Tag Archives: CGL insurer

SHOULD CGL INSURER HAVE DUTY TO DEFEND INSURED DURING CHAPTER 558 NOTICE OF CONSTRUCTION DEFECTS PROCESS???

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Does a CGL insurer have a duty to defend its insured-contractor during Florida Statutes Chapter 558 notice of construction defects pre-suit process?  This answer is currently undecided and will be up to the Florida Supreme Court to decide.  (It is on appeal stemming from a federal district court saying that an insurer does not have a duty to defend its insured-contractor in the 558 process based on the definition of the word “suit” in the CGL policy.)

Why is this an important issue?

The 558 pre-suit notice of construction defects process is designed to facilitate an avenue for construction defect lawsuits to get resolved without having to file a lawsuit or, at least, have issues narrowed before a lawsuit needs to be filed.  (Check here for a summary of the 558 process.)  It requires pre-suit notifications so that implicated parties can become aware of the defects and have an opportunity to inspect the defects / damage, test the defects / damage, and respond to the notice of construction defects; it provides an avenue for beneficial pre-suit discovery.  Through participating in the 558 process, the contractor and/or design professional (and those downstream from them) can:  (i) offer to remedy the defect, (ii) settle the defect, whether through money or a combination of money and repairs, (iii) dispute the defect, or (iv) advise that available insurance proceeds will be determined by its  liability insurer.  See Fla. Stat. s. 558.004.

There are definitely some pros and cons to the 558 pre-suit process.  There is no doubt about this.  But, if the insured-contractor’s insurer is not on board with the process, then it invariably will fail (unless the defects are relatively minor in nature).  Why will it fail?  Because 558 notice of construction defect letters can contain an extensive laundry list of defects–some minor, some major and complicated.  This means that the insured-contractor really needs an expert or experts on board to truly analyze these issues from a liability and damages standpoint including the most cost effective approach to remedy the defects and corresponding damage.  This, as you can imagine, is costly.  The insured-contractor also wants to know that if a monetary settlement is made, the settlement includes insurance proceeds for damages covered by the CGL policy.  

All of this can really only effectively take place if the insurer defends the insured-contractor in this process to best assess its risk and any forthcoming lawsuit that should (hopefully) nevertheless trigger the insurer’s duty to defend its insured-contractor.   Hence, there is no reason for the insurer not be engaged in the process and defend its insured-contractor, at least under a reservation of rights.  Unfortunately, if the liability insurer disengages from the process and is not willing to defend its insured in the process, then the insured-contractor in many instances is best-off waiting for that lawsuit that will then (a) trigger the insurer’s duty to defend and (b) require the insurer to now incur the costs of the defense, including experts, to defend its insured.  By the insurer not defending its insured-contractor earlier, such as the 558 process, all it is doing is inviting an expensive multi-party lawsuit and not educating itself of the nature of the defects and damage (i.e., its risk assessment) so that efforts can be made to resolve the defect claim, narrow the issues, or develop the framework of the defense.

  

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

 

CGL INSURER’S (HAVE NO!) DUTIES OF DEFENSE AND INDEMNITY UNDER FLORIDA STATUTES CHAPTER 558

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I previously wrote an article regarding Florida Statutes Chapter 558 and its pre-lawsuit application to construction defects.  In particular, I discussed a claimant’s (e.g., owner) requirement to submit a written notice of construction defects to potentially responsible parties and those parties rights under Chapter 558. 

 

When a party (e.g., contractor, subcontractor, design professional) receives a written notice of construction defects pursuant to Chapter 558, that party should notify its insurer (CGL or professional liability, as applicable) of a construction defect claim.  This is generally the prudent avenue to ensure timely notice is given to the insurer and that the insurer starts to pay defense costs as a party participates in the Chapter 558 pre-lawsuit process. 

 

But, what if the CGL insurer refuses to pay a party’s defense costs in participating in the pre-lawsuit process set out in Chapter 558?  The recent opinion in Altman Contractors, Inc. v. Crum & Foster Specialty Ins. Co., 2015 WL 3539755 (S.D.Fla. 2015) deals with this very issue.

 

In this case, a general contractor received written notices of construction defects from a condominium association per Chapter 558. The general contractor notified its CGL insurer of the written notices of defects and demanded that its insurer defend and indemnify it in connection with the notices.  The CGL insurer denied it had any duties with respect to a written notice of defects under Chapter 558 since the matter was “not in suit.”  Subsequently, the insurer claimed it would participate in the pre-lawsuit Chapter 558 process, but that it was going to hire its preferred counsel to represent the general contractor.  The general contractor objected and filed a lawsuit against its CGL insurer seeking a declaration of rights under the policy that (a) the CGL insurer’s duty to defend the general contractor was triggered upon the general contractor’s receipt of the written notice of defects per Chapter 558 and (b) the CGL insurer was responsible for paying the general contractor’s private counsel’s defense costs from the time the CGL insurer was placed on notice of the written notice of defects claim.

 

In analyzing this issue, the court examined the following language in the general contractor’s CGL policy (common language in CGL policies):

 

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” 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.

Altman Contractors, supra, at *5, 6.

 

 

As reflected by the CGL policy’s language, the policy required the CGL insurer to defend the general contractor against any “suit,” and the term “suit” was defined as a “civil proceeding.”  The court looked at the ordinary definition / meaning of a civil proceeding and determined that the ordinary meaning was a judicial proceeding.  Since the court determined that a Chapter 558 written notice of defects claim did NOT constitute a “civil proceeding” under the CGL policy, it concluded that the CGL insurer had NO duty to defend or indemnify the general contractor under the Chapter 558 pre-lawsuit process.

 

Takeaways:

  • If your CGL policy contains analogous language to the policy in this case regarding the definition of “suit,” there is a strong chance that your CGL insurer has NO duty to defend or indemnify you in the Chapter 558 notice of defects pre-lawsuit process. This means a party has to incur its own defense costs in participating in Chapter’s 558 pre-lawsuit process. This also means any decision a party makes in Chapter’s 558 pre-lawsuit process is probably not reimbursable.
  • If your CGL insurer has no duty to defend or indemnify you in connection with a written notice of defects under Chapter 558, this means you need to be sued for the alleged defects in order to trigger the CGL insurer’s duty to defend and indemnify you under the policy.
  • It is still good practice to notify your insurer of a written notice of defects under Chapter 558.  And, if you are a claimant, it is still good practice to notify potentially responsible parties’ insurers of the written notice of defects.  There are insurers that will assume the defense obligation at this point even though a lawsuit has not been initiated.  But, as reflected in this case, the insurer may hire their own counsel instead of the insured’s preferred choice of counsel to do so (which also means that the insurer plans on using its preferred choice of counsel if/when a lawsuit is filed against the insured).

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.