Big Impact on Duty to Defend Florida Construction Cases

This article originally appeared in the January 4, 2018, online edition of Insurance Journal. All rights reserved. https://www.insurancejournal.com/news/southeast/2018/01/04/476068.htm

A recent case out of the Florida Supreme Court will likely have a big impact on the duty of insurers to defend Florida construction cases. Altman Contractors, Inc. v. Crum & Forster Specialty Insurance Company, Case No.: SC16-1420 (Fla. 2017), arises out of a declaratory judgment action filed in the Southern District of Florida.

Altman Contractors, Inc. served as the general contractor on a high-rise condominium project. Crum & Forster Specialty Insurance Company insured Altman during the project under a series of commercial general liability policies.

From April 2012 to November 2012, Altman received multiple notices of construction defects under Chapter 558, Florida Statutes, following completion of the project. Included in the Chapter 558 Notices, the owner claimed “property damage to the building.” Chapter 558 lays out a process for the resolution of construction defect claims prior to litigation and is, in fact, a condition precedent to filing suit on such claims in Florida. Sec. 558.004(1), Florida Statutes.

In January 2013, Altman tendered to Crum for defense and indemnity of the 558 Notices. Crum denied coverage, arguing the 558 Notices were not a “suit” as defined in the policies. Altman hired its own counsel to defend the 558 Notices. In May 2013, Altman received a supplemental 558 Notice, bringing the total number of construction defects claimed to over 800.

A few months later, Crum hired counsel to defend Altman against the claims under a Reservation of Rights, maintaining the position that the Chapter 558 Notices were not a “suit” under the policy. Altman objected to the counsel assigned by Crum and requested its existing counsel be hired to continue to defend the claims. Altman also demanded that Crum reimburse it for the fees incurred since tendering to Crum in January 2013. Crum denied these requests. Eventually, Altman resolved the claims without Crum’s involvement and prior to suit being filed.

After settling the claims, Altman filed a declaratory judgment against Crum in the Southern District of Florida on the issue of Crum’s duty to defend and indemnity Altman. The Southern District ruled the Chapter 558 Notices did not meet the definition of “civil proceeding” under the policies and granted Crum’s summary judgment. 124 F. Supp.3d 1272, 1275 (S.D.Fla. 2015).

Altman then appealed to the Eleventh Circuit, who certified the following question:

Is the notice and repair process set forth in chapter 558, Florida Statutes, a “suit” within the meaning of the commercial general liability policy issued by Crum & Forester to Altman?

Altman, 832 F.3d 1318 (11^th Cir. 2016).

Crum’s policy provided:

We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies. We will have the right and duty to defend the insured against any “suit” seeking those damages. However, we will have no duty to defend the insured against any “suit” seeking damages for “bodily injury” or “property damage” to which this insurance does not apply. We may, at our discretion, investigate any “occurrence” and settle any claim or “suit” that may result.

“Suit” was further defined as:

“Suit” means a civil proceeding in which damages because of “bodily injury,” “property damage” or “personal and advertising injury” to which this insurance applies are alleged. “Suit” includes:

a)       An arbitration proceeding in which such damages are claimed and to which the insured must submit or does submit with our consent; or

b)      Any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent.

Emphasis added.

The Florida Supreme Court’s review of the Chapter 558 process found it did not qualify as a “civil proceeding” under the policy, arguing participation was not mandatory and there was no adjudication. However, it ruled the Chapter 558 process does qualify as a form of “alternative dispute resolution,” noting the Chapter 558 process was intended to allow the parties a chance to reach a settlement or perform repairs in lieu of a lawsuit. Also, as a form of “alternative dispute resolution,” the Florida Supreme Court held the Chapter 558 process meets the definition of a “suit” under the policies.

In light of the question presented, the Supreme Court did not have to go the next step to the issue of whether the Chapter 558 Notices specifically trigger the duty to defend and indemnify under the policy. However, as the Supreme Court ruled that the Chapter 558 Notice was a “suit” under the policy, we can expect the Altman ruling to be cited in every demand for defense and indemnity from insureds moving forward.

Justice Lawson also issued a separate opinion, concurring in part and dissenting in part, which requires note. Looking back at the policy, Justice Lawson notes the duty to defend only arises as to “suits” for “bodily injury” or “property damage,” but there is no duty to defend suits for “which this insurance does not apply.” Arguing construction defects are not covered by the policy, it is Lawson’s opinion there would not be a duty to defend the Chapter 558 Notices. Although he does concede that, in the Chapter 558 Notices in the instant matter, the owner included claims for “property damage to the building,” which would arguably be covered.

*Elizabeth works in our Jacksonville, Florida office and can be reached at 904.358.4230 or ebferguson@mdwcg.com.

_{Defense Digest, Vol. 24, No. 1, March 2018. Defense Digest is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2018 Marshall Dennehey Warner Coleman & Goggin. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact tamontemuro@mdwcg.com.}