The Court accepted a certified question from the Fifth Circuit about Commercial General Liability (CGL) insurance policies:

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.

The Court answered no.

The dispute here is whether the insurance covers certain legal claims being made against the contractor, such that the insurer will pay for a defense or ultimately pay the claims. Reading the policy is a study in double negatives. The Court focuses on an exclusion which is, in turn, limited by an exception. The exclusion is for certain contract claims, including those one is “obligated to pay … by reason of the assumption of liability in a contract or agreement.” The exception carved out of that exclusion is for obligations they insured would have owed regardless of the contract or those specified in an “insured contract.”

Applying the framework from GILBERT TEXAS CONSTRUCTION, L.P. v. UNDERWRITERS AT LLOYD'S LONDON, No. 08-0246, the Court held that a provision in which a contractor promised to do work “in a good and workmanlike manner” did not trigger the exclusion at all (and thus need not fit into an exception). That is because the language “did not add anything to the obligation [the contractor] has under general law to comply with the contract’s terms and to exercise ordinary care in doing so.” Thus, the insurer could not invoke this exclusion to deny coverage.

With this issue of Texas law resolved, the case returns to the Fifth Circuit.