DON’T FALL IN TRAP OF BUYING THE CHEAPEST INSURANCE POLICY AS IT MAY BAD FOR YOUR BUSINESS RISKS AND NEEDS

Don’t fall in the trap of buying the cheapest insurance policy.  It will come and bite you in the butt big time! Consult with an insurance broker that understands construction and, importantly, your specific industry, to provide you coverage within your industry.  Otherwise, you’ll be paying for a policy that may (i) not be a good policy, and (ii) may provide you minimal to no value for your industry’s RISKS and NEEDS when factoring in exclusions.  When procuring insurance, think of the old adage “penny wise and pound foolish,” and don’t make decisions that fit within this adage!

The recent decision in Nautilus Ins. Co. v. Pinnacle Engineering & Development, Inc., 2024 WL 940527 (S.D. Fla. 2024) serves as an example.  Here, a subcontractor was hired by a general contractor to perform underground utility work for a townhome development which consisted of 57 townhome units included in 18 detached structures. The subcontractor’s underground work was defective which caused damage to the property’s water line, sewer system, plumbing lines, pavers, etc. The general contractor was liable to the owner for this defective work.  Although the general contractor was an additional insured under the subcontractor’s commercial general liability (CGL) policy, the subcontractor’s CGL carrier denied the duty to defend and initiated an insurance coverage lawsuit. Motions for summary judgment were filed.

The subcontractor’s policy contained an exclusion in an endorsement for residential construction operations that provided that the policy does NOT cover bodily injury or property damage:

[A]rising out of, resulting from, related to, or in any way connected with, either directly or indirectly, your ongoing operations, “your product”, or “your work” performed by or on behalf of any insured, either prior to or during the policy period, that is incorporated into or performed at any of the following construction projects:

a. Any new townhouse or residential condominium project where the total number of individual residential units is greater than twenty-five (25), regardless of the number of buildings, developments, phases or associations;

b. Any new residential housing project (also known as a Planned Unit Development (PUD) or tract housing), where the total number of “residential housing units” is greater than twenty-five (25), regardless of the number of buildings, developments, phases or associations;”

The term “individual residential unit” in subsection (a) was not a defined term. The contractor argued this lack of definition created an ambiguity which should be interpreted in its favor and against the insurer. The court disagreed and entered summary judgment in favor of the insurer.  The exclusion in the endorsement applied to BAR coverage. This meant there was no duty to defend and, thus, no duty to indemnify.

I. Evaluation of Insurer’s Duties under Liability Policy

An insurer’s duty to defend arises from the insurance contract and policy. Therefore, “summary judgment is appropriate in declaratory judgmentactions seeking a declaration of coverage when the insurer’s duty, if any, rests solely on the applicability of the insurance policy, the construction andeffect of which is a matter of law.” “An insurer’s duty to indemnify is narrower than its duty to defend and must be determined by analyzing the policycoverages in light of the actual facts in the underlying case.”

“Under Florida law, an insurance policy is treated like a contract, and therefore ordinary contract principles govern the interpretation andconstruction of such a policy.” As with all contracts, the interpretation of an insurance contract — including determining whether an insuranceprovision is ambiguous—is a question of law to be determined by the court.

“Under Florida law, insurance contracts are construed according to their plain meaning.” The “terms of an insurance policy should be taken andunderstood in their ordinary sense and the policy should receive a reasonable, practical and sensible interpretation consistent with the intent of the parties-not a strained, forced or unrealistic construction.” However, if there is more than one reasonable interpretation of an insurance policy, anambiguity exists and it “should be construed against the insurer.”

A coverage clause is generally interpreted as broadly as possible to ensure the greatest amount of insurance coverage. To determine the parties’contractual intent, a court may only consider the language in the insurance policy, unless the policy is ambiguous. “As a general rule, in the absenceof some ambiguity, the intent of the parties to a written contract must be ascertained from the words used in the contract, without resort to extrinsicevidence.”

Nautilus Ins., supra at *6-7 (internal citations omitted).

II. The Exclusion in the Endorsement Barred Coverage – There is No Ambiguity

The “failure to define a term involving coverage does not necessarily render the term ambiguous.” In Florida, when a term is undefined in aninsurance policy, the term is to be “given [its] plain and ordinary meaning.” To find in favor of the insured due to an ambiguity in an insurancecontract, “the policy must actually be ambiguous.” Therefore, the necessary determination is the plain and ordinary meaning of the undefined term“individual residential unit” in the Endorsement Exclusion.

***

However, in Florida, “exclusionary provisions which are…susceptible to more than one meaning must be construed in favor of the insured.’ ” Forcases involving exclusions to insurance contracts, this rule is to be read more clearly in favor of an insured if “ ‘a genuine inconsistency,uncertainty, or ambiguity in meaning remains after resort to the ordinary rules of construction” Therefore, “courts should not strain to findambiguity…if there is no genuine ambiguity, there is no reason to bypass the policy’s plain meaning.” Id. (citations omitted).

***

Consistent with Florida law, providing a “plain meaning analysis” for the term “individual residential units” indicates a thing intended for one person, existing as a distinct entity and indivisible whole (individual), to be used as a residence (residential) which is a part of a whole (unit).

Nautilus Ins., supra at *9, 10 (internal citations omitted).

Based on the plain meaning of “individual residential units,” the exclusion in the endorsement barred coverage:

[T]he Endorsement Exclusion bars coverage and therefore [the CGL insurer] did not breach.  Moreover, the work [the subcontractor] conducted wasfor underground utilities for the Project, the work was done for the Project, incorporated into the Project, and at the Property pursuant to itssubcontract with [the general contractor]. Therefore, [the subcontractor’s] work is also barred by the Endorsement Exclusion as § A.1.a. excludes “ ‘property damage’ arising out of, resulting from, related to, or in any way connected with, either directly or indirectly. . . incorporated into orperformed at” what this Court has determined to encompass the Project. The Subcontract establishes that [the subcontractor] contracted with [the general contractor] to perform work at the Property and that it agreed to perform work for the Project. Additionally, the Subcontract establishes [the subcontractor] assumed “entire responsibility and liability…for any and all damage…of any kind…growing out of or resulting from the execution of theWork provided for in this Contract.” Therefore, the record establishes [the subcontractor’s] work was conducted at the Property and performed at andincorporated into the Project and the Endorsement Exclusion applies to [the subcontractor]. [The insurer] has met its burden to show the absence of agenuine issue of material fact and, absent any viable affirmative defenses, [the insurer] is entitled to summary judgment.

Nautilus Ins., supra, at *11.

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.

LET’S TALK ABOUT A STATUTORY FIRST-PARTY BAD FAITH CLAIM AGAINST AN INSURER

Let’s talk about a statutory first-party bad faith claim against an insurer under Florida law. A recent opinion, discussed below, does a nice job providing a synopsis of a first-party statutory bad faith claim against an insurer:

The Florida Legislature created the first-party bad faith cause of action by enacting section 624.155, Florida Statutes, which imposes a duty on insurers to settle their policyholders’ claims in good faith.  The statutory obligation on the insurer is to timely evaluate and pay benefits owed under the insurance policy.  The damages recoverable by the insured in a bad faith action are those amounts that are the reasonably foreseeable consequences of the insurer’s bad faith in resolving a claim, which include consequential damages

“[A] statutory bad faith claim under section 624.155 is ripe for litigation when there has been (1) a determination of the insurer’s liability for coverage; (2) a determination of the extent of the insured’s damages; and (3) the required [civil remedy] notice is filed pursuant to section 624.155(3)(a).” 

“An insured may obtain a determination of the insurer’s liability and the extent of their damages by litigation, arbitration, settlement, stipulation, or the payment of full policy limits.”  Additionally, payment of an appraisal award by the insurer constitutes a determination of the insurer’s liability and the extent of the insured’s damages. 

Cingari v. First Protective Ins. Co., 49 Fla.L.Weekly D89a (Fla. 4th DCA 2023) (internal citations omitted).

The fact pattern in this case is somewhat nutty. This case dealt with a homeowner’s property insurance policy. The homeowners discovered cracks in their walls and submitted an insurance claim. The insurer issued two partial payments.  However, the homeowner felt its insurer was not properly adjusting the claim and filed a Civil Remedy Notice as the perquisite for a statutory bad faith claim. The homeowner subsequently invoked the appraisal process in the policy. The insurer agreed and the claim proceeded through the appraisal process (after a lawsuit was initiated for the court to appoint the umpire to preside over the appraisal process). The umpire found damages more than the partial payments paid by the insurer resulting in the insurer paying the policy limits under the policy.  The homeowner then filed a bad faith action against its insurer for failing to timely and properly adjust the loss. The insurer moved for summary judgment arguing that AFTER it paid the policy limits it discovered that the loss (that it paid for) was, in fact, excluded under the policy by an earth settlement exclusion. The trial court agreed with the insurer that because there was no coverage, there could be no bad faith claim against the insurer.

The appellate court concluded differently under the facts of the case: “we conclude the trial court erred in accepting the insurer’s argument that because no coverage existed, the homeowner was not entitled to litigate whether the insurer acted in bad faith.” Cingari, supra.  Why did the appellate court conclude differently? Two main reasons:

(1) The insurer never raised that “no coverage exists” to the umpire during the appraisal process.

(2) “[T]he focus of a first-party bad faith claim is whether the insurer in good faith timely and property investigated and resolved claims filed by the insured.” Cingari, supra. In other words, the focus centers on the insurer’s investigation of the cause of the loss. Remember, the insurer argued it did not discover the basis of the exclusion until AFTER it paid the policy limits per the appraisal process.

[T]he insurer’s statements that it ‘proceeded under an erroneous policy interpretation’ in the umpire appointment suit [for the appraisal] and ‘gratuitously’ paid the policy limits and appraisal award certainly raise an inference that the insurer did not properly investigate the claim. The homeowner argued…that the failure to properly investigate caused the insurer to improperly extend settlement of the claim through the appraisal process. In doing so, the insurer arguably violated the requirements in section 624.155(1)(b)1. and 2., Florida Statutes (2020), to ‘attempt[] in good faith to settle claims’ and ‘promptly settle claims[.]

 Cingari, supra.

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.

 

NO COVERAGE UNDER INSTALLATION POLICY WHEN READ TOGETHER WITH INSURANCE APPLICATION

A recent case out of the Eleventh Circuit denied an underground contractor’s claim under what appears to be a commercial property installation floater policy (inland marine coverage) that covers the contractor’s materials. Whereas a builder’s risk policy is more expansive, an installation floater is narrower and can provide protection to a contractor for materials and equipment in transit, stored, or being installed subject to the terms of the installation floater policy. It can provide coverage to a trade subcontractor for materials that aren’t covered by builder’s risk.

In Travelers Property Casualty Company of America v. Talcon Group, LLC, 2023 WL 8798053 (11th Cir. 2023), an underground utility contractor that had a general contractor’s license had an installation policy that provided coverage “only for underground utility operations and the site development work tied to those operations.” Talcon Group, supra, at *1.  The utility contractor was constructing two residential homes that was on land owned by an affiliated family entity. During construction of the residential homes, a wildfire destroyed the homes prior to the issuance of certificates of occupancy. The utility contractor submitted a notice of loss to its insurance carrier that provided the installation policy. The carrier denied the claim because the construction of the homes was NOT the same type of work as the installation of underground utilities which was covered. An insurance coverage lawsuit ensued.

In analyzing the issue, the court look at the insurance application.  Under the “Installation/Builder’s Risk Section,” the contractor selected “Installation,” did not identify any value for residential projects, and was accompanied with an email identifying it predominantly performed water and sewer line work. It identified that 98%-99% of its work was underground utility and 1%-2% was site development, and 0% was residential.

The insurance application is important because “[e]very insurance contract shall be construed according to the entirety of its terms and conditions as set forth in the policy and as amplified, extended, or modified by an application therefore….” Talcon Group, supra, at *4 quoting Fla. Stat. s. 627.419(1).  This means “[t]he application becomes a part of the agreement between the parties and the policy together with the application form the contract of insurance.” Id. (citation and quotation omitted).

The insurance policy itself defined the term “Installation” as “[p]roperty described in the Declarations under ‘Installation’ owned by you or property of others for which you are legally liable, that you or your subcontractors will install, erect or fabricate at the ‘job site.’” Talcon Group, supra, at *3.  In the Declaration, nothing identified the residential homes or that it was performing work at the job site of the residential homes.  The insurance carrier moved for summary judgment and prevailed that there was no coverage under the installation policy for the residential homes.

The Eleventh Circuit Court of Appeals agreed: “When the Policy is read together with [the utility contractor’s] renewal application, the only reasonable interpretation is that the scope of coverage did not extend to the construction of the two residential homes.” Talcon Group, supra, at *5.  Moreover, the Eleventh Circuit found that the utility contractor’s reading of the installation policy was unreasonable:

[The utility contractor’s] reading would simply require [the insurer] to cover any one-off construction project wholly unrelated to [the contractor’s] underground utility or site development work – again, the only types of work disclosed or provided in the renewal application and Policy. … Coverage would follow if [the contractor] decided to install a skylight at a mall, repair the roof of a church, or construct a skyscraper from the ground up.  [The insurer] would be on the hook for any number of such projects, even though they were not disclosed in [the contractor’s] application, contemplated by [the insurer], or provided for in the Policy. Taken as a whole, the Policy [and the contractor’s] renewal application do not support such a reading.

Indeed, the only reasonable reading of the Policy and the renewal application is that [the insurer] provided coverage for [the contractor’s] underground utility and site development work. The construction of the two residential homes is neither of those items and is not covered by the Policy.

Talcon Group, supra, at *6.

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.

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DOES “FAULTY WORKMANSHIP” CONSTITUTE AN OCCURRENCE UNDER YOUR CGL POLICY?

There is nothing more scintillating than an insurance coverage dispute, right?  Well, some folks would agree with this sentiment.  Others would spit out their morning coffee in disagreement.  Regardless of where you fall in the spectrum, they are always important because maintaining insurance is a NECESSARY part of business, particularly in the construction industry.  The ideal is to have insurance that covers risks you are assuming in the performance of your work.

Sometimes, insurance coverage disputes provide valuable insight, even in disputes outside of Florida. Recently, the Western District of Kentucky in Westfield Insurance Co. v. Kentuckiana Commercial Concrete, LLC, 2023 WL 8650791 (W.D.KY 2023), involved such a dispute. While different than how Florida would treat the same issue, it’s still noteworthy because it sheds light into how other jurisdictions determine whether “faulty workmanship” constitutes an “occurrence” under a commercial general liability (CGL) policy.

In this case, the commercial general liability insurer of a subcontractor sued the subcontractor (insured) and the general contractor (additional insured) seeking a declaration that it had NO duty to defend either in a construction defect arbitration initiated by the owner of an apartment project.  More specifically:

The allegations at issue here concern water damage [the owner] ascribes to faulty workmanship by [the general contractor] and [the subcontractor]. Asserting claims for negligence and breach of contract, [the owner] accused [the general contractor] of failing to complete theproject with “skill, care and diligence,” breaking its “promise to perform the work according to the Contract Documents,” breaching “its warrantyof defect-free Work,” breaking “its promise to supervise and to coordinate the Work using its ‘best skill and attention,’ ” and breaking “its promise to beresponsible for the acts, omissions and qualifications of its supervisors and Subcontractors in performing the Work.  The engineer’s report enclosed with[the owner’s] initial arbitration demand concluded that damage occurred where [the general contractor’s] work “did not conform to the ConstructionDocuments, local ordinances and industry standard, was not workmanlike, and was negligent.”  [The general contractor’s] arbitration demand against [the subcontractor], moreover, incorporates all the allegations from [the owner’s] original arbitration demand and ascribes them to [the subcontractor].

Westfield Ins. Co., supra, at *2 (internal citations omitted).

The fundamental issue is that under Kentucky law “faulty construction-related workmanship, standing alone, is not a fortuitous ‘occurrence’ under CGL policies including language similar to that at issue here.”  Westfield Ins. Co., supra, at *2 (noting the CGL policy “defined occurrence as ‘an accident, including continued or repeated exposure to the same general harmful conditions.’”).

In this case, the trial court found that the CGL insurer had NO duty to defend the general contractor and subcontractor because “the alleged errors concern aspects of the project over which the general contractor and subcontractor exercised control over the work.” Westfield Ins. Co., supra, at *3.

In short, Kentucky law is clear that “faulty workmanship” does not ordinarily “constitut[e] an occurrence under a CGL policy” because the“ultimate liability falls to the on  one who performed the negligent work … instead of the insurance carrier.”  The allegations brought by [the owner] do not implicate events that were beyond the control of either [the general contractor] or [the subcontractor]. So neither the breach nor the faulty-workmanship allegations leveled against [the general contractor] and [subcontractor] constitute a fortuitous event amounting to an “occurrence” covered by the [CGL] insurance policy. To hold otherwise would essentially convert [the subcontractor’s] CGL coverage into a construction bond.

Westfield Ins. Co., supra, at 84 (internal citations omitted).

Now, while I don’t agree with this holding, this is the law in Kentucky, meaning a CGL policy does not provide the preferred (and, really, necessary) coverage for faulty workmanship.  Does your CGL policy provide coverage for faulty workmanship?  Or, does faulty workmanship constitute an occurrence under your CGL policy? If you do not know the answer to these questions, make sure to find out!

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.

GIVING INSURANCE CARRIER PROMPT NOTICE OF CLAIM TO AVOID “UNTIMELY NOTICE” DEFENSE

When it comes to giving your insurance carrier notice of claim, I am an advocate of providing that notice as soon as possible, i.e., prompt notice. The reason is to take away the carrier’s argument to deny coverage because you, as the insured, failed to provide it with prompt notice—the “untimely notice” defense. It doesn’t matter whether it is a first party property insurance claim or third-party liability policy claim, provide notice as soon as reasonably possible to take away that “untimely notice” defense.

The “untimely notice” defense was the issue in Benson v. Privilege Underwriters Reciprocal Exchange, 48 Fla.L.Weekly D1085a (Fla. 6th DCA 2023) dealing with a first party property insurance policy.  In this case, eighteen months after Hurricane Irma, the plaintiff noticed a smell and observed brown stains on walls and ceiling in his home. The plaintiff called roofing companies to inspect the damage and perform certain repairs.  However, the plaintiff still noticed the smell so he called a company to test and remediate mold. The plaintiff, then, contacted his property insurer with numerous claims relative to the leaks and damage. Although there was an initial property insurance payment made, the carrier ultimately denied coverage for subsequent claims stating that “the late notice of the claim and the prior repairs to the roof substantially prejudiced its ability to complete an inspection of [plaintiff’s] property to evaluate the claim.” Benson, supra.   The property insurance policy included the following notice language:

In the event of a loss for which coverage may be provided under this policy, you. . .must. . .[g]ive prompt notice to us or our agent, except that a claim, supplemental claim or reopened claim for loss or damage caused by hurricane or other windstorm must be given to us in accordance with the terms of this policy within three years after the hurricane first made landfall or a windstorm other than hurricane caused the covered damage. . .Any initial, supplemental or reopened claim for loss or damage caused by hurricane or other windstorm is barred if notice of the claim in accordance with this Paragraph is not provided.

The plaintiff filed a lawsuit and the property insurance carrier moved for summary judgment based on the “untimely notice” defense, which was granted by the trial court.  This was reversed on appeal.  The Sixth District Court of Appeal provides a good discussion of the “untimely notice” defense and its two-pronged test which can serve beneficial to an insured:

“Prompt” is not defined in the policy issued by [the property insurance carrier] to [the plaintiff]. “It is well settled, however, that ‘prompt’ and other comparable phrases, like ‘immediate’ and ‘as soon as practicable,’ do not require instantaneous notice.”  “Instead, Florida courts have interpreted these phrases to mean that notice should be provided with reasonable dispatch and within a reasonable time in view of all of the facts and circumstances of the particular case.”  “[T]he duty to provide notice arises when a reasonable person, viewing all available facts and information, would conclude that an award implicating the policy is likely.” 

The Supreme Court of Florida has set forth a two-step process to determine whether an insurance company may deny an insured’s claim on the ground that the insured failed to give the insurance company timely notice of the claim as required by an insurance policy.  “The first step in the analysis is to determine whether or not the notice was timely given.”  If the notice was timely given, then the analysis concludes at the first step.  If the notice was not timely, then the second step is to determine whether the insurance company suffered prejudice as a result of the untimely notice.  At the second stage of the analysis, prejudice to the insurer is presumed.  If notice was not timely, the burden of overcoming the presumption of prejudice is on the insured.  However, the insured may rebut the presumption of prejudice by showing that the insurer was not prejudiced by the lack of timely notice.  “If the insured is unable to overcome the presumption of prejudice, then the insurer will prevail on a defense of untimely notice.” 

Benson, supra (internal citations omitted).

A good thing for the plaintiff—the insured—is that whether prompt notice was provided is typically a question of fact for the trier of fact. Benson, supra. It is based on the “reasonable person” standard, underlined above. “In this case, there was disputed evidence regarding whether a reasonable person in [the plaintiff’s] position would have concluded that he had a claim under his insurance policy any time significantly earlier than when [the plaintiff] gave notice to [his property insurance carrier] of the claim.” Benson, supra.

While the two-pronged test can seem beneficial, the reality is this is all avoidable by providing notice as soon as you reasonably can. Because if untimely notice is given and prejudice is presumed, the burden in overcoming the presumption of prejudice will be on you, as the insured, in a completely avoidable scenario.

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.

 

CGL COVERAGE DISPUTE REGARDING THE (j)(6) and (j)(7) PROPERTY DAMAGE EXCLUSIONS

A new insurance coverage opinion dealing with a commercial general liability’s (CGL) duty to defend involved exclusions commonly known as the (j)(6) and (j)(7) property damage exclusions (and in certain policies known as the (j)(5) and (j)(6) exclusions). These are the exclusions that apply during ongoing operations.  Exclusion (l), or the “your work” exclusion, applies post-completion, i.e., it is an exclusion for “property damage” to “your work” included in the “products-completed operations hazard.

Exclusions (j)(6) and (j)(7) in the policy at-issue exclude coverage for property damage to:

(j)(6) That particular part of real property on which any insured or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the “property damage” arises out of those operations;

(j)(7) That particular part of any property that must be restored, repaired or replaced because “your work” was incorrectly performed on it.

In this coverage dispute, Southern-Owners Ins. Co. v. MAC Contractors of Florida, LLC, 2023 WL 2709389 (M.D.Fla. 2023), a CGL carrier denied coverage and the duty to defend in a residential construction defect lawsuit. The underlying dispute pertained to a contractor (insured) not finishing its construction due to a dispute with the homeowners. The homeowners claimed the work was defective and alleged various defects:

“[r]epair loose, broken or chipped pavers in driveway and walkways and install edge restraints”; “[r]epair underside of lap siding – inconsistent paint finish at bottom of boards”; “[r]epair chatter marks on T&G ceilings”; “repair damage to all exterior doors” and “[r]epair all pocket doors”; “[r]eplace damaged top stair tread”; “[r]emedy damage to hardwood floors, includ[ing] damage resulting from use of blue tape and dirt”; “[r]epair metal roof dents, scratches and hems”; “[c]lean wall and ceiling paint on cabinets”; “[r]emove paint spots on baseboards throughout the house”; “[r]emedy scratches in granite”; and “[p]atch and paint all holes in ceilings and walls and twin holes in exterior hardi plank.”

The contractor resolved the underlying lawsuit with the homeowners, but the issue was whether the carrier should have defended the contractor in this underlying lawsuit and incurred the defense fees and costs. If so, the carrier would need to reimburse its insured.  There are times where the main focus of the coverage dispute is on the duty to defend and less about the duty to indemnify. The duty to defend is a critical duty and should NOT be overlooked or cast aside.

Initially, the trial court granted summary judgment in favor of the insurer based on the “your work” exclusion in exclusion (l). However, this was reversed by the Eleventh Circuit finding that the “underlying complaint could fairly be construed to allege damages that fell outside the exclusion.” Southern-Owners Ins. Co., supra, at *2.

On remand, the trial court again entered summary judgment for the insurer finding that the underlying complaint “did not allege ‘property damage’ within the meaning of the CGL policy…did not allege any damage beyond the faulty workmanship or defective work….”  Id.  The Eleventh Circuit again reversed finding “that the underlying operative complaint can be fairly construed to allege ‘property damage’ within the meaning of the CGL policy and Florida law.” Id.  The Eleventh Circuit also previously held that, regardless, the completion-operations hazard exclusion would also NOT eliminate the carrier’s duty to defend. Id.  “The Eleventh Circuit held: ‘Construing the Your Work exclusion narrowly and resolving all doubts in favor of [the contractor], we conclude that the underlying allegations can fairly be construed to allege damage during ongoing operations.” Id. at *4.

So, back to the trial court on more summary judgments.  Is the third time the charm here for the insurer?  No! The trial court, this time, granted summary judgment for the insured finding the carrier had a duty to defend.

Since it was previously held that the completed-operations hazard exclusion would not eliminate the carrier’s duty to defend, the primary focus was on the (j)(6) and (j)(7) exclusions. The carrier’s fundamental argument was that the phrase, “That particular part of” (as underlined above) refers to the entire project. The contractor argued these exclusions don’t apply “to property damage that occurred during operations on the property as a whole ‘but at a moment in time whether neither [the contractor] nor its subcontractors specifically worked on’ the ‘particular part of [the] property’ that was damaged or must be restored, repaired, or replaced.’”  Southern-Owners Ins. Co., supra, at *2.

As to the (j)(6) and (j)(7) exclusions, the trial court reasoned (relying on various case citations):

[I]f a subcontractor is hired to install a project component and, by virtue of his faulty workmanship, installs a defective component, then the cost to repair the defective component is not property damage. On the other hand, a claim for the costs of repairing damage to other property caused by defective work does qualify as a claim for property damage.

Property damage occurs when the damage happens, not when the damage is discovered or discoverable. And where the underlying allegations, even though silent as to the timing of damages, can be reasonably construed to allege property damage that occurred during the policy period, there is potential for coverage.

The[se] exclusions are triggered only when the faulty work and the damage are to the same part of the property. The potential for coverage is triggered when an occurrence results in property damage. There is not requirement that the damages manifest themselves during the policy period. Here, although the underlying allegations are silent as to the timing of the damages, the allegations can be reasonably construed to allege damages that occurred during ongoing operations. Under paragraph j7, property damage to that particular part of any property that must be restored, repaired or replaced because your work was incorrectly performed on it is excluded from coverage.  Paragraph 7 does not apply to property damage included in the products-completed operations hazard, which excludes work that has not yet been completed or abandoned.

Southern-Owners Ins. Co., supra, at *5-6 (internal citations and quotations 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.

FLORIDA’S NEW CIVIL REMEDIES ACT – BULLETPOINTS AS TO HOW IT IMPACTS CONSTRUCTION

There has been much talk about Florida’s new Civil Remedies Act (House Bill 837) that Governor DeSantis approved on March 24, 2023.  As it pertains to construction, here is how I see it with key bulletpoints on the impact this new Act has on the construction industry:

  • New Florida Statute s. 86.121– This is an attorney’s fees statute for declaratory relief actions to the prevailing insured to determine insurance coverage after TOTAL COVERAGE DENIAL. (Note: A defense offered pursuant to a reservation of rights is not a total coverage denial.) This right only belongs to the insured and cannot be transferred or assigned. And the parties are entitled to the summary procedure set forth in Florida Statute s. 51.011 requiring the court to advance the cause on the calendar. The new statute does say it does NOT apply to any action arising under a residential or commercial property insurance policy. (Thus, since builder’s risk coverage is a form of property insurance, the strong presumption is this new statute would not apply to it.)  Rather, the recent changes to Florida Statute s. 626.9373 would apply which provides, “In any suit arising under a residential or commercial property insurance policy, there is no right to attorney fees under this section.”
  • Florida Statute s. 95.11 – The statute of limitations for negligence causes of action are two years instead of four years. This applies to “causes of action accruing after the effective date of this act.”
  • Florida Statute s. 624.155 – Adds language relative to bad faith insurance claims including bad faith claims asserted under the common law.
  • Florida Statute 768.81 – Includes a greater percentage of fault section in the comparative negligence statute  that states, “In a negligence action to which this section applies, any party found to be greater than 50 percent at fault for his or her own harm may not recover any damages. This subsection does not apply to an action for damages for personal injury or wrongful death arising out of medical negligence pursuant to chapter 766.
  • Florida Statute s.  627.428– This statute was repealed. This was the attorney’s fees statute for insurance disputes.
  • Florida Statute s. 627.756 – This modified the language in this statute but still provides in a suit by an owner, contractor, a subcontractor, a laborer, or materialman against a surety under a payment or performance bond, if the claimant prevails, it can recover reasonable attorney’s fees for prosecuting the suit.
  • “This act shall not be construed to impair any right under an insurance contract in effect on or before the effective date of this act. To the extent that this act affects a right under an insurance contract, this act applies to an insurance contract issued or renewed after the effective date of this act.”

Please feel free to reach out to me if you view this Act differently.

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.

AN OCCURRENCE UNDER BUILDER’S RISK INSURANCE POLICY IS BASED ON THE LANGUAGE IN THE POLICY

Builder’s risk insurance coverage is a vital property insurance coverage during the course of constructionBuilder’s risk insurance is not a one-size-fits-all product so please make sure you are working with your insurance broker to procure this product that factors in and covers risk associated with the project.

Builder’s risk insurance is typically an occurrence-based policy. No different than other occurrence-based policies (such as commercial general liability), a dispute may arise as to the occurrence. This could be due to the triggering of the actual policy during the coverage period or it could be due deductible obligations, as in the case discussed below. When dealing with a builder’s risk insurance policy–again, no different than any policy–the language in the policy matters.  Definitions used in the policy to define specific terms matter and, in numerous cases, the ordinary dictionary meanings of terms matter. But it all starts with the policy language.

In KT State & Lemon, LLP v.  Westchester Fire Insurance Co., 2023 WL 2456499 (M.D.Fla. 2023), a builder’s risk policy provided coverage from April 2018 through the end of November 2019.  There was a $50,000 per occurrence deductible for loss caused by or from water damage.  An extension to the builder’s risk policy was negotiated through the end of January 2020 that increased this water damage deductible to $250,000 per occurrence.  During construction and the testing of the fire suppression (sprinkler) system, leaks started to occur resulting in water damage.  Two leaks occurred in September 2019, one leak in October 2019, one leak in November 2019, and two leaks in December 2019 (during the extension and higher water damage deductible period).

The plaintiff-insured argued that all of the leaks in the fire sprinkler system should constitute one single occurrence.  Naturally, it did so because one occurrence would be a $50,000 deductible since the initial leak occurred prior to the extension period.  The insurer took a contrary position and argued that each leak was a separate occurrence meaning there were four leaks with a $50,000 per occurrence deductible and two leaks in December 2019 each with a $250,000 deductible.  This is a big deal from a dollar’s perspective as it means each leak would have to have damages in excess of the per occurrence deductible and the insured would potentially be responsible for the first $700,000 in water damage based on the six leaks.

In Florida, the [insurance] contract should be ‘construed according to the plain language of the policy,’ and any ambiguities must be ‘construed against the insurer and in favor of coverage.KT State, supra, at *2 (citations omitted).

The Court looked at the policy language, specifically how the builder’s risk policy defined the term “occurrence” as it would be this definition in the policy that shed light on whether there would be one occurrence or multiple occurrences:

All LOSS attributable directly or indirectly to [1] one originating cause, event, incident or repeated exposure to the same originating cause, event or incident, or [2] to one series of similar originating causes, events, incidents or repeated exposures to the same originating cause, event or incident first occurring in the Policy period. All such LOSS will be treated as one OCCURRENCE, unless a specified period of time is included in this Policy. The most the Company will pay for LOSS in any one OCCURRENCE is the applicable Limit of Insurance shown on the Declarations.

As to the underlined above, the policy did not define the terms “series” or “similar.” Yet, these terms are not technical terms so the Court looked at the ordinary dictionary definitions. “The dictionary meaning of ‘series” is ‘[a] number of things of one kind (freq. abstract, as events, actions, conditions, periods of time) following one another in time or in logical order.’ The dictionary meaning of ‘similar’ is ‘alike in substance’ or ‘having characteristics in common.’” KT State, supra, at *3 (citations omitted).  Based on the definition of “occurrence” in the policy, and the ordinary dictionary definitions of “series” and “similar,” the Court found the six fire sprinkler leaks constituted only one occurrence:

Reading the policy language from the standpoint of an ordinary person, in light of the common meaning of the terms used, and in a common-sense and natural manner produces only one reasonable conclusion. Plaintiffs’ claimed loss was attributable, directly, or indirectly, to a “series of similar originating causes, events, [or] incidents,” and therefore resulted from one occurrence. The loss resulted from leaks in the same sprinkler system, due in whole or part to improper installation by the same [subcontractor] crew under the same contract, in the same general location in the same building, and occurred one after the other in a relatively short span of time from late September to December 2019.

KT State, supra, at *4.

Yet, despite there being one occurrence, the Court applied a caveat to the benefit of the insurer since there were two leak incidents during the extension of the policy with an increased $250,000 per occurrence deductible:

Accordingly, under the Policies’ definition of “occurrence,” the leaks at issue together constituted one occurrence. For damage from leaks that occurred prior November 30, 2019, therefore, a single deductible of $50,000 applies. The result is different, however, for leaks after that date, because the parties expressly modified the Policies at that point. The original policy term ended on November 30, 2019. Plaintiffs were only entitled to purchase an extension of coverage beyond that date on the same terms as before if no “risk aggravating situation” was present at the time of the extension. But such a situation was present, because Plaintiffs had reported multiple leaks, and that was obviously the reason the parties changed the water damage deductible to $250,000 when they extended coverage to January 30, 2020. It is clear that the increased deductible was intended to apply to similar water damage events occurring during the extended policy period. Therefore, the increased deductible applies to water damage from leaks occurring after November 30, 2019, notwithstanding the definition of “one occurrence.”

KT State, supra, at *5.

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.

TWO WORTHY INSURANCE TOPICS: (1) BAD FAITH, AND (2) SETTLING WITHOUT INSURER’S CONSENT

The recent Eleventh Circuit Court of Appeals’ decision, American Builders Insurance Company v. Southern-Owners Insurance Company, 56 F.4th 938 (11th Cir. 2023), is an insurer versus insurer case that touches on two important insurance topics: (1) common law bad faith against an insurance company, and (2) an insurer’s affirmative defense that an insured settled a claim without its consent.  The Eleventh Circuit provides invaluable legal discussion on these topics that any insured (and an insured’s counsel) need to know and appreciate.  While this article won’t go into the granular facts as referenced in the opinion, it will go into the law because it is the law the facts of a case MUST cater to and address.

In this case, a person performing subcontracting work fell from a roof without fall protection and became paralyzed from the waist down. The general contractor had a primary liability policy and an excess policy. The general contractor’s primary liability insurer investigated the accident and assessed the claim.  The subcontractor’s liability insurer, which was the primary insurance policy (the general contractor was an additional insured for work the subcontractor performed for the general contractor), did little to investigate and assess the claim and then refused to pay any amount to settle the underlying claim or honor its defense and indemnity obligation to the general contractor.

Both the general contractor’s primary insurer and excess insurer each tendered policy limits to settle the claim and avoid a bad faith claim by exposing the general contractor to more than policy limits, which was the determination had the matter proceeded to a trial.

The general contractor’s primary liability insurer then sued the subcontractor’s liability insurer for common law bad faith (based on equitable subrogation).  The subcontractor’s liability insurer, among other things, argued it should be absolved because its policy was breached when payment was made to the claimant without its consent. The case proceeded to trial and a jury found in favor of the general contractor’s primary liability insurer.  The subcontractor’s liability insurer appealed…and lost.

Common Law Bad Faith

[T]he critical inquiry in a bad faith [action] is whether the insurer diligently, and with the same haste and precision as if it were in the insured’s shoes, worked on the insured’s behalf to avoid an excess judgment. Additionally, any damages claimed by an insured in a bad faith case must be caused by the insurer’s bad faith. That is, the bad faith conduct must directly and in natural and continuous sequence produce[] or contribute[] substantially to producing such [damage], so that it can reasonably be said that, but for the bad faith conduct, the [damage] would not have occurred.

The bad faith inquiry is determined under the ‘totality of circumstances’ standard, and we focus not on the actions of the claimant but rather on the insurer in fulfilling its obligations to the insured. That said, a claimant’s actions –such as a decision not to offer a settlement-remain relevant in assessing bad faith. Insurers have obligations to advise the insured of settlement opportunities, to advise to the probable outcome of the litigation, to warn of the possibility of an excess judgment, and to advise the insured of any steps he might take to avoid [the] same,” as well as to investigate the facts, give fair consideration to a settlement offer that is not unreasonable under the facts, and settle, if possible, where a reasonably prudent person, faced with the prospect of paying the total recovery, would do so. These obligations … are not a mere checklist, however, and, as the Florida Supreme Court has explained, [a]n insurer is not absolved of liability simply because it advises its insured of settlement opportunities, the probable outcome of the litigation, and the possibility of an excess judgment.

Moreover, insurance companies occasionally have an affirmative duty to offer settlements.  Bad faith may be inferred from a delay in settlement negotiations which is willful and without reasonable cause. Thus, [w]here  liability is clear, and injuries so serious that a judgment in excess of the policy limits is likely, the insurer must initiate settlement negotiations. In such a case, where [t]he financial exposure to [the insured] [i]s a ticking time bomb and [s]uit c[an] be filed at any time, any delay in making an offer under the circumstances of this case even where there was no assurance that the claim could be settled could be viewed by a fact finder as evidence of bad faith.

American Builders Insurance Company, supra, at 944-45 (internal quotation and citation omitted).

Here, the jury reasonably found that the subcontractor’s liability insurer “acted in bad faith because it delayed acting on its duty to investigate and settle [the claimant’s] claim.American Builders Insurance Company, supra at 945.  The facts “could lead a reasonable jury to conclude that the [subcontractor’s liability insurer] delayed its investigation instead of attempting ‘to resolve the coverage dispute promptly’ or using ‘diligence and thoroughness.’” Id. at 946 (internal quotation and citation omitted).

Here, a reasonable jury could also find that the subcontractor’s liability insurer caused the general contractor’s liability insurer damages.  The subcontractor’s liability insurer wanted to focus on the claimant and his attorney’s action.  This was shot down. “Of course, there’s a difference between focusing on a claimant’s actions, which would be improper, and factoring a claimant’s actions into the totality of circumstances analysis, which is not improper. In this case, though, [the subcontractor’s liability insurer] flipped Florida law on its head and exclusively focused on [the claimant and his attorney’s] actions.”  American Builders Insurance Company, supra, at 947 (internal quotation and citation omitted).

Insurer “Consent” Affirmative Defense

The subcontractor’s liability insurer argued that the general contractor’s primary liability insurer breached the subcontractor’s liability insurance contract “by failing to receive its consent before settling with [the claimant].”  American Builders Insurance Company, supra, at 944.   This was also shot down.

Subcontractor’s liability insurance contract provided:

[N]o insured will, except at the insured’s own cost, voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without our consent. [T]his language required the insured to obtain the insurer’s consent before settling. That is, while an insured is free to enter into a reasonable settlement when its insurer has wrongfully refused to provide it with a defense to a suit, … the insured is not similarly free to independently engage in such settlements where, as here, the insurer had not declined a defense to suit.

The Florida Supreme Court requires an insurer to establish three things in order to succeed on this affirmative defense: (1) a lack of consent; (2) substantial prejudice to the insurer; and (3) diligence and good faith by the insurer in attempting to receive consent. The first element has a few exceptions. The insured may settle without obtaining consent if the insurer wrongfully refused to provide [the insured] with a defense to a suit, or offers a conditional defense that the parties cannot agree upon.  Moreover, even if the insured was obliged to obtain consent, the failure to do so is not an affirmative defense unless the insurer also establishes substantial prejudice and evinces good faith in bringing about the cooperation of the insured.

American Builders insurance Company, supra, at *947-48.

Here, the issue of whether the general contractor’s primary liability insurer needed consent was not at-issue.  It did.  But the subcontractor’s liability insurer still needed to establish substantial prejudice and good faith, and the jury could find it proved neither, which it did.  American Builders Insurance Company, supra, at *948.

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.

UNDERSTANDING LIABILITY INSURER’S TWO DUTIES: TO DEFEND AND TO INDEMNIFY

A liability insurer has two duties that are the crux of a liability policy: the duty to defend the insured in legal actions and the duty to indemnify the insured from losses covered under the policy.  Many times, policyholders (insureds) do not fully understand or appreciate these two important duties. They need to and this is why having private counsel assist with coverage-related considerations is an absolute must.

An insurers’ duty to defend is separate from its duty to indemnify.  A recent opinion out of the Middle District of Florida in Progressive Express Ins. Co. v. Tate Transport Corp., 2022 WL 16963815 (M.D.Fla. 2022) clarifies the distinction between these duties with a focus on an insurer’s initial duty — the duty to defend.  Please read below so you can have more of an appreciation of these duties.  The court does a good job discussing Florida law with the emphasis on when an insurer’s initial duty to defend kicks-in:

Duty to Defend

Under Florida law, “an insurer’s duty to defend its insured against a legal action arises when the complaint alleges facts that fairly and potentially bring the suit within policy coverage.”  The duty to defend is a broad one, broader than the duty to indemnify, and “[t]he merits of the underlying suit are irrelevant.”  We determine whether an insurer has a duty to defend its insured based only on “the eight corners of the complaint and the policy,” and only as the complaint’s alleged facts are “fairly read[.]” The “facts” we consider in evaluating the duty to defend come solely from the complaint, regardless of the actual facts of the case and regardless of any later developed and contradictory factual record.  “Any doubts regarding the duty to defend must be resolved in favor of the insured,” and “where a complaint alleges facts that are partially within and partially outside the coverage of an insured’s policy, the insurer  is not only obligated to defend, but must defend that entire suit[.]” But of course, because the lawsuit must be for something covered by the insurance policy, “the insurer has no duty to defend” when “the pleadings show the applicability of a policy exclusion.”

An insurance policy can, without creating a conflict or ambiguity, both provide coverage and exclude some things that might otherwise fall within that coverage.  On the other hand, an insurance policy’s coverage becomes illusory if it grants coverage in one provision and completely takes it away in another provision. 

Because [insurer] relies on an exclusion to deny coverage, “it has the burden of demonstrating that the allegations of the complaint are cast solely and entirely within the policy exclusion and are subject to no other reasonable interpretation.” 

***

An insurer’s duty to defend an insured in a legal action under Florida law “arises when the complaint alleges facts that fairly and potentially bring the suit within policy coverage.”  Even if the allegations in the complaint are meritless, the duty to defend nonetheless arises. All doubts about whether the duty to defend applies are resolved in favor of the insured.  “If an examination of the allegations of the complaint leaves any doubt regarding the insurer’s duty to defend, the issue is resolved in favor of the insured.” 

Progressive Express Insurance, supra, at *3-5 (internal citations omitted).

Duty to Indemnify

“While the duty to defend is broad and based on the allegations in the complaint, the duty to indemnify is determined by the facts adduced at trial or during discovery.” 

Therefore, unlike the duty to defend, the trial court must look beyond the allegations in the underlying complaint to decide whether an insurer has a duty to indemnify. The duty to indemnify arguably may not become fully ripened until the merits of the underlying litigation are resolved.

Progressive Express Insurance, supra, at *6 (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.