Category Archives: Insurance

FINGER POINTING BETWEEN LIABILITY INSURERS AND “OTHER INSURANCE” PROVISION

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It’s not uncommon when liability insurers point the finger at each other relating to which insurer should be deemed primary, which insurer should be excess, or whether a pro rata contribution between insurers applies.  Typically, this needs to be decided by the “other insurance” provision in the insurance policy that deals with overlapping insurance as well as case law in the governing jurisdiction.

This was the case in Gemini Insurance Co. v. Zurich American Insurance Co., 30 Fla. L. Weekly Fed. (11th Cir. 2024). Both insurers provided liability coverage to a trucking company that got into an accident that resulted in the death of a person. Both carriers–Gemini and Zurich–disputed the amount each carrier owed to a settlement that Gemini funded.

In Florida, “where more than one insurer’s policy provides coverage for a loss,” as the parties agree is the case here, “it is appropriate to review the insurance contracts to see if the documents address the ‘ranking’ or contribution of other insurers.”  That sort of “ranking” is usually accomplished through an “other insurance” clause. Florida law recognizes “three principal kinds” of “other insurance” clauses: (1) pro rata; (2) excess; and (3) escape or no liability.  A pro rata clause limits an insurance company’s contribution to a proportion of the total loss based on the policy’s limit.  An excess clause provides coverage only after other insurance limits are exhausted.  And an escape or no liability clause provides that there is no coverage if there is another policy that covers. 

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“In Florida, where two insurance policies contain excess insurance clauses the clauses are deemed mutually repugnant and both insurers become primary and share the loss on a pro rata basis in accordance with their policy limits.”

Gemini Ins. Co., supra (internal citations omitted).

However, whether two policies are purely “excess” policies is not clear cut.

Zurich argued that the policies should contribute pro rata because its policy and the Gemini policy were both excess and, thus, deemed repugnant. However, the 11th Circuit found this unconvincing based on language in Zurich’s “other insurance” provision because the Gemini policy’s “other insurance” provision provided it was a “pure excess” policy and Zurich’s “other insurance” provision contained pro rata language:

And in such a scenario, “courts give effect to the pure excess provision.” Id. (emphasis added). Helpfully for our purposes, State Farm’s “other insurance” clause in Ferris described itself — much like Zurich’s here — as applying “excess coverage.” Notwithstanding the label, Ferris deemed it a pro rata clause because of its “we will pay the proportion” language. That is language that Zurich’s policy also contains.

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In sum, we have one Florida case, Ferris, that tells us that an “other insurance” clause containing the phrase “we will pay the proportion of damages payable as excess” means that the clause was pro rata, even though it also characterized itself as an excess clause. And we have Beane, which, in comparing two excess “other insurance” clauses, teaches that the phrase “[we] shall not contribute with such other insurance” carries with it special significance.

Turning back to the “other insurance” clauses at issue here, Zurich’s contains the “we will pay the proportion” phrase from Ferris and Gemini’s contains the “we shall not contribute” phrase from Beane. Considered together, we believe that Ferris and Beane counsel that Gemini’s policy is excess to Zurich’s.

Gemini Ins. Co., supra (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.

 

FLORIDA CLAIMS ADMINISTRATION STATUTE AND DIFFERENCE BETWEEN POLICY DEFENSE AND COVERAGE DEFENSE

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A recent insurance coverage dispute involving an automobile liability insurance policy contains a worthy discussion, particularly on the difference between a policy defense and a coverage defense.  In this case, the carrier did not provide a defense to the defendant and the plaintiff and defendant entered into a Coblentz agreement.  The plaintiff, as assignee of the insured, filed a lawsuit against the automobile liability policy for coverage. Summary judgment was granted in favor of the insurer finding there was no coverage under the terms of the policy. This was affirmed.

1. Scope and Extent of Insurance Coverage

The scope and extent of insurance coverage is determined by the language of the insurance policy. Thus, the policy’s text is paramount and must be the starting point of our analysis. Parrish v. State Farm Florida Ins. Co., 356 So. 3d 771, 774 (Fla. 2023); see also State Farm Mut. Auto. Ins. Co. v. Menendez, 70 So. 3d 566, 569 (Fla. 2011) (“In interpreting an insurance contract, we are bound by the plain meaning of the contract’s text.”); § 627.419(1), Fla. Stat.

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The policy must be enforced as written. Courts are without power to rewrite insurance contracts or create insurance coverage where none exists. Excelsior Ins. Co. v. Pomona Park Bar & Package Store, 369 So. 2d 938, 942 (Fla. 1979); U.S. Fire Ins. Co. v. Morejon, 338 So. 2d 223, 225 (Fla. 3d DCA 1976) (“Florida courts adhere to the principle that a court should not rewrite a contract of insurance extending the coverage afforded beyond that plainly set forth in the insurance contract.”).

Fojon v. Ascendant Commercial Ins. Co., 49 Fla.L.Weekly D1799b (Fla. 3d DCA 2024)

2. Florida’s Claims Administration Statute and Difference between Coverage Defenses and Policy Defenses

An argument that was raised by the plaintiff (as assignee of the insured) was that the liability insurer waived its right to deny coverage because the insurer failed to comply with Florida’s Claims Administration Statute.

Florida’s Claims Administration Statute is embodied in Florida Statute s. 627.427, which provides in material part in subsection (2):

(2) A liability insurer shall not be permitted to deny coverage based on a particular coverage defense unless:

(a) Within 30 days after the liability insurer knew or should have known of the coverage defense, written notice of reservation of rights to assert a coverage defense is given to the named insured by registered or certified mail sent to the last known address of the insured or by hand delivery; and

(b) Within 60 days of compliance with paragraph (a) or receipt of a summons and complaint naming the insured as a defendant, whichever is later, but in no case later than 30 days before trial, the insurer:

        1. Gives written notice to the named insured by registered or certified mail of its refusal to defend the insured;
        2. Obtains from the insured a nonwaiver agreement following full disclosure of the specific facts and policy provisions upon which thecoverage defenseis asserted and the duties, obligations, and liabilities of the insurer during and following the pendency of the subject litigation; or
        3. Retains independent counsel which is mutually agreeable to the parties. Reasonable fees for the counsel may be agreed upon between the parties or, if no agreement is reached, shall be set by the court.

Importantly, as reflected in the statute, it pertains to coverage defenses. Not policy defenses.

A policy defense is an assertion that the terms of the insurance contract do not provide for coverage. AIU Ins. Co. v. Block Marina Inv., Inc., 544 So. 2d 998, 1000 (Fla. 1989). For example, a policy defense exists where the insuring agreement is not triggered, such as when a person does not qualify as an insured or when a vehicle does not qualify as a covered auto. Other examples include where an exclusion applies, or when a loss occurs outside of the policy period.

On the other hand, a coverage defense involves forfeiture of insurance coverage that otherwise exists. Coverage defenses arise where the insured fails to comply with a condition or duty required by the policy, such as failing to cooperate, committing fraud, or failing to provide prompt notice. It is based on some action or inaction of the insured after the loss. Grigsby, supra, at 8 (“It focuses on the insured’s behavior, post-loss in particular.”).

Fojon, supra.

When it comes to a coverage defense, an insurer must comply with Florida’s Claims Administration Statute. “If it does not, it is estopped from asserting the coverage defense – a breach of a policy condition that would forfeiture coverage. It can still, however, assert a policy defense – a defense of no coverage.”  Fojon, supra (internal citation omitted).

However, in this coverage dispute, the insurer relied on a policy defense in denying coverage and its defense of the insured, not a coverage defense . “Therefore, the Claims Administration Statute does not apply, and it does not bar [insurer] from denying coverage.” Fojon, 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.

BENEFIT OF THE COBLENTZ AGREEMENT AND CONSENT JUDGMENT

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If you are not familiar with the concept of what is commonly known as a Coblentz agreement relative to an insurance coverage dispute, review these prior postings (here and here and here). This is a good-to-know agreement if you are a claimant and need to consider an avenue of collection if the insured’s carrier denies coverage out of the gate (meaning the carrier has denied both the duty to defend and the duty to indemnify).

A recent Eleventh Circuit Court of Appeals opinion demonstrates the Coblentz agreement concept.  In Barrs v. Auto-Owners Ins. Co., 2024 WL 3673089 (11th Cir. 2024), an owner asserted a construction defect claim against its contractor.  The owner hired the contractor to deconstruct a building and the contractor hired a demolition subcontractor. The owner noticed work was not being performed and materials (e.g., lumber) were missing; the demolition subcontractor had stolen materials. The subcontractor was terminated, and the owner claimed the contractor’s negligence allowed the theft and delayed his project. The contractor’s commercial general liability (CGL) insurer notified the insured-contractor that coverage did not exist and refused to defend the contractor. The owner sued the contractor under various theories of liability.  The owner and contractor entered into a settlement agreement (i.e., the Coblentz agreement) where the contractor “admitted liability in the amount of $557,500.00….A consent judgment was entered against [the contractor] that closely tracked the settlement agreement but did not indicate which portion of the damages award was attributed to which claims. The agreement also assigned [owner] and all of [the contractor’s] rights to claim coverage and to recover available funds under [the contractor’s CGL policy].”

The owner then sued the contractor’s insurer under the CGL policy based on the owner being assigned contractor’s rights under the policy. While the federal district court found Georgia law applied, it further found that the contractor’s CGL policy provided coverage for some of owner’s claims against contractor – it provided coverage for owner’s “claims of negligent hiring, retention, and supervision to the extent that he sought damages for stolen lumber and materials.” Barrs, supra, at *2. The CGL policy did not cover any faulty workmanship or improper deconstruction.  The district court subsequently entered judgment in favor of the owner against the insurer for $557,500. The CGL insurer appealed arguing, mainly: (1) the damages are not covered by its policy, and (2) it had no duty to indemnify the owner because the consent judgment did not allocate between covered and uncovered claims.

As for the CGL insurer’s first point of contention (damages are not covered), he Eleventh Circuit held no exclusion barred coverage for the negligent hiring, retention, and supervision claims for damages associated with stolen lumber and materials.

As for the CGL insurer’s second point of contention (no duty to indemnity because of lack of allocation in consent judgment), the Eleventh Circuit held that nothing under Georgia law precludes enforcement of an unallocated consent judgment:

“The district court held that “[w]hen an insurance company refuses to defend its insured, without any reservation of rights, and its insured secures ajudgment (without fraud or collusion), an insurance company must pay the entire judgment.” It determined that the consent judgment here wasenforceable because (1) it complied with the procedures established in Coblentz v. American Surety Company of New York, 416 F.2d 1059 (5th Cir.1969); (2) Georgia common law didn’t appear to allow an insurer a second bite at the apple when it chose not to participate in the underlying lawsuit; and (3) [owner’s] declaration attested that the $557,500 settlement was less than the value of the stolen lumber, so even if the consent judgment wasn’t properly allocated, the recovery was reasonable.

We agree that the consent judgment was crafted and executed in compliance with Coblentz. To be sure, although Georgia law estops an insurer from contesting its insured’s liability when it refuses to participate in the underlying lawsuit, it doesn’t necessarily prevent an insurer from later contesting coverage. Even so, we affirm because we’ve been pointed to nothing in Georgia law that clearly prevents the enforcement of unallocated consent judgments.  To hold that unallocated consent judgments are unenforceable would be to shift the burden to the insured and would require meddling in Georgia law to a degree that we think would be imprudent.

Barrs, supra at *5 (internal citations omitted).

When dealing with the Coblentz agreement and corresponding consent judgment, it is better practice to allocate damages between covered and uncovered damages. Regardless, this case demonstrates the benefit of a Coblentz agreement when the liability carrier denies coverage out of the gate and the carrier becomes the best avenue of collection.

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.

SPECIFIED OR DESIGNATED OPERATIONS ENDORSEMENT – LIMITATION OF INSURANCE COVERAGE

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Your commercial general liability (CGL) policy may contain a specified or designated operations endorsement. This does not operate as an exclusion but as a LIMITATION of coverage.  The endorsement may provide that bodily injury or property damage ONLY applies to the operations or business described therein. Similarly, there may be a limitation of coverage for designated classifications or codes which has the same effect—limiting coverage to the classifications/codes listed therein. This is an important consideration, and you need to understand and watch out for such limitations of coverage. (These aren’t the only ones, but it’s important to appreciate that limitations of coverage operate to limit the coverage to which the CGL policy applies.)

The Eleventh Circuit Court of Appeal dealt with this exact issue under Alabama law (although the same analysis would apply in numerous jurisdictions).  In this case, a landscaper (the insured) had a CGL policy with a specified operations endorsement that limited coverage to landscaping operations.  The landscaper was hired to install an in-ground trampoline in addition to site and landscaping operations at a house. A person got hurt using the trampoline and the landscaper was sued. The CGL insurer denied coverage outright (and, thus, any duty to defend) because the complaint asserted that the injury occurred from the landscaper’s assembly and installation of the trampoline, which was not a landscaping operation. Furthermore, the Eleventh Circuit noted that the landscaper’s insurance application specified that the landscaper did not perform any recreational or playground equipment erection or construction, and the installation and assembly of a trampoline would constitute recreational or playground equipment.

Here’s the Eleventh Circuit’s noteworthy discussion on this limitation of coverage:

While the distinction between limits to coverage and exclusions from coverage may be murky in some cases, the policy here makes clear that the Specified Operations provision is a limit — not an exclusion.

To begin with, the Policy’s “Schedule of Forms and Endorsements” describes 27 different “exclusions” — and “Specified Operations” is not one of them. “Specified Operations” is instead described as a “Limitation of Coverage.”

But we need not rest on the policy’s description of the Specified Operations provision, because the operation of the policy confirms its status. Commercial general liability policies generally “give[ ] coverage through the general coverage provision, and ‘take[ ] away‘ coverage through the various exclusions.” Recall, the general coverage provision provides that

[United] 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. [United] will have the right and duty to defend the insured against any “suit” seeking those damages. However, [United] 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.

By those terms, the policy sets out an (albeit not-totally-fleshed-out) limit to coverage. However, this initial explanation does not provide the full scope of coverage because it very broadly tells us only that the insurer will pay damages “to which this insurance applies” but not for any suit “to which this insurance does not apply.” From there, the Specified Operations provision fills in the details by adding, to that same section, the following:

        1. This insurance applies to “bodily injury” and “property damage” only if:

(4) The “bodily injury” or “property damage” arises from one or more of the operations shown above; and [i]f also scheduled above[.]”

What “operations are shown” and “scheduled above”? The policy states simply that “[the] Insured performs landscaping.” In short, the Specified Operations provision (fitting into the gap left by the general coverage provision) describes the contours or boundaries of coverage — it does not purport to take away coverage already granted.

Thus, the Specified Operations provision is a limitation of coverage — not an exclusion….

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The parties expend significant energy parsing the words of the policy, including whether the site work necessary to install the trampoline was “landscaping” and whether the trampoline injury “arises from” that work. We conclude we need not resolve those issues here. Even taking the term “landscaping” as ambiguous, construing it in [landscaper’s] favor, and applying Alabama law’s broad understanding of the causal term “arises out of,” Snell’s claim still fails. As the district court explained, under Alabama law, “[e]very insurance contract shall be construed . . . as . . . modified by any . . . application which is a part of the policy.” And the district court’s analysis of [landscaper’s] application under that statute was correct:

[Landscaper] was asked in the application whether his work included “any recreational or playground equipment construction or erection” and Snell answered “No.” It is undisputed that the trampoline is “recreational equipment.” If [landscaper] had answered “Yes” to that question or if he had informed United Specialty at some time later that his operations were going to include structural work for recreational equipment and the installation of recreational equipment, then United Specialty could have added that coverage and made any appropriate adjustments to [landscaper’s] rate.

Accordingly, the information [landscaper] provided in his insurance application conclusively shows he is not entitled to coverage.

***

Taking the application as part of the policy itself, we agree with the district court that [landscaper] expressly disclaimed doing any of the sort of work he did here — including the site work necessary to install the trampoline that he now claims is “landscaping” out of which the underlying injury “arises.”

In sum, the district court correctly held that [landscaper’s] insurance application — which Alabama law requires us to consider part of the policy — expressly disclaims the work he did here. Accordingly, we affirm the grant of summary judgment on [landscaper’s] duty-to-defend claim against United.

Snell v. United Specialty Ins. Co., 30 Fla.L.Weekly C1008a (11th Cir. 2024) (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.

PROVIDING YOUR INSURER PROMPT NOTICE

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Sometimes, when it comes to insurance, you may hear the argument that you breached your insurance policy by failing to provide your insurer with prompt notice as the insurance policy requires.  Well, this is not such an absolute issue.  With that said, you should absolutely provide your insurer with prompt notice of a claim or loss. No legitimate reason not to. But, if you don’t, it is not an absolute get out of jail free card for your insurer, but it does give them a good argument, which you don’t really want to deal with.

In Gulfpoint Construction Co., Inc. v. Westfield Ins. Co., 2024 WL 1759228 (11th Cir. 2024), an insured appealed a trial court’s ruling that found it did not provide prompt notice to its property insurer as the policy required. In this case, notice was provided two years after a loss from a hurricane. The insurer denied coverage and, in doing so, relied on the insured’s failure to provide prompt notice.  Although the trial court agreed, the appellate court found this was a genuine issue of material fact.

“A notice of damage is” often, and is here, “a pre-condition to a claim.” “If an insured breaches the notice provision” of an insurance policy, “prejudice to the insurer will be presumed, but [that presumption] may be rebutted by a showing that the insurer has not been prejudiced by the lack of notice.” “Whether the presumption of prejudice to the insurer has been overcome is ordinarily” a question of fact, so, to grant summary judgment, the record must “conclusively foreclose the insured’s ability to overcome the presumption of prejudice.  So, for example, in Shapiro v. First Protective Insurance Company, a Florida court found that whether the insureds had overcome the presumption was a fact question because their engineer, “based on his inspection, opined not only that the homeowners’ roof more likely than not had been damaged as a direct result of Hurricane Irma in 2017, but also that this damage still could be observed as late as 2022, five years after Hurricane Irma.”  Conversely, in De La Rosa, “the record foreclose[d] the insured’s ability to overcome the prejudice to the insurer in evaluating the extent of the damage because of the delay in making the claim” because the insurer “would not be able to determine the damage at the time of the incident.”  De La Rosa distinguished Stark on the ground that “even though there may be disputed issues of fact as to whether the insurer was prejudiced in determining the cause of the loss, the facts … show[ed] that the insurer would be prejudiced by the passage of time in investigating the extent of the loss, and thus, the cost of repair.” 

Gulfpoint Construction Co., supra at *5 (internal citations omitted).

Here, the insured had evidence to rebut the insurer’s prejudice argument to make the issue of whether the insured breached the insurance policy by its failure to provide prompt notice a question of fact:

[The insured’s] expert testified that he “was able to formulate [his] opinions” despite reviewing the damage years after the fact, “and was in no way prejudiced by the timing of [the] inspection”—to the contrary, he said, “no other windstorm event occurred at [the property’s] location between the time of Hurricane Irma and [his inspection] which could have resulted in the damage observed to the [Gulfpoint’s] Building and its roof system.” 

Indeed, [the insurer’s] own expert, Shatto, made clear that his investigation was not prejudiced by the passage of time. Asked to explain “how having to inspect that damage almost two years after Irma negatively impacted or limited [his] ability to” determine “the cause of any portion of the damage or rule out other potential competing causes of the same damage,” Shatto said this:

if I were to inspect that roof—if I had inspected that roof hand in hand with the Crowther Roof people [who conducted the inspection and repairs days after the hurricane], my report would have been identical …. I would have found the same partially formed cracks …. my report wouldn’t have changed.

Thus, as in Shapiro, there is plainly evidence from which a jury could infer that [the insurer] did not suffer prejudice in its investigation because of [the insured’s] delay in notifying them.

Gulfpoint Construction Co., supra at *6 (internal citations omitted).

While in this case, the insured lives another day by allowing this to be decided by the trier of fact–the jury–this is an issue that can be taken off the table by merely providing PROMPT NOTICE to your insurer.

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.

IMPAIRING YOUR INSURER’S SUBROGATION RIGHTS

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Liability insurance policies have a provision that allows them to subrogate to the rights of their insured. This provision is commonly referred to as a transfer of rights provision and reads:

If the insured has rights to recover all or part of any payment we have made under this Coverage Part, those rights are transferred to us. The insured must do nothing after loss to impair them. At our request, the insured will bring “suit” or transfer those rights to us and help us enforce them.

In a recent dispute, an insurer sued its insured claiming the insured breached the insurance policy-a contract—by impairing the insurer’s subrogation rights. In other words, the insurer claimed its insured breach the insurance contract and the transfer of rights provision above.

In this case, Seneca Specialty Ins. Co. v. Jade Condominium Ass’n, 49 Fla.L.Weekly D706h (Fla. 3d DCA 2024), a unit owner sued its association and another unit owner claiming that water flowing from limited common areas within the association’s control damaged its balcony.  The other unit owner that was sued crossclaimed against the association. The association’s liability insurer provided the association with a defense in this lawsuit and ultimately paid policy limits to settle the crossclaim.

The association’s liability insurer did not know, however, that the association had a separate construction defect lawsuit going against the condominium’s developer, general contractor, design professional, and subcontractors.  The lawsuit included construction defect allegations resulting in leaks to units and indemnification from unit owner claims brought against the association from the defects.  The association settled with the defendants in the construction defect lawsuit for significant money and provided the defendants in the construction defect lawsuit with releases. The association did not notify its insurer before its insurer paid policy limits to settle the crossclaim in the separate lawsuit.

The association’s insurer sued the association for breach of contract claiming the association impaired its subrogation rights by settling with the construction defect defendants. The association moved to dismiss, which the trial court granted, arguing (i) the insurer was first required to sue the defendants and lose based on the releases before suing the association for breach of the insurance policy, and (ii) the damages the association recovered in the construction defect lawsuit are different damages, and do no overlap with the monies the insurer paid out, i.e., the insurer paid policy limits to settle a crossclaim due to damages to the interior of a condominium unit for which the association had no standing to sue. The appellate court reversed finding the association did not need to first “sue to lose” before filing its breach of contract lawsuit against the association for impairing its subrogation rights”

Regardless of whether [the insurer] will ultimately be successful in proving that (a) the releases are fatal to its right to recover from the Construction Defect Defendants, and (b) overlap exists between the settlement monies it paid and the damages it would have sought in an action against the Construction Defect Defendants, [the insurer] has met the burden of pleading these issues. We therefore hold that [the insurer] sufficiently pled a breach of contract claim against the Association. [The insurer] pled facts establishing all elements of a breach of contract claim, including damages arising from the Association’s alleged breach of the insurance policy, and the Association failed to set forth any legally cognizable basis for why such a claim should be deemed premature.

Seneca Specialty Ins. Co., supra.

The facts in this case should remind insureds that an insurer has subrogation rights and language in the policy prevents the insured from impairing those rights.  Who knows what the outcome of this case will be as there is an argument the insurer should have “sued to lose” to bolster its breach of contract claim against its insured for impairing its subrogation rights.

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.

 

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

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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.

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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).

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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

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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

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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?

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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.