Underwriters at Lloyd's of London v. Gilbert Texas Constr., 245 S.W.3d 29 (Tex. App.-- Dallas 2007, pet. filed May 7, 2008)
This decision appears to jump the tracks when analyzing the effect of a common CGL policy exclusion for "liability assumed in a contract." Everyone in the case, Lloyd's, the court, even the insured, appear to agree that the exclusion applies in this case (the insured tries to rely on exceptions to the exclusion), but I think they all misunderstand what it is that is excluded. So it is worth a look.
Gilbert contracted with the Dallas Area Rapid Transit Authority, a state agency, to help construct a commuter rail system. Gilbert allegedly breached some of its duties under the contract prompting an adjacent landowner to sue DART and Gilbert. Gilbert's primary insurer defended it, and Gilbert was able to get all of the tort allegations case dismissed under governmental immunity, leaving only breach of contract claims (apparently, the plaintiff landowner asserted that it was a third-party beneficiary under the DART contract). Gilbert then settled the breach of contract claims.
It is unclear at this point what happened to Gilbert's primary insurer, but Gilbert's excess insurer, Lloyd's, denied a demand to pay the settlement based on the "assumed liability exclusion" (Lloyd's denial letter also asserted a separate breach of contract exclusion, but that defense is never mentioned in the decision). Most CGL policies contain this provision that excludes damages which the insured is obligated to pay "by reason of the assumption of liability in a contract or agreement." Since Gilbert was sued for failing to perform duties it had assumed in the contract, the parties agreed that this exclusion applied and went on to other issues. But they all appear to misread the exclusion.
It is not an "assumption of duties" exclusion; it excludes "liabilities" assumed by contract. When I agree to dig a ditch and protect nearby structures in doing so, I undertake contract duties. If I breach those duties, I may be liable to the parties or beneficiaries of the contract, but that is not what the "assumption of liability" exclusion is about. To assume liability means that I agree to indemnify and hold someone harmless from legal liability to third parties. The Gilbert Court converts the "assumption of liability" exclusion into a "breach of contract" exclusion, which is a different animal.
It is now clear that a breach of contract lawsuit may be covered by a CGL policy. (Lamar Homes, Inc. v. Mid-Continent Cas. Co., 239 S.W.3d 236 (Tex. 2007), discussed at Lamar Homes Decision). Therefore, the mere fact that all tort claims against Gilbert were dismissed does not mean the contract claims do not fall with coverage, and nothing is said about Gilbert's agreements to assume the liability of anyone else.
This case does not implicate the "assumption of liability" exclusion.
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