The Fifth Circuit Court of Appeals considered whether coverage existed for a defectively built tennis court in light of a contractual liability exclusion. Ewing Construction Company, Inc. v. Amerisure Ins. Co., 2012 U.S. App. LEXIS 12154 (5th Cir. June 15, 2012).
Ewing Construction Company entered a contract with the School District to construct tennis courts at a school. After completion, the School District complained that the courts were cracking and flaking, rendering them unfit for playing tennis. The School District filed suit, seeking damages for defective construction. It alleged that Ewing breached its contract and performed negligently.
Ewing tendered the underlying lawsuit to Amerisure. Amerisure denied coverage and Ewing filed suit. Amerisure relied upon an exclusion, which read:
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 . . .
The Fifth Circuit agreed there was no duty to defend under the exclusion. The School District's complaint reflected that Ewing assumed liability for defective construction by agreeing in a contract to complete a construction project, specifically to build tennis courts. The CGL policy's contractual liability exclusion excluded coverage here.
The court next considered whether the exception to the exclusion restored coverage. The court looked to the substance of the School District's petition to determine whether it alleged an action in contract, tort, or both. Ewing's contract with the School District was the source of its potential liability because Ewing's duty to construct usable tennis courts arose out of a contract. The exception, therefore did not apply and coverage remained excluded.
