A storm may be a-brewing on the insurance coverage front. Recent case law from Texas indicates a shifting pattern in court decisions that could have disastrous consequences for insureds. Certain courts in Texas have interpreted the contractual liability exclusion in a general liability policy to preclude coverage when breach of contract is alleged in the underlying complaint.
This interpretation operates to preclude coverage for any insured that has agreed to perform work pursuant to a contract, when the litigation arises from the work described in the contract. Yes, you read that right if a contract exists between two parties under which one of them will perform certain work, and a dispute later relates to that work be it property damage, defective construction, etc. an insurer may not have an obligation to defend or indemnify its insured due to the contractual liability exclusion. Fortunately, to date, Connecticut law has rejected this interpretation; however, if this trend continues, it could create many problems for insureds.
