Sometimes, and Texas law is more favorable to contractors here than many people assume. Since Lamar Homes in 2007, the Texas Supreme Court has held that unintended construction defects can be an "occurrence" that causes "property damage" under a standard commercial general liability (CGL) policy, which can trigger the insurer's duty to defend. Whether a claim is ultimately paid depends on the exclusions, the timing of the damage, who did the work and which endorsements are on your policy.
Faulty workmanship claims are one of the most common lawsuits a Texas contractor will see, and one of the most misunderstood coverage questions. Below is what the two leading Texas Supreme Court decisions actually say, which policy exclusions decide most of these claims, and the endorsement that can quietly take much of this coverage away.
A couple bought a new home from Lamar Homes and, several years later, found foundation problems that cracked the sheetrock and stone veneer. They sued the builder and its subcontractor. The builder's CGL insurer refused to defend, arguing that a contractor's own defective work is a contract problem, not an accident.
On August 31, 2007, the Texas Supreme Court disagreed. It held that allegations of unintended construction defects may constitute an "accident" or "occurrence" under a CGL policy, and that allegations of damage to or loss of use of the home itself may constitute "property damage" sufficient to trigger the duty to defend (Lamar Homes, Inc. v. Mid-Continent Casualty Co., 242 S.W.3d 1). Three points from the opinion matter most for contractors:
The court did not decide whether the insurer had to pay a judgment. It said the duty to indemnify depends on proof at trial. It also held that the Texas prompt payment statute can apply when an insurer wrongfully refuses to defend.
The CGL policy defines property damage as physical injury to tangible property, including resulting loss of use, and loss of use of tangible property that is not physically injured. The Lamar Homes court gave two examples of faulty work that falls outside that definition or outside the insuring agreement:
Three exclusions in the standard ISO CGL form do most of the work. The Lamar Homes opinion quotes each one:
That last sentence is the subcontractor exception, and it is the reason a general contractor's completed operations coverage is worth so much. The court explained that ISO built this exception into the standard CGL form in 1986, which meant property damage caused by a subcontractor's defective work was specifically contemplated as covered. The court's own example: a completed home damaged by faulty plumbing or electrical work done by a subcontractor.
No, not by itself. Insurers also tried to use the CGL's contractual liability exclusion, which excludes damages the insured is obligated to pay because it assumed liability in a contract. The argument was that a contractor who promises to build in a "good and workmanlike manner" has assumed liability for its own defective work.
In Ewing Construction Co. v. Amerisure Insurance Co., a general contractor built tennis courts for a Corpus Christi school district, and the courts began flaking, crumbling and cracking. The Texas Supreme Court was asked whether a contractor that agrees to perform in a good and workmanlike manner, "without more specific provisions enlarging this obligation," assumes liability that triggers the exclusion. On January 17, 2014, it answered no (Ewing, 420 S.W.3d 30). The Fifth Circuit then vacated the insurer's win and sent the case back (Fifth Circuit order, Feb. 26, 2014).
Notice the phrase "without more." Contracts that add broader guarantees, warranties or indemnity promises are a different conversation, and those clauses deserve a coverage review before you sign.
The Lamar Homes court noted that ISO had issued an endorsement that eliminates the subcontractor exception. That endorsement is CG 22 94 10 01, Exclusion: Damage to Work Performed by Subcontractors on Your Behalf. A February 2026 decision from West Virginia's intermediate appellate court describes it plainly: it removes the subcontractor exception entirely and excludes property damage to any part of "your work," even if a subcontractor performed it (Next Insurance, Inc. v. Mullins).
That same policy also carried a carrier-specific endorsement that conditioned coverage for subcontracted work on a written subcontract and a certificate naming the contractor as an additional insured. Because neither condition was met, the court found no coverage. West Virginia law does not control a Texas policy, but carrier endorsements like these can appear on any contractor's policy, so the forms list matters as much as the limits on the declarations page.
If you are in a specialty trade, our post on what insurance HVAC, plumbing and electrical contractors need covers the rest of the program.
Often not. Exclusions j(5), j(6) and l are designed to keep the cost of fixing your own defective work out of the policy. Damage that defective work causes, especially work done by a subcontractor, is where coverage most often applies.
The policy defines it as an accident, including continuous or repeated exposure to the same harmful conditions. Under Lamar Homes, a deliberate act performed negligently can be an accident if the resulting damage was not intended or expected.
Not for the duty to defend. The Texas Supreme Court said the CGL policy does not distinguish between tort and contract claims.
It is the sentence in exclusion l that restores coverage for damage to completed work when the damaged work, or the work that caused the damage, was performed by a subcontractor.
Check the schedule of forms and endorsements on your policy. If you cannot find it, ask your agent for a forms list.
The duty to defend is decided by comparing the lawsuit's allegations to the policy, and Texas courts resolve doubts about the duty to defend in the insured's favor, as the court restated in Ewing.
Send us your current policy and forms list, and we will show you how your completed operations coverage is actually built. Call 830-303-8300 or visit our contractor insurance page.