Ewing Constr. Co. v. Amerisure Ins. Co.

• Decision Date: 08 August 2012
• Docket Number: No. 11–40512.,11–40512.
• Citation: 690 F.3d 628
• Parties: EWING CONSTRUCTION COMPANY, INCORPORATED, Plaintiff–Appellant, v. AMERISURE INSURANCE COMPANY, Defendant–Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

690 F.3d 628

EWING CONSTRUCTION COMPANY, INCORPORATED, Plaintiff–Appellant,

v.AMERISURE INSURANCE COMPANY, Defendant–Appellee.

No. 11–40512.

United States Court of Appeals, Fifth Circuit.

Aug. 8, 2012.

Lee Howard Shidlofsky (argued), Douglas Paul Skelley, Shidlofsky Law Firm, P.L.L.C., Austin, TX, for Plaintiff–Appellant.

Richard Brent Cooper (argued), Diana L. Faust, Michelle Elaine Robberson, Cooper & Scully, P.C., Dallas, TX, for Defendant–Appellee.

Patrick J. Wielinski, Rene Pinson, Cokinos, Bosien & Young, P.C., Irving, TX, for Texas Bldg. Branch of the Associated General Contractors of America, Associated General Contractors of America, American Subcontractors Ass'n Inc., ASA of Texas, Inc., Texo—The Construction Ass'n, Associated General Contractors—Houston Chapter, Associated Builders and Contractors of Texas, Amici Curiae.

J. James Cooper, Gardere Wynne Sewell, L.L.P., Houston, TX, for Texas Ass'n of Builders, and Nat. Ass'n of Home Builders, Amici Curiae.

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.

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, 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 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.

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., 684 F.3d 512 (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 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.⁵Id. 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 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...