The Texas Supreme Court issued a key ruling Friday that should boost consumer confidence in the liability insurance coverage that builders and general contractors carry.
Writing for the court, Justice Phil Johnson denied an insurance company's attempt to avoid paying a claim based on language found in most commercial general liability insurance policies. The court's decision was one of the most anticipated insurance cases in the country because Texas decisions often influence other courts across the nation, said Randy Maniloff, an insurance law expert at the White and Williams law firm in Philadelphia.
If the Texas Supreme Court had ruled in favor of the insurance company, coverage of construction mistakes in Texas would have virtually disappeared.
"Many contractors don't have the wherewithal to make good on their construction defects, so a lot of times insurance is the make-or-break issue for purposes of somebody getting compensation," Maniloff said. "This decision helps homeowners keep that insurance in place."
Most general liability policies have a clause that allows the insurance company to exclude liability claims when a contractor assumes liability "in a contract or agreement." Insurance companies often require contractors to buy additional coverage when they take on greater risk.