Gilbert Texas Construction, L.P. v. Underwriters at Lloyd's London
327 S.W.3d 118 | Texas Supreme Court | 2010
What This Case Means for Subcontractors
A general contractor was sued for breach of contract after water damage occurred during a construction project. The contractor's insurance company denied coverage using a contractual liability exclusion in the CGL policy. The Texas Supreme Court ruled that when a contractor's only liability comes from contractual promises made in a construction contract, the insurance exclusion applies and there is no coverage—even if the contractor tried to get indemnity from insurers.
Key Takeaways
- •CGL insurance policies specifically exclude coverage for damages you agreed to pay under a construction contract. This exclusion is enforceable and will likely be upheld in court.
- •The 'insured-contract exception' does not restore coverage when your liability is purely contractual. Review your policy's exceptions carefully—they may not help you.
- •Broad indemnification clauses in construction contracts can leave you uninsured. Negotiate insurance requirements and indemnity language before signing, and verify your policy covers contractual liability if needed.
The exclusion applies when the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement.
Frequently Asked Question
Will my general liability insurance cover me if I'm sued for breach of a construction contract?
Probably not. Most CGL policies have a contractual liability exclusion that bars coverage when your only liability comes from promises you made in a construction contract. The court in this case upheld that exclusion, so you cannot rely on standard CGL insurance to cover contractual breach claims. You may need separate contractual liability coverage or endorsements.
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