INSURER’S DUTY TO INDEMNIFY NOT RIPE UNTIL UNDERLYING LAWSUIT AGAINST INSURED RESOLVED

A liability insurer has two duties:  1) the duty to defend its insured; and 2) the duty to indemnify its insured.

With respect to the second duty – the duty to indemnify – this duty is typically “not ripe for adjudication unless and until the insured or putative insured has been held liable in the underlying action.” Hartford Fire Ins Co. v. Beazer Homes, LLC, 2019 WL 5596237, *2 (M.D.Fla. 2019) (internal quotation omitted).

For instance, Beazer Homes involved an insurance coverage dispute stemming from construction defects.  An owner sued its general contractor for construction defects relating to stucco problems.  The general contractor paid for the repairs.   The general contractor then sued its stucco subcontractor to recover the costs it incurred.  The subcontractor tendered the defense of the lawsuit to its commercial general liability insurer which is defending its insured-subcontractor under the commonly issued reservation of rights.

During the pendency of the general contractor’s lawsuit against its subcontractor, the subcontractor’s commercial general liability insured filed an action for declaratory relief in federal court seeking a declaration as to whether it owes its subcontractor a duty to indemnify.  The issue was whether this action for declaratory relief was ripe since there was no adjudication against the insured-subcontractor in the general contractor’s lawsuit against the subcontractor.   The Middle District Court of Florida held that it was not ripe: “The Eleventh Circuit agreed that an insurer’s duty to indemnify is not ripe until the underlying lawsuit is resolved.”  Beazer Homes, 2019 WL at *2 (internal quotation 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.

 

INTERPRETING THE LANGUAGE IN AN INSURANCE POLICY

Lawsuits by an insured against an insurer that include a claim for declaratory relief are common when an insurer denies coverage.   The insured will argue that there are ambiguities in the policy.  One argument may pertain to the use or definition of a term (or language) in the policy that is not defined in the policy. Another argument may pertain to an exclusion or limitation in the policy that ultimately renders insurance coverage illusory.  

 

 

[I]n construing insurance policies, courts should read each policy as a whole, endeavoring to give every provision its full meaning and operative effect.  When the language of an insurance policy is clear and unambiguous, a court must interpret it according to its plain meaning, giving effect to the policy as it was written.  A policy term is not ambiguous simply because it is complex or requires analysis. 

Arguelles v. Citizens Property Insurance Corp., 44 Fla. L. Weekly D1726a (Fla. 3d DCA 2019) (internal quotations and citations omitted).

 

When a term in an insurance policy is not defined in the policy (and there is an argument that there is an ambiguity), a court may look to dictionary definitionsId. (looking to dictionary definition of the term “reside” which was not a defined term in the policy).  This is because a dictionary definition contains a common acceptance of the meaning of the word.  Id.  

 

If a limitation or exclusion completely swallows up an insuring provision, then there is an argument that coverage is illusoryId. citing Warwick Corp. v. Turetsky, 227 So.3d 621, 625 (Fla. 4thDCA 2017).   “When limitations or exclusions [in the policy] completely contradict the insuring provisions, insurance coverage becomes illusory.”  Purrelli v. State Farm Fire and Cas. Co., 698 So.2d 618 (Fla. 2d DCA 1997). 

 

It is important to work with counsel when dealing with an insurance coverage dispute.  Counsel will help you maximize insurance coverage based on the facts and the law.

 

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.

LIABILITY INSURER PRECLUDED FROM INTERVENING IN INSURED’S LAWSUIT

shutterstock_368505233There are cases where I honestly do no fully understand the insurer’s position because it cannot have its cake and eat it too.  The recent opinion in Houston Specialty Insurance Company v. Vaughn, 43 Fla. L. Weekly D1828a (Fla. 2d DCA 2018) is one of those cases because on one hand it tried hard to disclaim coverage and on the other hand tried to intervene in the underlying suit where it was not a named party.

 

This case dealt with a personal injury dispute where a laborer for a pressure washing company fell off of a roof and became a paraplegic.  The injured person sued the pressure washing company and its representatives.  The company and representatives tendered the case to its general liability insurer and the insurer–although it provided a defense under a reservation of rights—filed a separate action for declaratory relief based on an exclusion in the general liability policy that excluded coverage for the pressure washing company’s employees (because the general liability policy is not a workers compensation policy).   This is known as the employer’s liability exclusion that excludes coverage for bodily injury to an employee.  The insurer’s declaratory relief action sought a declaration that there was no coverage because the injured laborer was an employee of the pressure washing company.  The pressure washing company claimed he was an independent contractor, in which the policy did provide limited coverage pursuant to an endorsement.

 

The insurer also moved to intervene in the underlying action for the purpose of getting special interrogatories on the verdict form relative to the injured plaintiff’s employment status.  The pressure washing company objected because they did NOT want to inflate the damages by having the jury learn that insurance was involved, thereby prejudicing it, particularly if it was determined that there was no insurance coverage.  You cannot blame the insured in this instance, particularly because the injured plaintiff was probably all for having the insurer intervene so that the jury learned about the insured’s insurance. 

 

While the trial court granted the motion to intervene, after a number of events occurred (not discussed here), the trial court ultimately dismissed the intervention. The insurer appealed.

 

The appellate court affirmed the denial / dismissal of the insurer’s intervention in the underlying action.  The bottom line is that the insurer was not sued in the underlying action. It could not be sued by the injured plaintiff based on Florida’s non-joinder statute (Florida Statute 627.4136) that would prevent the injured plaintiff from suing the liability insurer directly until it gets a judgment against the insured.  Thus, the insurer had no direct and immediate interest in the dispute. Any judgment entered in the case would not be against the insurer—it would be entered against its insured.  Further, if the insured obtained a judgment and then sued the insurer, the insurer would not be deprived of appropriate legal defenses. 

 

As the appellate court explained, the insurer’s argument, if accepted, would be to eviscerate Florida’s non-joinder statute:

 

If the possibility of owing up to the policy limits based upon entry of an adverse judgment [against an insured] was itself a sufficient basis to allow intervention, insurers would be permitted the unhindered and unfettered opportunity to intervene in innumerable tort cases. That is exactly what Houston [insurer] wants; it seeks to interject itself directly into Mr. Vaughn’s [injured plaintiff’s] tort lawsuit. We cannot countenance such a result in light of the legislature’s intent [in Florida’s non-joinder statute] to prevent the introduction of such prejudicial information from being introduced to the jury.  After all, courts must continually be concerned that insurance coverage not be introduced to the jury because of its potential to adversely impact the issues of liability and damages. 

 

 

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.

 

COMPETING EXPERT WITNESSES IN AN INSURANCE COVERAGE DISPUTE

shutterstock_363608708Oftentimes, insurance coverage disputes involve competing expert witnesses.  The experts render different expert opinions regarding a topic that goes to coverage and/or damages.  An example of competing expert witnesses can be found in the recent property insurance coverage dispute, Garcia v. First Community Ins. Co., 43 Fla.L.Weekly D671a (Fla. 3d DCA 2018). 

 

In this case, an insured submitted a claim under her homeowner’s policy for water damage due to a roof leak.  She claimed her damage was approximately $23,000.  The insurer denied coverage and an insurance coverage dispute ensued.

 

The insured’s policy, akin to many homeowner’s policies, contained exclusions for loss caused by:

 

h. Rain, snow, sleet, sand or dust to the interior of a building unless a covered peril first damages the building causing an opening in a roof or wall and the rain, snow, sleet, sand or dust enters through this opening.

 ***

i. (1) Wear and tear, marring, deterioration;

 

The insurer sent an engineer to inspect the insured’s property and the engineer (expert) opined that the water intrusion was not covered under the policy based on the aforementioned exclusions.  Her opinion was that the water intrusion through the roof was the result of deterioration from age, tree branch abrasions, and construction defects based on how nails were installed into the shingles.  Based on this opinion, the insurer was denying coverage based on the (i) wear and tear, marring and deterioration exclusion and (ii) rain intruded through the roof based on a peril (construction defect) that was not covered under the policy.

 

The insured, as expected, had a competing expert that opined that a hail impact or high wind uplift (covered peril) in the days leading up to the rain event caused water to intrude through the roof and cause interior damage.   Under this opinion, the insured was presenting an expert opinion for coverage and why the insurer’s exclusions were inapplicable.

 

In this case, surprisingly, the trial court granted summary judgment in favor of the insurer.  However, this was reversed on appeal because the competing opinions as to coverage and the cause of the insured’s loss created a genuine issue of material fact.  Summary judgment cannot be granted if there are genuine issues of material fact.  See Garcia, supra, (“Given this conflict in the material evidence as to the cause of the loss, the trial court erred in entering final judgment in favor of First Community [insurer].”).

 

Another argument the insurer raised was that its engineer inspected the property within months after the date of loss whereas the insured’s expert is basing an opinion on an inspection that occurred three years after the fact.   This fact, albeit true, does not create a genuine issue of material fact.  Rather, it goes to the credibility of the experts at trial.  Which expert is more credible regarding the cause of the loss:  the insurer’s expert that inspected the property a few months after the loss or the insured’s expert that inspected the property years after the loss.  Well, the issue of credibility and how a jury / trier of fact weighs this in consideration of other evidence is not appropriate in determining a motion for summary judgment. See Garcia, supra.

 

Experts are an important part of construction disputes including insurance coverage disputes and it is not uncommon for there to be competing expert opinions as to the cause of a loss, a defect, and, of course, damages.   

 

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.

ILLUSORY INSURANCE COVERAGE: REAL OR UNREAL?

shutterstock_585394823In insurance coverage declaratory relief actions, there are times an insured will argue that the insurance policy coverage is illusory.  Typically, an insured will raise this illusory argument if its insurer is denying coverage based on an exclusion or limitation in the policy.  If a court agrees and deems the coverage illusory, the court will construe the policy to afford coverage to the insured.  This is the obvious value of the argument: coverage!

 

A policy is illusory only if there is an internal contradiction that completely negates the coverage it expresses to provide.”  The Warwick Corp. v. Turetsky, 42 Fla.L.Weekly D1797a (Fla. 4th DCA 2017).    Thus, if a policy grants coverage in one section but then excludes the same coverage in another section, the coverage would be deemed illusory.  Id. quoting Tire Kingdom, Inc. v. First S. Ins. Co., 573 So.2d 885, 887 (Fla. 3d DCA 1990).  An illusory policy was found in the following examples: (a) a policy covered certain intentional torts but then excluded intended acts; (b) a policy covered advertising injury but elsewhere excluded advertising injury; and (c) a policy covered parasailing but excluded watercrafts.  Id. (citations omitted). In all examples, coverage in the policy was completely swallowed up by an exclusion rendering the coverage illusory.  Stated differently, coverage was completely contradicted by an exclusion in the policy rendering the policy absurd.

 

However, if an exclusion or limitation in the policy does not entirely swallow up the coverage, the policy is not illusory.  The Warwick Corp., supra.  For example, if a policy covers advertising injury but excludes advertising injury caused by a violation of law, the coverage is not illusory.   The exclusion does not completely swallow up the coverage as it only excludes advertising injury cased by a violation of law.  Id. (citation omitted). 

 

In The Warwick Corp., the insured argued that the excess commercial property insurance policy that covered four hotels was illusory because its coverage was limited to the value of the hotel, which equaled the amount payable under the primary property insurance policy.  Although the court acknowledged that it would be very rare that the excess policy would ever be triggered for one of the hotels, it held that the policy was not illusory because the limitation did not completely swallow up the coverage (as there was an unlikely circumstance that could trigger coverage for the hotel).  Additionally, the court noted that the insured was a sophisticated entity that paid a minimum premium for minimum coverage under the excess policy for the hotel, meaning it elected to buy the policy and coverage it bought which is a choice it cannot change after-the-fact.

 

As you know from reading my prior posts, insurance coverage is important so make sure you know what risks are covered and what risks are not for your business interests.

 

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.

 

 

 

AMBIGUITY IN INSURANCE POLICY WILL BE INTERPRETED IN FAVOR OF INSURANCE COVERAGE

shutterstock_389538880An ambiguity in an insurance policy–after reading and interpreting the policy as a whole–will be construed against an insurerThis means an ambiguity will be construed in favor of insurance coverage (for the benefit of the insured) as opposed to against insurance coverage.  This does not mean that every insurance policy contains an ambiguity.  This also does not mean a court will interpret plain and ordinary words contrary to their conventional meaning or definition.  But, as we all know, insurance policies are not the easiest of documents to decipher and ambiguities do exist relating to a particular issue or circumstance to the benefit of an insured.  An insured that is dealing with specific insurance coverage issues should make sure they are working with counsel that looks to maximize insurance coverage, even if that means exploring ambiguities that will benefit an insured based on a particular issue or circumstance.

 

An example of an ambiguity in an insurance policy relating to a particular issue that benefitted an insured can be found in the Florida Supreme Court decision of Government Employees Insurance Co. v. Macedo, 42 Fla. L. Weekly S731a (Fla. 2017).  This case involved an automobile accident and the interpretation of an automobile liability policy. 

 

In this case, after an accident, a plaintiff sued the defendant that caused the accident. The defendant’s insurer GEICO provided a defense in accordance with the defendant’s automobile liability policy.  During the litigation, the plaintiff served a proposal for settlement for $50,000, which is a procedural vehicle to create the argument for attorney’s fees if the defendant does not accept the proposal.  The defendant—again, being defended by its insurer GEICO—did not accept the proposal.  The case proceeded to trial and the plaintiff obtained a jury verdict of approximately $243,000.  This meant the plaintiff had a basis to recover attorney’s fees since the defendant did not accept the proposal for settlement.   The plaintiff moved to bind GEICO to a judgment, and the underlying issue was whether the defendant’s insurer GEICO was liable under the policy for attorney’s fees.  If GEICO was not liable, then that meant the defendant was individually liable for the plaintiff’s incurred attorney’s fees. 

 

This is a significant issue because by the defendant’s counsel not accepting the proposal for settlement, the defendant, individually, was exposed to substantial attorney’s fees incurred by the plaintiff.   The defendant’s counsel was hired by GEICO and GEICO controlled any settlement of the case and the defendant was required to cooperate with GEICO.

 

The applicable language of the insurance policy as relied upon by the Florida Supreme Court was as follows:

 

ADDITIONAL PAYMENTS WE WILL MAKE UNDER THE LIABILITY COVERAGES

1. All investigative and legal costs incurred by us.

. . . .

4. We will upon request by an insured, provide reimbursement for the following items:

. . . .

(c) All reasonable costs incurred by an insured at our request.

. . . .

Additionally, the index of the policy lists “Legal Expenses And Court Costs” as items that are covered under the Additional Payments section.

 

The Florida Supreme Court, interpreting the policy as a whole, found this language to be ambiguous relating to the insurer’s obligation to cover attorney’s fees incurred by the plaintiff due to GEICO’s defense counsel not accepting the proposal for settlement.  This ambiguity was a big “W” for both the defendant-insured and the plaintiff because it meant that GEICO was liable for the plaintiff’s attorney’s fees.

 

First, the Court explained that the terms “Legal Expenses” and “Court Courts” signify that legal expenses in addition to court costs would be covered under the policy; otherwise, there would have been no reason to separately include the language “Legal Expenses” in the index of the policy.

 

Second, the Court explained that there are numerous reasonable interpretations that attorney’s fees are encompassed by the terms “costs” and expenses” as used in the policy. 

 

And, third, the Court explained that the legal expenses (attorney’s fees) incurred by the insured were the product of GEICO electing not to accept the proposal for settlement, and thus, were incurred by the defendant-insured at GEICO’s direct request.  GEICO had complete discretion under the policy to settle the case with the insured being required to cooperate with its insurer.   “It follows that any cost or fee incurred as a result of GEICO exercising its authority and control is something that it intended to pay.”  See Macedo, 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.

 

TIMELY WRITTEN NOTICE TO INSURER AND COOPERATING WITH INSURER

shutterstock_651871066I harp on notifying a liability insurer in writing once a claim is asserted against you.  As soon as possible.  I harp on this because as an insured you want to remove any doubt or argument that the insurer was prejudiced due to a lack of timely notice. 

 

In a recent opinion, Zurich American Insurance Co. v. European Tile and Floors, Inc., 2017 WL 2427172 (M.D.Fla. 2017), the insurer moved for summary judgment in a coverage action arguing that its insured failed to provide it timely written notice.  Specifically, the insurer argued that the insured violated the clause in the liability policy that states:

 

2. Duties in the Event of Occurrence, Offense, Claim or Suit

b. If a claim is made or “suit” is brought against any insured, you must:

1. Immediately record the specifics of the claim or “suit” and the date received; and

2. Notify us as soon as practicable.

You must see to it that we receive written notice of the claim or “suit” as soon as practicable. 

c.  You and any other insured must:

1. Immediately send us copies of any demands, notices, summonses or legal papers received in connection with the claim or “suit”;

2. Authorize us to obtain records and other information;

3. Cooperate with us in the investigation, settlement or defense of the claim or “suit”; and

4. Assist us, upon our request, in the enforcement of any right against any person or organization which may be liable to the insured because of injury or damage to which this insurance may also apply.

 

Here, the insured claimed it orally called the insurer about the nature of the suit and a representative told it that there would be no coverage for the lawsuit.   The insurer, however, claimed it has no record of such a call and only learned of the lawsuit after a judgment had already been entered against the insured.  Particularly, a seven-figure judgment was entered against the insured and the judgment creditor then sued the insurer which prompted the insurer to file a coverage lawsuit. 

 

The insurer argued that there should be no coverage because the insured violated the clause regarding being provided timely written notice of the lawsuit.  An insured can forfeit otherwise valid coverage by failing to provide timely notice to the prejudice of the insurer.

 

Under Florida law, if an insured’s notice is untimely, a presumption of prejudice arisesEuropean Tile and Floors, supra, at *5.  The insured can only prevail if it rebuts the presumption of prejudice by demonstrating with competent evidence that the insurer was not prejudiced by the untimely notice.   Id.   However, although the policy required written notice, this requirement can be waived when the insurer has actual notice of the claimId

 

In this case, the Middle District denied the insurer’s motion for summary judgment because there was a material fact dispute as to whether the insured provided notice of the lawsuit to the insurer—the insured claims it did so through an oral call which the insurer disputes.

 

The insurer also moved for summary judgment arguing the insured failed to cooperate with it.  An insurer may deny coverage for an insured’s failure to cooperate when “(1) the lack of cooperation was material, (2) the insurer exercised diligence and good faith in bringing about the cooperation of its insured and itself complied in good faith with the terms of the policy and (3) the lack of cooperation substantially prejudiced the insurer.”  European Tile and Floors, supra, at *6 quoting Mid-Continent Cas. Co. v. Basdeo, 477 Fed.Appx. 702, 706-07 (11th Cir. 2012).

 

 

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.

SUBCONTRACTOR’S LIABILITY INSURER’S DUTY TO DEFEND THE “ADDITIONAL INSURED” GENERAL CONTRACTOR

shutterstock_306317915Construction projects can lead to insurance coverage disputes.  One such dispute arises when a general contractor is sued for construction defects and resulting property damage and it tenders the defense of the claim / lawsuit to an implicated subcontractor’s liability insurer.  A general contractor does this because it (hopefully) will be an additional insured under the subcontractor’s liability policy.  Being identified as an additional insured under a subcontractor’s liability policy is imperative for a general contractor as part of its normal risk assessment. The issue will typically come up in any construction defect lawsuit because if the general contractor is an additional insured it will, and should, tender the defense of the lawsuit to implicated subcontractors’ insurers. 

 

Sometimes, a subcontractor’s liability insurer will deny the duty to defend the general contractor.  Yes, this happens.  When it does, the general contractor’s insurer will provide a defense to the general contractor but may pursue the subcontractor’s insurer for reimbursement of fees and costs based on the general contractor being an additional insured under the subcontractor’s liability policy.

 

For example, in Travelers Property Casualty Co. of America v. Amerisure Ins. Co., 161 F.Supp.3d 113 (N.D.Fla. 2015), the general contractor’s liability insurer (Travelers) sued a stucco subcontractor’s liability insurer (Amerisure) where the underlying issue was whether the general contractor was an additional insured under the subcontractor’s liability policy.  The subcontractor’s insurer refused to defend the general contractor in an underlying construction defect lawsuit.  The general contractor’s insurer provided a defense in the underlying lawsuit and sued the subcontractor’s insurer for reimbursement.  

 

Under Florida law, a liability insurer’s duty to defend extends to an entire lawsuit if any claim in the lawsuit may come within the policy’s coverage.”  Travelers Property Casualty Co., 161 F.Supp.3d at 1137.    The underlying complaint against the general contractor alleged property damage caused by defective stucco installation.  This meant that the complaint triggered the duty to defend and the Court held the general contractor was an additional insured under the subcontractor’s liability policy.  For this reason, the Court maintained that the subcontractor’s insurer (Amerisure) owed the general contractor’s insurer (Travelers) the reasonable attorney’s fees incurred in the defense of the general contractor in the underlying lawsuit:

 

When Amerisure [subcontractors’ insurer] failed to step up, Travelers [general contractor’s insurer] did what Amerisure should have done: Travelers provided Yates [general contractor] a defense. The attorneys Travelers hired chose to defend the case not only by answering the claims but also by asserting third-party claims against subcontractors, including Jemco [stucco subcontractor]. Travelers paid the fees and costs incurred in connection with the third-party claims, apparently concluding that this was the best strategy for defending the claims and that its duty to defend Yates thus obligated it to pay for the third-party claims as well. There is support for that view. 

***

Had Amerisure provided a defense as it should have done, the attorneys it hired might or might not have made the  same strategic decision as the attorneys hired by Travelers. But now Amerisure can complain, at most, about unreasonable decisions, not about decisions that reasonably could have gone either way. As a leading commentator has put it, when an insurer breaches its duty to defend,

the insured is justified in assuming the defense of the action and is released from the contractual obligation to leave the management of the case to the insurer. Not only does the insurer lose the power to control the defense or dictate to the insured how the case should be handled, but the insurer cannot complain about the conduct of the defense by the insured or the negligent handling of the case by the insured’s attorney.

 

Travelers Property Casualty Co. of America, 161 F.Supp.3d at 1138-39 (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.

EXAMPLE OF IMPORTANCE SUPPORTING THEME FOR INSURANCE COVERAGE

hqdefaultThe case of Divine Motel Group, LLC v. Rockhill Ins. Co., 2016 WL 3902041 (11th Cir. 2016) illustrates the importance of presenting and supporting your theme for insurance coverage.   This theme needs to be well thought out and considered in the context of maximizing insurance coverage.  Otherwise, you are navigating in the world of insurance exclusions without a strategic agenda as to why an exclusion does not apply, such as there is an exception to the exclusion that your theme fits under.  

 

In Divine Motel Group, an insured pursued its property insurer for rainwater damage stemming from a tropical storm.  The property insurance policy contained the following exclusion for rain damage in addition to an exception to the exclusion:

 

[Rockhill] will not pay for loss of or damage to … [t]he interior of any building or structure, or to personal property in the building or structure, caused by or resulting from rain, … whether driven by wind or not.” The policy contained an exception to this exclusion, providing that Rockhill would pay for damage to the interiors caused by rain if “[t]he building or structure first sustains damage by a Covered Cause of Loss to its roof or walls through which the rain … enters.” The policy listed “windstorm” as a covered cause of loss.

Divine Motel Group, supra, at *1. 

 

Huh?!? An exclusion and an exception to an exclusion?!?  That’s right.  In a nutshell, the rainwater exclusion says that the policy does cover damage caused by rain. But, as an exception, the policy will cover rainwater damage if the property FIRST sustained damage to its roof or walls by a loss covered under the policy through which the rainwater enters. 

 

The insured argued that the exception to the exclusion applied because the rainwater entered through roofs and walls damaged by the tropical storm (e.g., a covered cause of loss to the roof or walls through which the rain entered). 

 

The problem for the insured was that it was unable to point to any competent evidence, including opinions from its expert, that there was damage to the roof and walls through which the rainwater entered.   There the problem lies, as you can imagine, since there was no competent evidence to support the insured’s theme which was that the exception to the rainwater damage exclusion applied.

 

The morale is that if relying on an exception to an exclusion, the theme of the case, including expert opinions, needs to be specifically centered around the exception.  There needs to be competent evidence in the record to prove that an exception to an exclusion applied.  For instance, in this case, there was nothing in the record to prove that the tropical storm damaged the roofs and walls through which rainwater entered triggering the exception to the exclusion.

 

 

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.

 

 

INTERACTION BETWEEN CGL INSURANCE, OCIP, AND SUBCONTRACTOR DEFAULT INSURANCE

imagesHere is a great opinion and insurance coverage dispute about the interaction between a CGL policy, and particularly one provided under an Owner’s Controlled Insurance Program, and a subcontractor default insurance policy / subguard policy. 

 

In Pavarani Construction Co. v. Ace American Insurance Co., 2015 WL 6555434 (S.D.Fla. 2015), a general contractor constructed a high-rise condominium project.  The general contractor and subcontractors were enrolled in the Owner’s Controlled Insurance Program (“OCIP”).  This meant the general contractor and the subcontractors had the same CGL insurer.   In addition, and outside of OCIP, the general contractor had subcontractor default insurance which is insurance a general contractor maintains to insure the risk of subcontractor default (and, really, catastrophic subcontractor default).

 

Post-construction, it was discovered that that the structural shell subcontractors the general contractor hired to (a) install the concrete masonry units and (b) the cast-in-place concrete, performed their work defectively.  Specifically, reinforcing steel required to be installed within the concrete masonry units or cast-in-place concrete was omitted or improperly installed.    These deficiencies resulted in excessive movement of building components.  This movement caused stucco to debond, cracking in the walls, cracking of cast-in-place columns, beams, and shearwalls, and cracking in the mechanical penthouse enclosure on the roof that then resulted in water intrusion.

 

Upon discovering the deficiencies and/or resulting damage, the owner of the Project put the general contractor on notice.  The general contractor notified its subcontractors.  The general contractor (and subcontractors) sought indemnification under the CGL policy within OCIP. (Remember, with an OCIP policy, it is the same CGL insurer that covers all enrolled entities.)  The CGL carrier, however, denied coverage.  This resulted, applicable to the case, in the concrete masonry unit subcontractor defaulting on its subcontract because it was unable to perform repairs to its deficient work and cover the resulting damage without the CGL insurance proceeds.  As a consequence, the general contractor submitted a claim to its subcontractor default insurance policy to recover money to fund the repairs that were in excess of $25 Million.  The general contractor also worked out a deal with its subcontractor default insurance policy that it would pursue the CGL carrier for reimbursement.

 

The general contractor then sued the CGL insurer for indemnification by asserting a breach of contract claim and a declaratory relief claim against the insurer. 

 

RESULTING DAMAGE

 

The insurer argued that there was no coverage because there is no coverage under the CGL policy for the general contractor repairing defective work.   This is true, BUT “if the defective work causes damage to otherwise nondefective completed product, i.e., if the inadequate subcontractor work caused cracking in the stucco, collapse of the [mechanical] penthouse enclosure, and cracking in the critical concrete structural elements…[the general contractor] is entitled to coverage for the repair of that non-defective work.”  Pavarani, supra, at *4.   In other words, while repairing the defective work would NOT be covered, repairing damage resulting from the defective work WOULD be covered.

 

In discussing coverage for resulting damage, the court relied on a recent Eleventh Circuit Court of Appeals case, Carithers v. Mid-Continent Casualty Co., 782 F.3d 1240 (11th Cir. 2015).   This case is actually a very important case because it held “the complete replacement of defective subcontractor work may be covered when necessary to effective repair ongoing damage to otherwise non-defective work.”  Pavarani, supra, at *4.   (Please review the specifics of this case here).  Basically, if replacement of potentially defective work is necessary to repair resulting damage, then such replacement of the defective work would be covered under the policy. For instance, if you had to remove (or rip-and-tear out) defective work in order to fix the resulting damage, then such removal would be covered.

 

Here, it was clear that the defective work caused resulting damage triggering the CGL policy’s obligation to indemnify the general contractor and applicable subcontractors.

 

“OTHER INSURANCE” PROVISION

 

The CGL policy contained an “Other Insurance” provision.  This provision means that the policy will operate as excess (not primary) insurance over any other available insurance.  This provision is in virtually every CGL policy and in many other types of insurance policies such as a subcontractor default insurance policy.  The “Other Insurance” provision applies “when two or more insurance policies are on the same subject matter, risk and interest.”  Pavarani, supra, at *5.

 

The CGL insurer argued that based on this “Other Insurance” provision, the general contractor’s subcontractor default insurance should operate as the primary insurance with it serving as any excess insurance.  The court correctly dismissed this argument since a CGL policy and subcontractor default insurance policy insure completely different business risks.   Besides, the subcontractor default insurance policy insures the general contractor for a subcontractor default and does not insure a subcontractor for its default. 

 

Furthermore, the court held:

 

Courts disregard ‘Other Insurance’ provisions where, as here, there is a contractual right of indemnification between the parties insured by the relevant policy.  Here, AWS [concrete masonry subcontractor] contracted to indemnify Plaintiff [general contractor] for damages resulting from its work and Defendant [CGL insurer] insured AWS [per OCIP] for claims of property damage.  Therefore, Defendant cannot utilize the ‘Other Insurance’ provision to shift the loss.

Pavarani, supra, at *5 (internal citation omitted).

 

ATTORNEY’S FEES

 

Florida Statute s. 627.428 authorizes attorney’s fees against an insurer in an insurance coverage case.  Since the general contractor (insured) prevailed, it was entitled to its reasonable attorney’s fees.

 

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.