Category Archives: Insurance

COURTS WILL NOT REWRITE YOUR POST-LOSS PROPERTY INSURANCE OBLIGATIONS

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In the preceding posting, I wrote about making sure you comply with your property insurance policy’s post-loss policy obligations.  By failing to comply, you can render your policy ineffective meaning you are forfeiting otherwise valid insurance coverage, which was the situation discussed in the preceding posting.  As an insured, you should never want this to occur!

In another case, discussed here, the property insurance policy had a preferred contractor endorsement.  This means that instead of paying the insured insurance proceeds, the insurer could perform the repairs with its preferred contractor.   Typically, the insured will pay a discount on their premium for this preferred contractor endorsement.  The insurer elected to move forward with the repairs based on the preferred contractor endorsement but the insured performed the repairs on his own and then sold the house.  By doing this, the appellate court held the insured rendered his policy ineffective by breaching his own policy (and failing to allow this post-loss obligation to take place).  The explicit terms of the policy allowed the insurer to perform the repairs instead of paying the insured insurance proceeds.  The court could NOT rewrite the post-loss obligations in the policy by requiring the insurer to pay insurance proceeds when the insurer, per the preferred contractor endorsement, elected to perform the repairs.

Your insurance policy is a contract and will be treated as a contract.  Please make decisions with this in mind and consult counsel before taking positions that may be violative of your own contract and render your policy ineffective.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

COMPLY WITH YOUR INSURANCE POLICY’S CONDITIONS PRECEDENT (POST-LOSS OBLIGATIONS)

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I am of the opinion that if your property insurer requests a sworn proof of loss, furnish one with the assistance of counsel (preferably).  Ignoring the insurer’s request or refusing to comply with insurer’s request is NOT value-added; it is simply placing you at a disadvantage based on the insurer’s argument that you, as the insured, materially breached the policy.  I generally find no value having to confront this expected argument.  Instead, I find value making an effort to comply with post-loss obligations including the insurer’s request to submit a sworn proof of loss.  Working with counsel can help you comply with post-loss obligations (conditions precedent) while not weakening the value or merits of your claim.

By way of example, in Edwards v. Safepoint Ins. Co., 46 Fla. L. Weekly D1086a (Fla. 4th DCA 2021), the insured did not provide its property insurer with the requested sworn proof of loss.  The insurer moved for summary judgment that the insured’s failure to submit the sworn proof of loss was a material breach of the policy that rendered the policy ineffective.   The trial court agreed and granted summary judgment.   The Fourth District Court of Appeal affirmed explaining “[a] total failure to comply with policy provisions made a prerequisite to suit under the policy may constitute a breach precluding recovery from the insurer as a matter of law.  If, however, the insured cooperates to some degree or provides an explanation for its noncompliance, a fact question is presented for resolution by a jury.” Edwards, supra, quoting Haiman v. Federal Ins. Co., 798 So.2d 811, 812 (Fla. 4th DCA 2001).

In Edwards, however, it was undisputed the insured failed to submit the sworn proof of loss.  Thus, there was a total failure to comply.  More so, the Fourth District held that under Rodrigo v. State Farm Florida Ins. Co., 144 So.3d 690 (Fla. 4th DCA 2014), “(1) an insurer need to show prejudice when the insured breaches a condition precedent to suit, (2) proof of loss is a condition precedent to the insured’s suit, and (3) the insurer did not waive the sworn proof of loss requirement by tendering payment because [i]nvestigating any loss or claim under any policy or engaging in negotiations looking toward a possible settlement of any such loss or claim does not constitute a waiver of a sworn proof of loss requirement.” Edwards, supra (internal quotations omitted).

Clearly, this is not the outcome that any insured wants.  But this outcome was due to the insured not complying with its post-loss obligation, or condition precedent to suit, that was requested by the insurer.  As you can see, not doing so was not value-added, it disadvantaged the insured to the point where its failure was deemed to render the policy ineffective to its detriment.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

BLINDLY RELYING ON PUBLIC ADJUSTER OR LOSS CONSULTANT’S FALSE ESTIMATE CAN PLAY OUT BADLY

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Insurance policies, particularly property insurance policies, have a concealment or fraud provision that, in essence, gives the insurer an out if the insured submits a fraudulent claim, a false claim, or conceals material facts.   Unlike a traditional fraud claim where a party needs to prove intent, the provision is broad enough that it does not require any intent behind making a false statement.  See Mezadieu v. Safepoint Ins. Co., 46 Fla.L.Weekly D691c (Fla. 4th DCA 2021).   For this reason, and as exemplified below, do NOT blindly rely on a public adjuster or loss consultant’s estimate that contains false statements because those false statements, particularly if you know they are false, can play out badly for you! Review the estimate and ask questions about it to make sure you understand what is being included in the loss or damages estimate.

In Mezadieu, a homeowner submitted a claim to her property insurance carrier due to a second-floor water leak emanating from her bathroom.  She submitted an estimate from her public adjuster that included damages for her kitchen cabinets directly below the second-floor bathroom, as well as other items on her first-floor.  Her carrier denied coverage based on the exclusion that the policy excludes damage caused by “[c]onstant or repeated seepage of water or steam…which occurs over a period of time.”

The homeowner filed a lawsuit against her property insurance carrier.  In interrogatory answers, she verified she was seeking the damages per the estimate prepared by her public adjuster.  During her deposition, she reiterated this point.  However, and this is a big however, she acknowledged that her public adjuster’s estimate contained false statements: “when asked if the reported leak caused damage to the kitchen cabinets, [she] disclosed that the cabinets had actually been damaged by a prior leak in the kitchen – a leak which [she] made a claim for with a different insurer – and the leak did not cause any damage to the kitchen cabinets.”  Mezadieu, supra.   Indeed, she conceded that her second-floor bathroom leak caused no damage to her kitchen and she did see any water damage on her first floor, although such damage was included in her public adjuster’s estimate.

The insurance carrier, after amending its affirmative defenses, moved for summary judgment based on the concealment or fraud provision which excluded coverage if an insured: “(1) Intentionally concealed or misrepresented any material fact or circumstance; (2) Engaged in fraudulent conduct; or (3) Made a false statement; relating to this insurance.” Mezadieu, supra.

The trial court granted summary judgment attributing the false statements to the homeowner “because she adopted the estimate as her own in both her sworn interrogatory answers and deposition testimony, and because [her adjuster] was acting as her agent.”  Mezadieu, supra.  The appellate court concurred because: (a) she adopted the estimate as her own statement; and (b) even if she did not intend to rely on false statements in her public adjuster’s estimate, the policy does not require that a false statement needs to be made with intent.  As the appellate court explained, and reinforcing why reviewing and asking questions about any estimate is a must:

[An] insured cannot blindly rely on and adopt an estimate prepared by his or her loss consultant without consequence.  This is not to say that an insured will always be bound by the representations made in an estimate prepared by his or her loss consultant. However, when an insured relied on or adopt an estimate containing material false statements to support his or her claim, the insured is bound by the estimate and cannot avoid application of the concealment or fraud simply because he or she did not prepare the estimate.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

 

DO NOT FORFEIT COVERAGE UNDER YOUR PROPERTY INSURANCE POLICY

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If you have read prior articles (see here and here as an example), then you know that when it comes to first-party property insurance policies, an insured must comply with post-loss obligations in the policy.  Failure to comply with a post-loss obligation gives the insurer the argument that the insured materially breached the policy and, therefore, forfeited rights to coverage.  Naturally, this is avoidable by ensuring post-loss obligations are complied with, ideally under the guidance of counsel and qualified public adjusters to ensure your rights are being preserved and maximized.

[W]hen an insurer has alleged, as an affirmative defense to coverage, and thereafter has subsequently established, that an insured has failed to substantially comply with a contractually mandated post-loss obligation, prejudice to the insurer from the insured’s material breach is presumed, and the burden then shifts to the insured to show that any breach of post-loss obligations did not prejudice the insurer.

Universal Property & Casualty Ins. Co. v. Horne, 46 Fla.L.Weekly D201b (Fla. 3d DCA 2021) quoting American Integrity Ins. Co. v. Estrada, 276 So.3d 905, 916 (Fla. 3d DCA 2019).

This means when an insured fails to comply with a post-loss obligation (e.g., sworn statement in proof of loss, examination under oath), the property insurer will assert this failure as an affirmative defense.   There is an “if-then” framework to determine whether there is “to be a total forfeiture of coverage under a homeowner’s insurance policy for failure to comply with post-loss obligations.”  Horne, supra.   First, the insurer has the burden to establish that its insured failed to substantially comply with a post-loss obligation in the policy.  If the insurer establishes this, prejudice to the insurer is presumed.  Then the burden shifts to the insured to demonstrate the breach (failure to comply with post-loss obligations) did NOT prejudice the insurer.

In Horne, the property insurer raised as an affirmative defense that its insured failed to timely comply with its post-loss obligation of submitting a sworn statement in proof of loss within 60 days.  The insured argued, and the trial court agreed, that the insurer waived this argument by acknowledging coverage by tendering some payment to its insured for the loss. The appellate court held this was incorrect because “[i]nvestigatig any loss or claim under any policy or engaging in negotiations looking toward a possible settlement of any such loss or claim does not constitute a waiver of a ‘sworn proof of loss’ requirement.”  Horne, supra (internal citations and quotation omitted).  Without waiver applying, this means the insured’s failure to timely submit its sworn statement in proof of loss must fall within the “if-then” framework discussed above to determine prejudice to the insurer and, thus, total forfeiture under the policy.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

QUITE NOTE: EXTRA-CONTRACTUAL, CONSEQUENTIAL DAMAGES AGAINST PROPERTY INSURER MUST BE PURSUED IN SEPARATE BAD FAITH CLAIM

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Unfortunately, the Fifth District Court of Appeals’ holding in this case did not last long.   As discussed here, the Florida Supreme Court, quashing the Fifth District’s decision, ruled that an insured cannot recover extra-contractual, consequential damages against his/her/its property insurer absent a separate bad faith claim.  This means that arguing extra-contractual damages against a property insurer claiming the damages flow from the insurer’s breach of the insurance contract are NOT going to fly in an action claiming the insurer breached the terms of the policy.  An insured will need to pursue a separate bad faith insurance claim against his/her/its insurer to recover such damages.    Make sure you consult with counsel when it comes to pursuing a property insurance claim including understanding damages covered by the policy and separate damages that may flow from a bad faith insurance claim.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

ALLOCATING COVERED AND UNCOVERED DAMAGES IN JURY VERDICT

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When a liability insurer defends an insured from a third-party claim, they oftentimes do so under a reservation of rights.  A reservation of rights letter is issued to the insured that identifies certain coverage exclusions or reservations relative to the insurance policy that may impact the insurer’s duty to indemnify the insured for damages.  In other words, just because the insurer is defending its insured does not mean it will be indemnifying its insured for damages asserted in the third-party claim.

Under Florida law, the party claiming insurance coverage has the initial burden to show that a settlement or judgment represents damages that fall within the coverage provisions of the insurance policy. An insured’s inability to allocate the amount of a judgment between covered and uncovered damages is therefore generally fatal to its indemnification claim. However, the burden of apportioning or allocating between covered and uncovered damages in a general jury verdict may be shifted to the insurer if the insurer did not adequately make known to the insured the availability and advisability of a special verdict.

QBE Specialty Ins. Co. v. Scrap Inc., 806 Fed.Appx. 692, *695 (11th Cir. 2020) (internal citations omitted).

This is an important concept because even when the insurer is defending its insured under a reservation of rights, it may put its insured on notice that because of coverage concerns, the insured needs to include special interrogatory questions in the verdict form for the trier of fact (jury) to answer to determine covered versus uncovered damages.  If the insured fails to do so, it will give the insurer a very strong argument to avoid any indemnification obligation it has with respect to the judgement.  This mean the insured is on the hook to deal with the judgment without insurance coverage.

For example, in QBE Specialty Ins. Co., an insured was sued for a nuisance stemming from its metal shredding operations.  The insured’s liability insurer defended the insured under a reservation of rights.  During the course of the case, the insurer notified the insured that it needed special interrogatory questions in the verdict form because of coverage concerns.  The jury awarded $750,000 in nuisance damages against the insured.  There was no allocation for covered versus uncovered damages.  The insurer then filed a separate declaratory relief coverage action claiming it was not obligated to indemnify the insured for the $750,000 in damages.  The Eleventh Circuit Court of Appeals, affirming the trial court, agreed because “in the absence of an allocated verdict form in the underlying trial, [the insured] never provided the district court with a plausible method for separating those damages awarded by the jury that are covered by [the insurer’s] policies from those that are not.”  QBE Specialty Ins. Co., supra, at *696.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

READ THE PROPERTY INSURANCE POLICY TO BE SURE YOU ARE COMPLYING WITH POST LOSS OBLIGATIONS

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I have discussed this before in prior postings, but it is worth repeating.  It is imperative for an insured to comply with post loss obligations in a property insurance policy.  Not doing so gives the insurer the argument that its insured forfeited coverage under the policy.  Naturally, this is never what an insured wants as this is contrary to submitting an insurance claim to begin with.  To avoid this situation, an insured should consult with counsel and read the policy including endorsements issued to the policy to be sure that post loss obligations are complied with and, if they are not, there is a basis supported by case law.

In a recent case, Goldberg v. Universal Property and Casualty Ins. Co., 45 Fla. L. Weekly D2118b (Fla. 4th DCA 2020), the property insurance policy for hurricanes and windstorms contained the following through an endorsement issued to the policy:

You must give notice of a claim, a supplemental claim, or reopened claim for loss or damage caused by the peril of windstorm or hurricane, with us in accordance with the terms of this policy and within three years after the hurricane first made landfall or the windstorm caused the covered damage. For purposes of this Section, the term “supplemental claim” or “reopened claim” means any additional claim for recovery from us for losses from the same hurricane or windstorm which we have previously adjusted pursuant to the initial claim. . . .

The insured submitted a claim for hurricane damage.  The insurer sent an adjuster that adjusted the loss at $12,960.80, and after depreciation, reflected an actual cash value of $9,158.43.  The insurer paid the insured $8,158.43 after deducting the insured’s deductible.  The insurer also notified the insured that the policy did include a replacement cost value and once the work was performed and costs verified it will evaluate for eligibility for payment of the depreciation.

Later, the insured notified the insurer he received an estimate for higher than the proceeds received.  The insurer asked the insured to forward the estimate but the insured did not do so.  The insured then filed a lawsuit against the insurer.  However, prior to filing a lawsuit the insured did not submit a supplemental claim to the insurer.   An issue was whether the insured failed to satisfy post loss obligations in the policy by not submitting a supplemental claim prior to filing suit.

The Fourth District Court of Appeal held that the insured did NOT comply with his post loss obligations because he did not submit a supplemental claim to the insurer for damages he sought in excess of what the insurer paid:

Here, the record shows that [the property insurer] “previously adjusted” [the insured’s] initial claim after he filed the Property Loss Notice in September 2017, and then promptly paid $8,158.43 on that claim. After [the property insurer] had “previously adjusted” the initial claim, any request by [the insured] for additional payment for losses from the same hurricane fell within the meaning of an “additional claim for recovery . . . for losses from the same hurricane” which [the property insurer] had “previously adjusted.” Thus, under the terms of the policy, [the insured] was required to notify [the property insurer] that he claimed further damages from Hurricane Irma.

Goldberg, supra.

The point is that had the insured simply provided a supplemental claim per his policy, even estimates he received for the remedial work, the end result would likely have been different because he would have satisfied a post loss obligation.  This is important because his claim was clearly covered as the insurer would not have paid proceeds based off its adjustment if it did not believe the claim was a covered claim.  But, by not complying with the terms of the policy, the insured was deprived of additional amounts relative to the loss.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

FIRST-PARTY STATUTORY BAD FAITH – 60 DAYS TO CURE MEANS 60 DAYS TO CURE

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In a first party bad-faith lawsuit, such as a bad faith claim against an insured’s property insurer, there are three requirements that must be met before the bad faith lawsuit is filed: “‘(1) determination of the insurer’s liability for coverage; (2) determination of the extent of the insured’s damages; and (3) the required notice must be filed under section 624.155(3)(a).’” Fortune v. First Protective Ins. Co., 45 Fla. L. Weekly D2092a (Fla. 2d DCA 2020) (citation omitted).

The third requirement is for the insured to file a Civil Remedy Notice (known as a “CRN”) as a condition precedent to filing a statutory bad faith lawsuit giving the insurer 60 days’ notice of the bad faith violation and to cure the violation, i.e., pay the claim if the violation is payment.

A very common bad faith payment violation is the assertion that the insurer did NOT attempt “in good faith to settle claims when, under the circumstances, it could and should have done so, had it acted fairly and honestly towards its insured and with due regard for his or her interests.”  Fla. Stat. s. 624.155(1)(b)(1).

Can a statutory bad faith action still be triggered if the insurer invokes the appraisal process per the insurance policy BEFORE the insured files its CRN?   The answer is yes!

In Fortune, an insured suffered a loss stemming from a hurricane.  The insurer adjusted the loss, after applying the deductible and depreciation, at approximately $3,000 and paid that money to the insured.  The insured disputed this was a final amount for the loss and the insurer demanded appraisal per the policy.  The insured then filed a CRN to start the statutory bad faith process.  The insurer did NOT cure the violation—pay the claim—within the required 60-day period.  The parties went through appraisal and the umpire determined the loss to be approximately $120,000.  The insurer paid what it owed per the umpire’s award.  The insured then filed his bad faith lawsuit.  The trial court granted summary judgment in favor of the insurer finding there was no bad faith because the insurer instituted the appraisal process before the insured filed a CRN and then paid the award.

The Second District Court of Appeals reversed the summary judgment.

An insured is not precluded from filing a CRN prior to a determination of the insurer’s liability for coverage (requirement 1 above) or a determination of the extent of the insured’s damages (requirement 2 above).  Thus, the insured was within his rights to file a CRN after the insurer instituted the appraisal process.  See Fortune, supra (“Even if a policy requires the mediation or appraisal process to occur prior to suit being filed, an appraisal is not a condition precedent to the insurer fulfilling its obligation to fairly evaluate the claim and to either deny coverage or to offer an appropriate amount based on that fair evaluation.”).

Moreover, “an alleged payment violation [by the insurer] would require payment within the sixty-day cure period.”  Fortune, supra.  This means that the insurer invoking the appraisal process and then paying the umpire’s award AFTER the 60-day cure period expired does not cure a bad faith payment violation.

If you are dealing with a property insurance coverage claim or dispute, it is imperative that you work with counsel to ensure your rights are preserved.  In this case, the insured’s bad faith rights were preserved against the insurer by the insured filing a CRN even after the insurer instituted the appraisal process.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

AVOID THE HEADACHE – SUBMIT THE SWORN PROOF OF LOSS TO PROPERTY INSURER

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Property insurance policies (first party insurance policies) contain post-loss obligations that an insured must (and should) comply with otherwise they risk forfeiting insurance coverage.   One post-loss obligation is the insurer’s right to request the insured to submit a sworn proof of loss.  Not complying with a post-loss obligation such as submitting a sworn proof of loss can lead to unnecessary headaches for the insured.  Most of the times the headache can be avoided.  Even with a sworn proof of loss, there is a way to disclaim the finality of damages and amounts included by couching information as estimates or by affirming that the final and complete loss is still unknown while you work with an adjuster to quantify the loss.  The point is, ignoring the obligation altogether will result in a headache that you will have to deal with down the road because the property insurer will use it against you and is a headache that is easily avoidable.  And, it will result in an added burden to you, as the insured, to demonstrate the failure to comply did not actually cause any prejudice to the insurer.

By way of example, in Prem v. Universal Property & Casualty Ins. Co., 45 Fla. L. Weekly D2044a (Fla. 3d DCA 2020), the insured notified their property insurer of a plumbing leak in the bathroom.  The insurer requested for the insured to submit a sworn proof of loss per the terms of the insured’s property insurance policy. The insurer follow-up with its request for a sworn proof of loss on a few occasions. None was provided and the insured filed a lawsuit without ever furnishing a sworn proof of loss.  The insurer moved for summary judgment due the insured’s failure to comply with the post-loss obligations, specifically by not submitting a sworn proof of loss, and the trial court granted the insurer’s motion.  Even at the time of the summary judgment hearing, the insured still did not submit a sworn proof of loss.

On appeal, the appellate court affirmed that the insured failed to comply with its post-loss obligation by not submitting a sworn proof of loss.  That decision seemed easy.  However, it remanded back to the trial court to determine whether the insurer was prejudiced by the insured’s failure to comply with the post-loss obligation in accordance with case law putting a burden on an insured to establish the insurer was not prejudiced by the failure to comply:

By failing to submit a sworn proof of loss to [the property insurer], the Insureds deprived [the property insurer] of the “opportunity to make a timely investigation, and to prevent fraud and imposition upon it.”  Not only did the Insureds fail to provide the information required under the policy, but they also objected to [the property insurer] obtaining information from their public adjuster via subpoena and failed to coordinate any depositions prior to the filing of and hearing on the motion for summary judgment.

As a result of the Insureds’ failure to submit a sworn proof of loss at any point in time prior to the trial court’s entry of summary judgment, the trial court correctly found, based on this record, that the Insureds materially breached a post-loss contractual condition precedent to the commencement of a lawsuit against [the property insurer]. We affirm the trial court’s finding on the Insureds’ lack of compliance with their post-loss obligations because the Insureds failed to provide [the property insurer] with a sworn proof of loss prior to filing suit and failed to provide any evidence sufficient for a jury to find that they had substantially complied with that requirement.

A panel of this Court recently held, “when an insurer has alleged, as an affirmative defense to coverage, and thereafter has subsequently established, that an insured has failed to substantially comply with a contractually mandated post-loss obligation, prejudice to the insurer from the insured’s material breach is presumed, and the burden then shifts to the insured to show that any breach of post-loss obligations did not prejudice the insurer.” Estrada, 276 So. 3d at 916 (certifying conflict with Rodrigo v. State Farm Fla. Ins. Co., 144 So. 3d 690 (Fla. 4th DCA 2014) and Goldman v. State, 660 So. 2d 300 (Fla. 4th DCA 1995)). We are bound by that decision.

At the time the trial court heard and ruled on [the property insurer’s] motion for summary judgment, this Court had not issued its opinion in Estrada. The record on appeal, therefore, does not contain any discussion of the shifting burden of proof and whether [the property insurer] was prejudiced by the Insureds’ failure to submit any sworn proof of loss.

Lacking the subsequently provided analysis in Estrada, the trial court cannot be faulted for ending its analysis at summary judgment as to whether the insured complied or substantially complied with the post-loss obligations. Under Estrada — applicable to this appeal, which was pending at the time of Estrada‘s release — trial courts are required to analyze whether the insurer was prejudiced by the insured’s failure to comply prior to determining that the insured forfeited coverage by the breach. Thus, we reverse and remand to permit the parties to make supplemental filings and for the trial court to consider and analyze the question of prejudice, as set forth in Estrada.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

ALLEGING PROPERTY DAMAGE IN CONSTRUCTION DEFECT LAWSUIT

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When there is a construction defect lawsuit, there is an insurance coverage issue or consideration.  As I have said repeatedly in other articles, it is all about maximizing insurance coverage regardless of whether you are the plaintiff prosecuting the construction defect claim or the contractor(s) alleged to have committed the construction defect and property damage.  It is about triggering first, the insurer’s duty to defend, and second, the insurer’s duty to indemnify its insured for the property damage.   

The construction defect claim and lawsuit begins with how the claim and, then, lawsuit is couched knowing that the duty to defend is triggered by allegations in the lawsuit (complaint).  Thus, preparing the lawsuit (complaint) is vital to maximize the insurer’s duty to defend its insured.

In a recent opinion out of the Eleventh Circuit, Southern-Owners Ins. Co. v. MAC Contractors of Florida, LLC, 2020 WL 4345199 (11th Cir. 2020), a general contractor was sued for construction defects in the construction of a custom home.  A dispute arose pre-completion and the owner hired another contractor to complete the house and remediate construction defects.   The contractor’s CGL insurer originally provided a defense to the general contractor but then withdrew the defense and filed an action for declaratory relief asking for the declaration that it had no duty to defend the contractor because the underlying lawsuit did NOT allege property damage.  The trial court agreed with the contractor and granted summary judgment in its favor finding that the underlying complaint did not allege property damage beyond defective work.  But, on appeal, the Eleventh Circuit reversed.

Among other allegations, the owner’s underlying complaint against the contractor asserted that the contractor committed defects through chipped pavers in the driveways and walkways, inconsistent paint finish, marks on ceilings, damage to exterior doors, damage to the top stair tread, damage to hardwood floors, metal roof dents, scratches in granite, holes in ceilings, etc.  The owner sought its costs to repair and remediate the defects and damage from the contractor.  In looking at whether the  contractor’s CGL insurer had a duty to defend the contractor–the insured–the Eleventh Circuit (focusing on precedent out of the Eleventh Circuit) stated:

The operative amended complaint alleged that [the contractor] used subcontractors for work on the residence and that the residence was “replete with construction defects” and various damage. It did not further allege which subcontractors performed which work or how the damage occurred. Given these ambiguities, the complaint’s allegations are broad enough to allow [the contractor] to prove that one subcontractor negligently damaged nondefective work performed by another subcontractor.  If [the contractxor] could establish that at least some of the damage arose in this way, there would be “damage apart from the defective work itself” and therefore “property damage.”

***

For these reasons, we conclude that the underlying operative complaint can fairly be construed to allege “property damage” within the meaning of the CGL policy and Florida law. Accordingly, the district court erred in granting summary judgment to [the CLG insurer] on this basis.

MAC Contractors of Florida, 2020 WL at *4 (internal citations omitted).

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.