IN THE SUPREME COURT OF TEXAS
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NO. 12-0661
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EWING CONSTRUCTION COMPANY, INCORPORATED, PETITIONER,
v.
AMERISURE INSURANCE COMPANY, RESPONDENT
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ON CERTIFIED QUESTION FROM THE
COURT OF APPEALS FOR THE FIFTH CIRCUIT
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Argued February 27, 2013
JUSTICE JOHNSON delivered the opinion of the Court.
This case comes to us from the United States Court of Appeals for the Fifth Circuit on
certified questions. The controversy centers on the contractual liability exclusion in a Commercial
General Liability (CGL) insurance policy. The certified questions are:
1. 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.
2. If the answer to question one is “Yes” and the contractual liability exclusion is
triggered, do the allegations in the underlying lawsuit alleging that the contractor
violated its common law duty to perform the contract in a careful, workmanlike, and
non-negligent manner fall within the exception to the contractual liability exclusion
for “liability that would exist in the absence of contract.”
Ewing Constr. Co. v. Amerisure Ins. Co., 690 F.3d 628, 633 (5th Cir. 2012). We answer the first
question “no” and do not answer the second.
I. Background
In 2008, Ewing Construction Company, Inc. (Ewing) entered into a standard American
Institute of Architects contract with Tuluso-Midway Independent School District (TMISD) to serve
as general contractor to renovate and build additions to a school in Corpus Christi, including
constructing tennis courts. Shortly after construction of the tennis courts was completed, TMISD
complained that the courts started flaking, crumbling, and cracking, rendering them unusable for
their intended purpose of hosting competitive tennis events. TMISD filed suit in Texas state court
against Ewing and others1 (the underlying suit). Its damage claims against Ewing were based on
faulty construction of the courts and its theories of liability were breach of contract and negligence.2
1
TMISD sued LaMarr Womack Associates, as design architects; Jaster-Quintanilla San Antonio, L.L.P., as
structural engineer; Ewing as construction contractor; and Liberty Mutual Insurance Company and Liberty Mutual
Insurance Group (collectively, Liberty Mutual) as issuer of a performance bond conditioned on Ewing’s “faithful
performance of the work in accordance with the plans, specifications, and contract documents.” Specifically, its pending
claims against Liberty Mutual in the underlying suit are as follows:
Defendant Ewing has not performed the work using ordinary care and has not performed the work in
accordance with the plans, specifications, and contract documents and has breached its contract,
resulting in damage to Plaintiff. Therefore Plaintiff is entitled to call upon Liberty Mutual Insurance
Company, and, alternatively, Liberty Mutual Group, [I]nc., for payment of all sums for which
Defendant Ewing has liability to Plaintiff, (including all damages, costs and fees), growing out of the
non-performance of the work under the contract in question. Plaintiff seeks recovery from the Liberty
Mutual Defendants all sums claimed against Ewing Construction Company in this Petition.
2
TMISD first sued Ewing for violation of the Texas Deceptive Trade Practices Act, see TEX. BUS. & COM.
CODE §§ 17.01–.926, and common law misrepresentation in addition to its breach of contract and negligence claims.
It omitted those claims in amended pleadings.
2
Ewing tendered defense of the underlying suit to Amerisure Insurance Company, its insurer
under a commercial package policy that included CGL coverage. Amerisure denied coverage,3
prompting Ewing to file suit in the U.S. District Court for the Southern District of Texas. There,
Ewing sought a declaration that Amerisure had, and breached, duties to defend Ewing and indemnify
it for any damages awarded to TMISD in the underlying suit. Based on its claims that Amerisure
had those duties and breached them, Ewing also sought relief under Chapter 542 of the Texas
Insurance Code (the Prompt Payment of Claims Act) and attorney’s fees. Amerisure answered and
counterclaimed, seeking a declaration that it owed Ewing neither a duty to defend nor a duty to
indemnify. Amerisure did not deny that Ewing established coverage under the policy’s insuring
agreements; rather, it urged that policy exclusions, including the contractual liability exclusion,
precluded coverage and negated its duties to defend and indemnify. On cross motions for summary
judgment, the district court denied Ewing’s motion, granted Amerisure’s motion based on the
contractual liability exclusion, and entered a final judgment dismissing the entire case.
The district court’s analysis relied in large part on Gilbert Texas Construction, L.P. v.
Underwriters at Lloyd’s London, 327 S.W.3d 118 (Tex. 2010), in which this Court interpreted the
contractual liability exclusion in a CGL policy. Ewing Constr. Co. v. Amerisure Ins. Co., 814
F. Supp.2d 739, 746-48 (S.D. Tex. 2011). The district court determined that Gilbert “stands for the
proposition that the contractual liability exclusion applies when an insured has entered into a
contract and, by doing so, has assumed liability for its own performance under that contract.” Id.
3
Although the certified questions reference only the contractual liability exclusion, Amerisure asserts that it
reserved its rights as to and refused to defend on the basis of several exclusions.
3
at 747. The court concluded that TMISD’s pleadings showed Ewing assumed liability for its own
construction work pursuant to the contract such that it would be liable for failing to perform under
the contract if the work was deficient. Id. The court concluded that the CGL policy’s contractual
liability exclusion applied to exclude coverage. Id. at 747-48. The court further held that the
exception to the exclusion was not applicable because TMISD’s claims against Ewing sounded only
in contract, not tort, and did not entail liability for damages “the insured would have in the absence
of the contract.” Id. at 752. The court concluded that Amerisure had no duty to either defend or
indemnify TMISD in the underlying suit. Id. at 752-53.
On appeal, the Fifth Circuit, in a 2-1 opinion, initially affirmed the district court’s judgment
on the duty to defend but vacated and remanded with respect to the duty to indemnify and the related
Prompt Payment of Claims Act issue to await the results of the underlying suit. Ewing Constr. Co.
v. Amerisure Ins. Co., 684 F.3d 512 (5th Cir. 2012), withdrawn by, 690 F.3d 628 (5th Cir. 2012).
Ewing petitioned for rehearing, and the Fifth Circuit withdrew its opinion and certified the above
questions to this Court. Ewing Constr. Co., 690 F.3d at 633.4
Under its CGL policy, Amerisure assumed two duties, subject to the policy terms,
limitations, and exclusions: (1) the duty to defend suits seeking damages from Ewing for an event
potentially covered by the policy, and (2) the duty to indemnify Ewing by paying covered claims
and judgments against it. See D.R. Horton-Tex., Ltd. v. Markel Int’l Ins. Co., 300 S.W.3d 740, 743
(Tex. 2009). We have characterized these two duties as “distinct and separate” in that one may exist
4
We have jurisdiction under Article 5 of the Texas Constitution and TEX. R. APP. P. 58.1.
4
without the other. Id. (quoting Utica Nat’l Ins. Co. v. Am. Indem. Co., 141 S.W.3d 198, 203 (Tex.
2004)). We first consider the duty to defend.
II. Duty to Defend
A. Standard of Review and Burden of Proof
Texas courts follow the eight corners rule in determining an insurer’s duty to defend.
Evanston Ins. Co. v. Legacy of Life, Inc., 370 S.W.3d 377, 380 (Tex. 2012). Under that rule, courts
look to the facts alleged within the four corners of the pleadings, measure them against the language
within the four corners of the insurance policy, and determine if the facts alleged present a matter
that could potentially be covered by the insurance policy. Id. The factual allegations are considered
without regard to their truth or falsity and all doubts regarding the duty to defend are resolved in the
insured’s favor. Zurich Am. Ins. Co. v. Nokia, Inc., 268 S.W.3d 487, 491 (Tex. 2008). In reviewing
the pleadings and making the foregoing determinations, courts look to the factual allegations
showing the origin of the damages claimed, not to the legal theories or conclusions alleged. See
Evanston, 370 S.W.3d at 380; Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. Merchs. Fast Motor
Lines, Inc., 939 S.W.2d 139, 141 (Tex. 1997) (per curiam).
The insured has the initial burden to establish coverage under the policy. Gilbert, 327
S.W.3d at 124. If it does so, then to avoid liability the insurer must prove one of the policy’s
exclusions applies. Id. If the insurer proves that an exclusion applies, the burden shifts back to the
insured to establish that an exception to the exclusion restores coverage. Id.
5
B. The Underlying Suit and the Exclusion
The relevant allegations in TMISD’s live pleading in the underlying suit are as follows.
Ewing contracted with TMISD to build tennis courts and Ewing subcontracted all or part of the
construction work. Shortly after construction was completed, “[s]erious tennis court cracking and
flaking problems began . . . and have continued since. Chunks of the court surfaces are coming
loose. Flaking, crumbling, and cracking make the courts unusable for their intended purpose,
competitive tennis events.” With respect to Ewing, TMISD claims damages on both contractual and
negligence theories of liability:
20. Defendant Ewing Construction has breached its contractual commitments,
proximately causing damages to Plaintiff. On information and belief, Plaintiff says
that Defendant Ewing and/or its subcontractors breached its contract in the following
respects:
a) Failing to complete construction in accordance with the contract
plans and specifications;
b) Failing to exercise ordinary care in the preparation, management and
execution of construction;
c) Failing to perform in a good and workmanlike manner; and
d) Failing to properly retain and supervise subcontractors.
21. Furthermore, Defendant Ewing Construction and/or its subcontractors was/were
guilty of negligence proximately causing damages to Plaintiff in the following
respects:
a) Failing to properly prepare for and manage the construction;
b) Failing to properly retain and oversee subcontractors;
c) Failing to perform in a good and workmanlike manner; and
d) Failing to properly carry out the construction so that it was completed
in accordance with the plans and specifications.
TMISD further generally alleges that Ewing was negligent by breaching its duty to use ordinary care
in the performance of its contract.
6
Amerisure’s policy provides that the insurance applies to
“bodily injury” and “property damage” only if: (1) The “bodily injury” or “property
damage” is caused by an “occurrence” that takes place in the “coverage territory”;
[and] (2) The “bodily injury” or “property damage” occurs during the policy period
....
Exclusion 2(b)—the contractual liability exclusion—and its exceptions are as follows:
2. Exclusions
This insurance does not apply to:
...
b. Contractual Liability
“Bodily injury” or “property damage” for which the insured is obligated to pay
damages by reason of the assumption of liability in a contract or agreement. This
exclusion does not apply to liability for damages:
(1) That the insured would have in the absence of the contract or agreement; or
(2) Assumed in a contract or agreement that is an “insured contract” . . . .
Amerisure does not dispute that the alleged defects in the tennis courts occurred during the policy
period and constitute “property damage” caused by an “occurrence” within the scope of the policy’s
insuring agreement.
In Gilbert this Court interpreted a CGL policy’s contractual liability exclusion and exception
that were substantively the same as those in Amerisure’s policy. There, the dispute concerned
whether the insurer was obligated to indemnify its insured. We held that under the facts in that case
there was no coverage because the exclusion applied and the exception did not. Gilbert, 327 S.W.3d
at 121. Although this case involves both duties to defend and to indemnify, Gilbert’s interpretation
of the contractual liability exclusion guides our determination.
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C. Gilbert
In Gilbert we addressed: (1) whether a CGL policy’s contractual liability exclusion applied
to exclude indemnity coverage for a third party’s property damage claim where the only basis
underlying the claim was the insured’s contractual agreement to be responsible for the damage, and
(2) if the exclusion applied, whether an exception to the exclusion operated to restore coverage. Id.
The underlying suit in Gilbert involved an agreement for Gilbert Texas Construction, L.P., as
general contractor, to build a light rail system for the Dallas Area Rapid Transit Authority (DART).
Id. at 121-22. The contract between DART and Gilbert required Gilbert to protect adjacent property
and to repair or pay for damage to any such property resulting from either (1) a failure to comply
with the requirements of the contract, or (2) a failure to exercise reasonable care in performing the
work.5 During construction, heavy rain caused flooding to a building adjacent to the work site. The
building’s owner, RTR, sued Gilbert and others alleging various theories of liability including
statutory violations, tort, and breach of contract as a third-party beneficiary of Gilbert’s contract with
DART. Id. Gilbert tendered defense of the underlying suit to its CGL insurers, but Underwriters,
its excess carrier, refused to defend. Id. at 122-23. Gilbert asserted sovereign immunity as a defense
in the underlying suit and the trial court granted summary judgment dismissing all RTR’s claims
except for the breach of contract claim. Id. at 123. Gilbert later settled the breach of contract claim
5
Provision 10(b) of the contract was as follows:
b. The Contractor shall protect from damage all existing improvements and utilities (1) at or near the
work site and (2) on adjacent property of a third party . . . [and] repair any damage to those facilities,
including those that are the property of a third party, resulting from failure to comply with the
requirements of this contract or failure to exercise reasonable care in performing the work. If the
Contractor fails or refuses to repair the damage promptly, [DART] may have the necessary work
performed and charge the cost to the Contractor.
8
and sought indemnity from Underwriters. Id. Underwriters claimed that the policy’s contractual
liability exclusion applied and the breach of contract claim was excluded from coverage. Id.
On appeal, Gilbert argued that the contractual liability exclusion applied only in the limited
situation in which the insured “assumes another’s liability,” such as that assumed in indemnity or
hold-harmless agreements. Id. at 128 (emphasis added). We disagreed, noting that “had it been
intended to be so narrow as to apply only to an agreement in which the insured assumes liability of
another party by an indemnity or hold-harmless agreement, it would have been simple to have said
so.” Id. at 127.
We analyzed the exclusion by first addressing the terms in the policy: the commonly
understood meaning of the term “assume” is to “undertake” and that of “liability” is “[t]he quality
or state of being legally obligated or accountable.” Id. With those terms in mind, we examined the
specific facts, circumstances, and obligations in the underlying suit to determine whether the
exclusion applied. Id.
Gilbert owed RTR a duty under general law to conduct its construction operations with
ordinary care so as not to damage RTR’s property. Id. In Gilbert’s contract with DART, though,
it undertook a specific contractual obligation to repair or pay for damage to third-party property
resulting from either (1) a failure to comply with the requirements of the contract, or (2) a failure
to exercise reasonable care in performing the work. Id.; see n.5, supra. The second obligation—to
exercise reasonable care—mirrored Gilbert’s duty under general law principles that would have
made it liable for damages it negligently caused RTR. Gilbert, 327 S.W.3d at 127. Thus, because
Gilbert’s contractual liability for damages to RTR for failing to exercise ordinary care in performing
9
its work would not have differed from its liability for damages to RTR under general principles of
law–such as negligence–Gilbert did not assume liability for damages in its contract under the second
obligation sufficient to trigger the policy’s contractual liability exclusion. See id.
But the first obligation Gilbert assumed—to repair or pay for damage to property of third
parties such as RTR “resulting from a failure to comply with the requirements of this contract”—
extended “beyond Gilbert’s obligations under general law.” Id. (emphasis added). Thus, we held
that RTR’s breach of contract claim “was founded on an obligation or liability contractually
assumed by Gilbert within the meaning of the policy exclusion.” Id. In other words, Gilbert did not
contractually assume liability for damages within the meaning of the policy exclusion unless the
liability for damages it contractually assumed was greater than the liability it would have had under
general law–in Gilbert’s case, negligence. We then considered whether the exception to the
exclusion brought Gilbert’s liability to RTR back into coverage. Id. at 133-35. In doing so we
recognized that the case involved “unusual circumstances” because Gilbert ordinarily could have
been liable in tort for damages to RTR absent its contract, but under the facts of the case, the only
basis for Gilbert’s liability to RTR was RTR’s claim for Gilbert’s breach of the contract with DART.
Id. We held that the exception was inapplicable because Gilbert’s only liability for damages was
for breach of contract. Id. at 135. Because the exclusion applied and the exception did not, there
was no coverage. Id.
With these principles from Gilbert in mind, we turn to the coverage dispute between Ewing
and Amerisure.
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D. Contractual Liability Exclusion
The contractual liability exclusion in Amerisure’s policy excludes claims for damages based
on an insured’s contractual assumption of liability except for two instances: (1) where the insured’s
liability for damages would exist absent the contract, and (2) where the contract is an insured
contract. Amerisure references statements we made in Gilbert that the contractual liability exclusion
“means what it says: it excludes claims when the insured assumes liability for damages in a contract
or agreement, except when the contract is an insured contract or when the insured would be liable
absent the contract or agreement,” id., and argues that the exclusion applies because Ewing
contractually undertook the obligation to construct tennis courts in a good and workmanlike manner
and thereby assumed liability for damages if the construction did not meet that standard. Ewing, on
the other hand, argues, in part, that this case is distinguishable from Gilbert because Ewing’s
agreement to construct the courts in a good and workmanlike manner does not enlarge its obligations
beyond any general common–law duty it might have. That is, Ewing posits, its agreement to
construct the courts in a good and workmanlike manner did not add anything to the obligation it has
under general law to comply with the contract’s terms and to exercise ordinary care in doing so.
That being so, Ewing argues, its express agreement to perform the construction in a good and
workmanlike manner did not enlarge its obligations and was not an “assumption of liability” within
the meaning of the policy’s contractual liability exclusion.6 We agree with Ewing.
6
Three amicus briefs supporting Ewing’s position were submitted. The first was collectively submitted by the
Associated General Contractors of America; Texas Building Branch, Associated General Contractors of America; TEXO,
the Construction Association; Associated General Contractors, Houston Chapter; ABC of Texas; American
Subcontractors Association, Inc.; ASA of Texas, Inc. The second was submitted by the Texas Association of Builders
and the National Association of Home Builders. The third was collectively submitted by the Texas Apartment
Association, Inc; Texas Hospital Association; Texas Hotel & Lodging Association; Texas Automobile Dealers
11
As we said in Gilbert, the exclusion means what it says: it excludes liability for damages the
insured assumes by contract unless the exceptions bring the claim back into coverage. But we also
determined in Gilbert that “assumption of liability” means that the insured has assumed a liability
for damages that exceeds the liability it would have under general law. Id. at 127. Otherwise, the
words “assumption of liability” are meaningless and are surplusage. See Am. Family Mut. Ins. Co.
v. Am. Girl, Inc., 268 N.W.2d 65, 80-81 (Wis. 2004) (“The term ‘assumption’ must be interpreted
to add something to the phrase ‘assumption of liability in a contract or agreement.’ Reading the
phrase to apply to all liabilities sounding in contract renders the term ‘assumption’ superfluous.”).
And interpretations of contracts as a whole are favored so that none of the language in them is
rendered surplusage. E.g., J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 235 (Tex. 2003);
Liberty Mut. Ins. Co. v. American Employers Ins. Co., 556 S.W.2d 242, 245 (Tex. 1977).
TMISD’s allegations that Ewing failed to perform in a good and workmanlike manner are
substantively the same as its claims that Ewing negligently performed under the contract because
they contain the same factual allegations and alleged misconduct. We have defined “good and
workmanlike” as “that quality of work performed by one who has the knowledge, training, or
experience necessary for the successful practice of a trade or occupation and performed in a manner
generally considered proficient by those capable of judging such work.” Melody Home Mfg. Co.
v. Barnes, 741 S.W.2d 349, 354 (Tex. 1987) (discussing the implied warranty of good and
workmanlike quality of services in connection with the repair of tangible goods). Negligence means
Association, Inc; Texas Association of School Boards Legal Assistance Fund; Texas Organization of Rural &
Community Hospitals; International Council of Shopping Centers; Texas Community Association Advocates; Texas
Association of Counties; Texas Municipal League; and Texas Building Owners and Managers Association, Inc.
12
the failure to use ordinary care, that is, failing to do that which a reasonable person or provider of
the defendant’s type would have done under the same or similar circumstances. See 20801, Inc. v.
Parker, 249 S.W.3d 392, 398 (Tex. 2008). Based on these definitions, TMISD’s claims that Ewing
failed to perform in a good and workmanlike manner and its claims that Ewing negligently
performed under the contract are substantively the same. See Coulson v. Lake L.B.J. Mun. Util.
Dist., 734 S.W.2d 649, 651 (Tex. 1987) (“We are unable to discern any real difference between the
District’s claim that Coulson’s efforts were not good and workmanlike and did not meet the
standards of reasonable engineering practice and its claim that Coulson was negligent in his
performance of professional services.”). And as Ewing points out, it had a common law duty to
perform its contract with skill and care. Id. (“[T]he common law duty to perform with care and skill
accompanies every contract . . . .” (citing Montgomery Ward & Co. v. Scharrenbeck, 204 S.W.2d
508, 510 (Tex. 1947))); see Melody Home Mfg. Co., 741 S.W.2d at 354.7
Accordingly, we conclude that a general contractor who agrees to perform its construction
work in a good and workmanlike manner, without more, does not enlarge its duty to exercise
ordinary care in fulfilling its contract, thus it does not “assume liability” for damages arising out of
its defective work so as to trigger the Contractual Liability Exclusion. We answer the first question
“no” and, therefore, need not answer the second question.
E. Liability Policy or Performance Bond
7
We do not intend to disavow our prior holdings that when an injury is only to the subject matter of a contract,
an action will sound in contract alone. See Sw. Bell Tel. Co. v. Delanney, 809 S.W.2d 493, 494 (Tex. 1991) (“When the
only loss or damage is to the subject matter of the contract, the plaintiff’s action is ordinarily on the contract.”); Jim
Walter Homes, Inc. v. Reed, 711 S.W.2d 617, 618 (Tex. 1986) (“When the injury is only the economic loss to the subject
of a contract itself the action sounds in contract alone.”).
13
Although not necessary to our answer, we address one additional argument Amerisure
advances concerning the effect of our determination that the answer to question one is “no.”
Recognizing that in Lamar Homes, Inc. v. Mid-continent Casualty Co. 242 S.W.3d 1, 16
(Tex. 2007) we held that a claim for an insured’s faulty workmanship can be an “occurrence”
triggering coverage, Amerisure asserts that CGL policies are intended to protect an insured when
the insured damages another’s property, not to serve as a performance bond covering an insured’s
own work. And, if we find that the exclusion does not apply here, it further argues, CGL policies
will effectively be transformed into performance bonds. See Wilshire Ins. Co. v. RJT Constr.,
L.L.C., 581 F.3d 222, 226 (5th Cir. 2009).
We do not agree. Amerisure’s argument presumes there are not other policy exclusions and
coverage limitations to be considered. But, as we referenced above, in its brief Amerisure asserts
that it reserved its rights to deny coverage for more reasons than the contractual liability exclusion.
However, to address Amerisure’s claims directly, we note that in Lamar Homes we considered
whether allegations of defective construction or faulty workmanship that damaged only a general
contractor’s own work constituted an “occurrence” or “property damage” under a CGL policy’s
insuring agreement. 242 S.W.3d at 7. We ultimately concluded that “allegations of unintended
construction defects may constitute an ‘accident’ or ‘occurrence’ under the CGL policy and that
allegations of damage to or loss of use of the home itself may also constitute ‘property damage’
sufficient to trigger the duty to defend under a CGL policy.” Id. at 4. Or, as we later said in Gilbert:
“In Lamar Homes, we said a breach of contract can constitute an occurrence that causes property
14
damage, thus bringing some breach of contract claims within the general grant of coverage for
purposes of determining a duty to defend.” 327 S.W.3d at 132.
In Lamar Homes we focused on whether the underlying allegations for defective construction
or faulty workmanship fell within the broad coverage granted by the CGL policy’s insuring
agreement—not whether any of the policy’s exclusions applied to exclude coverage. 242 S.W.3d
at 10 (explaining that the insuring agreement grants the insured broad coverage, which is then
narrowed by the policy’s exclusions that operate to restrict and shape the coverage otherwise
afforded by the insuring agreement). We explained that “[m]ore often, however, faulty
workmanship will be excluded from coverage by specific exclusions because that is the CGL’s
structure.” Id. We mentioned some of the business risk exclusions in the policy having specific
application to the construction industry, but did not determine their applicability. Id. at 10-11.
Because the policy contains exclusions that may apply to exclude coverage in a case for breach of
contract due to faulty workmanship, our answer to the first certified question is not inconsistent with
the view that CGL policies are not performance bonds.
IV. Conclusion
We answer the first certified question “no” and do not answer the second.
________________________________________
Phil Johnson
Justice
OPINION DELIVERED: January 17, 2014
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