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

Posted on March 10, 2024March 10, 2024 by David Adelstein

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

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

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

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

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

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

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

I. Evaluation of Insurer’s Duties under Liability Policy

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

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

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

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

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

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

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

***

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

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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.

ENDORSEMENT TO INSURANCE POLICY CONTROLS

Posted on March 20, 2022March 20, 2022 by Edward Garber

I’ve said this before, and I’ll say it again: an insurance policy is a complicated reading and this reading gets compounded with endorsements that modify aspects of the policy.

What you think may be covered may in fact not be covered by virtue of an endorsement to the insurance policy. This is why when you request an insurance policy you want to see the policy PLUS all endorsements to the policy. And when you analyze a policy, you need to do so with a full reading of the endorsements.

An endorsement to an insurance policy will control over conflicting language in the policy. Geovera Speciality Ins. Co. v. Glasser, 47 Fla.L.Weekly D436a (Fla. 4^th DCA 2022) (citation omitted).

The homeowner’s insurance coverage dispute in Glasser illustrates this point. Here, the policy had a water loss exclusion. There was an exception to the exclusion for an accidental discharge or overflow of water from a plumbing system on the premises. But there was an endorsement. The endorsement modified the water loss exclusion to clarify that the policy excluded water damage “in any form, including but not limited to….” Examples were then given which did not include the accidental discharge or overflow of water from a plumbing system.

The homeowner filed an insurance coverage dispute against the property insurance carrier for a water damage claim. Specifically, a pipe in a bathroom burst causing water damage. The insured claimed this was covered because of the accidental discharge or overflow of water from a plumbing system exception. The trial court agreed. The appellate court did not. Why?

The answer is simple. The endorsement. “The insurer’s endorsement language…expressly excludes damages caused by water in any form, including plumbing system accidents. Although the policy’s ‘Exception [t]o c.(6)’ expressly covers accidental discharges of water from a plumbing system, it is superseded by the endorsement which excludes water loss in any form.” Glasser, supra.

The insured argued, as it should, that the endorsement did not explicitly identify that water damage included accidental discharges of water from a plumbing system indicating that such was covered under the policy. While true, the appellate court disagreed with this sentiment. “‘[T]he mere fact that a provision in an insurance policy could be more clearly drafted does not necessarily mean that the provision is otherwise inconsistent, uncertain or ambiguous.’ While this policy may require the reading of multiple policy provisions, it is unambiguous and simply does not cover the water loss suffered by the insured.” Glasser, supra (internal citation omitted).

CGL POLICIES AND THE PROFESSIONAL LIABILITIES EXCLUSION

Posted on August 11, 2018April 24, 2020 by Edward Garber

Commercial general liability (CGL) policies for contractors traditionally contain a professional liabilities exclusion. This exclusion is generally added through a specific endorsement to eliminate coverage for professional services. Read the endorsement The point of the exclusion, in a nutshell, is simply to eliminate a CGL policy for a contractor serving as a professional liability policy.

Contractors need to appreciate a professional liabilities exclusion added through endorsement because oftentimes there are delegated design components they are responsible for. Perhaps the contractor value engineered a system and is responsible for engineering and signing and sealing the engineered documents (through its subcontractor) associated with that system. Perhaps there is a performance specification that requires the contractor to engineer a system. Perhaps there is a design-build component. Regardless of the circumstance, this professional liabilities exclusion can certainly come into play, particularly if a defect is raised with the design or professional services associated with the engineered system.

In a non-construction case dealing with a professional liabilities exclusion, the Second District Court of Appeal in Alicea Enterprises, Inc. v. Nationwise Ins. Co. of America, Inc., 43 Fla.L.Weekly D1713b (Fla. 2d DCA 2018) held:

Whether a professional service has, or has not, been rendered is a fact-intensive analysis. Thus, when deciding whether an act arises out of the rendering of or failure to render a professional service, the court must focus on the act itself and not the character of the individual performing the act. The act from which the claim arises must be related to a professional service that requires the use of professional judgment or skill.

Id. (internal citations omitted).

In this case, the insurer issued a CGL policy to a pharmacy. The pharmacy was sued in a negligence action. The pharmacy’s CGL insurer filed an action for declaratory relief claiming it had neither a duty to defend nor indemnify its insured (the pharmacy) since the underlying claims arose out of professional services and the CGL policy contained a professional liabilities exclusion.

The Second District maintained, as to the insurer’s duty to defend its insured, that the insurer had a duty to defend the pharmacy (insured) in the negligence action because the allegations in the underlying complaint could be deemed unrelated to professional services.

The Second District maintained, as to the insurer’s duty to indemnify its insured, that this duty is more fact-intensive and without sufficient discovery, there was a genuine issue of material fact as to whether the evidence brought the pharmacy’s conduct within the meaning of the professional liabilities exclusion in the CGL policy.

Here, while the pharmacy will get the benefit of the insurer’s duty to defend since that is triggered by the underlying complaint, the duty to indemnify is different and triggered by the facts. It is likely that the facts in this case trigger the application of the professional liabilities exclusion, meaning the CGL insurer does NOT have a duty to indemnify the insured for the damages proven against it. Not the situation an insured wants to be in!