Doug Crownover v. Mid-Continent Casualty Co
757 F.3d 200
5th Cir.2014Background
- In 2001 Arrow Development contracted to build a house for Doug and Karen Crownover; the contract included an express warranty-to-repair clause requiring Arrow to “promptly correct work . . . failing to conform to the requirements of the Contract Documents.”
- After completion, the house developed foundation cracks and HVAC leaks; the Crownovers paid substantial sums to repair damage and pursued Arrow for breach of contract in arbitration.
- The arbitrator awarded damages to the Crownovers based solely on Arrow’s breach of the express repair warranty (paragraph 23.1); other theories were not decided.
- Arrow later filed bankruptcy, limiting the Crownovers’ recovery to available insurance proceeds; they sued Arrow’s insurer, Mid-Continent, seeking indemnity under Arrow’s CGL policies.
- Mid-Continent denied coverage relying principally on a contractual-liability exclusion in the CGL policy; the district court granted summary judgment for Mid-Continent, and the Fifth Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the contractual-liability exclusion bars coverage for Arrow’s arbitration liability | Crownovers: arbitration award reflects breach of (or at least overlaps with) a workmanship warranty that exists under Texas law, so exclusion shouldn’t apply | Mid-Continent: arbitrator awarded damages only for breach of the contractually assumed repair warranty (paragraph 23.1), so exclusion applies | Held: Exclusion applies because liability flowed from Arrow’s contractually assumed obligation to repair nonconforming work |
| Whether the exception to the exclusion (liability that would exist absent the contract) restores coverage | Crownovers: insurer must look beyond the arbitration award; Arrow would have been liable under the implied warranty of workmanship (longer statute of limitations) so liability exists independent of contract | Mid-Continent: duty to indemnify is determined by adjudicated liability; arbitrator awarded only contract-based liability, so exception does not apply | Held: Exception does not apply; duty to indemnify arises from adjudicated liability, and only contract-based breach was adjudicated |
| Whether the express workmanship warranty in the contract is superseded by any implied warranty | Crownovers: express warranty of workmanship (paragraph 14.4) is equivalent to the implied warranty, so Arrow had common-law liability too | Mid-Continent: express repair clause (23.1) was the basis for liability; implied warranty was superseded by the parties’ agreement or not adjudicated | Held: Express warranty can supersede the implied warranty; the arbitrator’s award was based on paragraph 23.1 and did not establish separate common-law liability |
| Whether the district court erred by deciding implied-warranty issues sua sponte or by not allowing additional briefing | Crownovers: district court relied on implied-warranty analysis not raised by Mid-Continent and denied opportunity to respond | Mid-Continent: implied-warranty issues were litigated in briefing; summary judgment was properly decided on the record | Held: No reversible error; parties had briefed the issue and any procedural error would be harmless |
Key Cases Cited
- Gilbert Texas Construction, L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118 (Tex. 2010) (explains contractual-liability exclusion: exclusion applies when insured assumes liability in contract that exceeds liability under general law)
- Ewing Construction Co. v. Amerisure Insurance Co., 420 S.W.3d 30 (Tex. 2014) (holds that a contractor’s promise to perform in a good and workmanlike manner, without more, does not enlarge common-law duties and does not trigger the exclusion)
- Hartrick v. Great American Lloyds Insurance Co., 62 S.W.3d 270 (Tex. Ct. App. 2001) (duty to indemnify arises from proven, adjudicated facts)