               d) Failing to properly carry out the construction so that it was in
               completed in accordance with the plans and specifications.
The petition also stated that Ewing "breached [its] duty to Plaintiff to use ordinary care in the
performance of [its] contract[], proximately causing damages to Plaintiff."

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                                      No. 11-40512

in the ‘coverage territory.’” The CGL policy also contains a “contractual liability
exclusion,” which provides:
       2. Exclusions
       This insurance does not apply to:
        ...
       b. Contractual Liability
       ‘Bodily injury’ or ‘property damage’ for which the insured is
       obligated to pay damages by reason of the assumption of liability in
       a contract or agreement. This exclusion does not apply to liability
       for damages:

             (1) That the insured would have in the absence of the contract
       or agreement . . . .
Amerisure denied coverage based on this exclusion.4
       On July 29, 2010, Ewing filed the instant action against Amerisure in the
District Court for the Southern District of Texas, contending Amerisure was
obligated to defend it in the underlying lawsuit. Ewing’s complaint seeks
declaratory relief, contract damages, relief under the Texas Prompt Payment of
Claims Statute, and attorney’s fees.                After Amerisure answered and
counterclaimed, the parties filed cross-motions for summary judgment and a
joint stipulation of facts to aid the consideration of these motions.
       On April 28, 2011, the district court denied Ewing’s motion, granted
Amerisure’s motion, and entered a final judgment dismissing the case. The
court held that Amerisure owed no duty to defend or indemnify Ewing in the
underlying lawsuit because the CGL policy’s contractual liability exclusion
excluded coverage, and no exception to that exclusion revived coverage. For the
same reasons, the court held that Amerisure did not violate the Texas Prompt
Payment of Claims Statute.

       4
         Amerisure did not deny coverage under the your work exclusion here, because the
petition alleged the defective work was performed by “Ewing and/or its subcontractors,”
triggering coverage under this exclusion’s “subcontractor exception” for damage caused by the
work of a subcontractor.

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                                  No. 11-40512

      Ewing appealed. A divided panel of this court initially affirmed the
district court’s judgment holding that Amerisure had no duty to defend and
vacated the district court’s judgment with respect to the duty to indemnify and
the Prompt Payment of Claims Act. Ewing Construction Co. v. Amerisure Ins.
Co., 2012 U.S. App. Lexis 12154 (5th Cir. 2012). Ewing petitioned for rehearing,
and we withdrew that ruling to certify the following question to the Texas
Supreme Court.
                               III. Legal Issues
      Ewing appeals the district court’s conclusion that Amerisure owed no duty
to defend or to indemnify it in the underlying lawsuit, because coverage was
excluded under the CGL policy’s contractual liability exclusion.
      The first issue is the scope of the contractual liability exclusion, and
whether that exclusion applies to exclude coverage for defense costs of the claims
asserted by Ewing’s principal against Ewing, particularly those sounding in
contract for breach of expressed and implied warranties, including breach of the
warranty of workmanlike service.
      In 2007, on certification from this court, the Texas Supreme Court ruled
in Lamar Homes that allegations of construction defects may constitute an
“accident” or “occurrence” under a CGL policy. Lamar Homes, Inc. v. Mid-
Continent Casualty Co., 242 S.W.3d 1, 4 (Tex. 2007). This rule was reiterated
in Pine Oak Builders, Inc. v. Great American Lloyds Insurance Company, 279
S.W.3d 650, 652 654-55 (Tex. 2009) (“[A] claim of faulty workmanship against
a homebuilder [is] a claim for property damage caused by an occurrence under
a CGL policy.”) (excluding coverage under the “‘your work’ exclusion.”)
      In 2010, the Texas Supreme Court handed down Gilbert Texas
Construction, L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118 (Tex.
2010) (“Gilbert”). This case was the focus of the parties’ briefing on this issue

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                                        No. 11-40512

and the principal authority relied on by the district court. Uncertainty about the
application of Gilbert to the instant case ultimately triggered this certification.
       In Gilbert, the Dallas Area Rapid Transit Authority (Dallas Transit)
contracted with Gilbert, a construction company to construct a light rail system.
Id. at 121-22. The contract required Gilbert to protect the area surrounding its
work site, and included a promise by Gilbert to repair damage to the property
of third parties.5 Id. at 122. During construction, heavy rains caused flooding
in a building near the work site, and the third party building owner sued the
construction company under several theories. Id. Only one claim survived
summary judgment: the third party owner’s claim as a third party beneficiary
of the Gilbert contract against Gilbert based on Gilbert’s agreement to repair
damage to property of third parties. Gilbert’s primary insurer provided a
defense to Gilbert and Gilbert ultimately settled the claim. Gilbert then sought
indemnity from its excess insurer, and sued when the insurer denied coverage.
Id. The Texas Supreme Court held that the excess insurer had not breached its
insurance contract or violated Texas insurance law because the policy’s
contractual liability exclusion applied to exclude coverage. Id.
       The correct application of this Texas precedent to the facts before us is
unclear. On the one hand, the Gilbert court reasoned that the insured’s legal
obligation to the third-party building owner was based on its contract, and

      5
          Specifically, Paragraph 10(b) of the DART/Gilbert contract provided the following:

       b. The Contractor shall protect from damage all existing improvements and
       utilities (1) at or near the work site and (2) on adjacent property of a third party
       . . . [and] repair any damage to those facilities, including those that are the
       property of a third party, resulting from failure to comply with the
       requirements of this contract or failure to exercise reasonable care in
       performing the work. If the Contractor fails or refuses to repair the damage
       promptly, [DART] may have the necessary work performed and charge the cost
       to the Contractor.

Gilbert, 327 S.W.3d at 122.

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therefore the exclusion applied by its plain meaning. Id. at 126-27. The court
expressly rejected a technical meaning given to the exclusion in other
jurisdictions—that “assumption of liability” means only the assumption of
liability of another, as in a hold-harmless indemnity agreement—insisting that
in Texas the exclusion “means what it says. It applies when the insured
assumes liability for . . . property damages by means of contract.” Id. at 131-32.
        The School District’s complaint in the underlying lawsuit in this case
alleges liability based on contract; it alleges that the insured, Ewing, assumed
contractual liability arising from Ewing’s express and implied promises to
complete the contract in a good, workmanlike manner. Thus, if Gilbert should
be read as holding that the exclusion applies if the insured’s liability is
predicated on express or implied warranties in a construction contract, the
contractual liability exclusion excludes coverage for the claims in the instant
case.
        On the other hand, the liability of the contractor in Gilbert was not based
on its express or implied obligation to perform its construction contract in a
workmanlike manner.        Rather, in Paragraph 10(b) the construction contract
contained an express assumption of liability for damage to third party property;
Gilbert promised to pay for or repair these damages, and if it failed to do so, the
contract authorized DART to have the necessary work performed and charge the
cost to Gilbert. The question in Gilbert was whether the obligation undertaken
in this paragraph fell within the contractual liability exclusion. The insured
argued that the exclusion did not apply because the exclusion only applied in the
“limited situation in which the insured has assumed the liability of another such
as in a hold harmless or indemnity agreement.” Id. at 125 (emphasis in
original).    The Gilbert court rejected this argument and accepted the
underwriter’s argument that if the policy was designed to only exclude
assumption of liability of third persons, it would have said so. The Gilbert court

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                                  No. 11-40512

concluded that the express obligation undertaken by Gilbert amounted to “an
assumption of liability in a contract.”
      In Ewing’s contract with the school district, there is no similar
undertaking in excess of the undertaking common to all contracts, so if Gilbert
requires such additional undertakings to trigger the contractual liability
exclusion, the exclusion does not apply here. If the exclusion does apply, then
the parties have also raised the question of whether an exception to the
exclusion applies for “liability that would exist in the absence of contract.” We
conclude that this question, too, presents a disputed and important question of
Texas law.
      Finally, both sides argue that their interpretation of Gilbert better
advances the goals of Texas insurance law and is more compatible with the
structure of the CGL. As their arguments reveal, this case could have a
significant impact on an important area of Texas insurance law and both parties
have urged us to certify these questions to the Texas Supreme Court. Where
state law governs an issue, such policy factors are better gauged by the state
high court than by a federal court on an Erie guess.
                             IV. Questions Certified
      For the reasons discussed above, we hereby certify the following
determinative questions of Texas law to the Supreme Court of Texas.

      1. 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.

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                                  No. 11-40512

      2. If the answer to question one is “Yes” and the contractual
      liability exclusion is triggered, do the allegations in the
      underlying lawsuit alleging that the contractor violated its
      common law duty to perform the contract in a careful,
      workmanlike, and non-negligent manner fall within the
      exception to the contractual liability exclusion for “liability that
      would exist in the absence of contract.”

We disclaim any intention or desire that the Supreme Court of Texas confine its
reply to the precise form or scope of the questions certified.

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