Tag Archives: insurance coverage

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….

***

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.

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.

***

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).

***

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.

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.

Narrow Promissory Estoppel Exception to Create Insurance Coverage

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There is an affirmative claim known as promissory estoppel.  (Whereas equitable estoppel is used an affirmative defense, promissory estoppel is used as an affirmative claim.)

To prove promissory estoppel, a plaintiff must plead and prove the following three elements: “(1) a representation as to a material fact that is contrary to a later-asserted position; (2) a reasonable reliance on that representation; and (3) a change in position detrimental to the party claiming estoppel caused by the representation and reliance thereon.” Romo v. Amedex Ins. Co., 930 So.2d 643, 650 (Fla. 3d DCA 2006) (citation and quotation omitted). Stated differently: “A party will be estopped from denying liability under the principle of promissory estoppel when the party makes ‘[a] promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance…[and] injustice can be avoided only by enforcement of the promise.’” Criterion Leasing Group v. Gulf Coast Plastering & Drywall, 582 So.2d 799, 800 (Fla. 1st DCA 1991).

When it comes to insurance coverage, generally, insurance coverage is not created by an estoppel argument.  JN Auto Collection, Corp. v U.S. Security Ins. Co., 59 So.3d 256, 258 (Fla. 3d DCA 2011). However, there is a narrow promissory estoppel exception to prevent injustice or the perpetration of fraud by a misrepresentation.  Id. at 259 (quotation omitted); Kissimmee Utilities Authority v. Florida Municipal Ins. Trust, 686 So.2d766 (Fla. 5th DCA 1997) (“[T]he doctrine of promissory estoppel may be utilized to create insurance coverage when a refusal to do so would sanction fraud or injustice.”).

This promissory estoppel exception to create insurance coverage is a very limited exception. E.L.S.R. Corp. v. Geico General Ins. Co., 183 F.Supp.3d 1273, 1277 (S.D.Fla. 2016). For this reason, a plaintiff must prove this promissory estoppel exception to create insurance coverage with clear and convincing evidence. Id.

Insurance is important. An extension of this is insurance coverage.  What if you receive a denial or declination of coverage or do not have coverage you firmly believed you maintained?  Maybe, just maybe, there is a promissory estoppel argument that can be used to create coverage.  Look, I don’t want to get your hopes up that this is the fallback position anytime an insurer issues a denial or declination of coverage.  It is definitely not, which is why this is a narrow exception and limited remedy.  But this is why working with counsel that understands insurance coverage is a MUST.  If there are facts that can support a promissory estoppel argument with clear and convincing evidence to create coverage you can can prove you thought you maintained, and there was a representation that you maintained such insurance, working with insurance coverage counsel can assist in maximizing this promissory estoppel coverage argument.

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.

 

KNOW WHETHER YOUR COURSE OF BUSINESS OPERATIONS ARE COVERED OR EXCLUDED BY YOUR INSURANCE

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It is a good idea to know what your insurance covers and does not cover.  This way, if your course of business has you performing a certain (risky) operation, you know whether that operation is covered or excluded under your policy.  If you are not sure, discuss with your insurance broker — this is important. There is little value performing an operation that is NOT covered by your insurance policy, as you are now performing a risk that is not covered by insurance.   If you know it is not covered by insurance you may elect to change your operations or see if there is insurance to cover the risk.  Below is a case study of this occurrence dealing with a commercial automobile liability policy where an insured’s operations using a crane mounted to a super duty truck was not covered under their automobile liability policy.

In People’s Trust Ins. Co. v. Progressive Express Ins. Co., 46 Fla. L. Weekly D262a (Fla. 3d DCA 2021), homeowners hired a company to install a shed.  The company hired another company to deliver and install the shed using a crane; the company used a crane mounted to a Ford F-750 super duty truck.  This company improperly operated the crane resulting in the shed falling and damaging the homeowner’s roof.   The homeowners submitted a claim to their property insurer and their property insurer subrogated to their rights and sued.  The company operating the crane’s commercial automobile liability insurer denied coverage, and thus, denied the duty to defend.  As a result, a Coblentz-type agreement was entered into where the company operating the crane consented to a judgment in favor of the property insurer (subrogee) and assigned its rights under its commercial automobile liability policy to the property insurer.   The property insurer then sued the automobile liability carrier for coverage.   The trial court granted summary judgment in favor of the automobile liability insurer finding there was no coverage and this was affirmed on appeal.  Why?

The coverage issue focused on whether a crane mounted to a super duty truck (Ford F-750) was covered or excluded by the commercial automobile liability policy.

The policy included a mobile equipment exclusion; however, mobile equipment did not include, “land vehicles that are subject to a compulsory or financial responsibility law or other motor vehicle insurance law in the state or province where it is licensed or principally garaged.  Land vehicles subject to a compulsory or financial responsibility law or other motor vehicles are considered autos.”    The Ford F-750 super duty truck would not constitute mobile equipment excluded by the policy because it would be a land vehicle subject to a compulsory or financial responsibility law or other motor vehicles insurance law.

However, the crux of the issue was the crane mounted to the Ford F-750 super duty truck.   The policy also excluded coverage for, “Bodily injury, property damage…arising out of the operation of:…b. machinery or equipment that is on, attached to, or part of, a land vehicle that would qualify under the definition of mobile equipment if it were not subject to a compulsory or financial responsibility law where it is principally licensed or principally garaged.”

Based on this exclusion, the Court held:

The truck, “used primarily to provide mobility to a mounted crane,” would be excluded “mobile equipment” under the relevant definition, but for the fact that it is subject to a compulsory or financial responsibility law. The contract contemplates this exact situation. Next, we look to the “13.b. exclusion” which directs us to exclude any claim for property damage “arising out of the operation of . . . machinery or equipment that is on, attached to, or part of, a land vehicle that would qualify under the definition of mobile equipment if it were not subject to a compulsory or financial responsibility law where it is licensed or principally garaged.” There is no dispute that the crane was in use at the time of the incident and that the property damage arose out of the operation of the crane. Where, as here, the record clearly established that the damage at issue was caused by the mounted crane, in operational use, on a vehicle that would otherwise qualify as mobile equipment, the trial court correctly granted summary judgment in favor of [the automobile insurer] on the policy exclusion and properly entered final judgment in accord with such findings.

People’s Trust Ins. Co., supra.

In other words, the company that used the crane mounted to its super duty truck performed an operation excluded by its commercial automobile liability insurance policy.  The company would have been better to know whether this risk was covered or excluded under its policy, see if it could obtain coverage for this operation, or switch its operation appreciating the uninsured risk associated with performing the operation in this manner.

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.

 

HOW YOU PLEAD ALLEGATIONS TO TRIGGER LIABILITY INSURER’S DUTIES IS CRITICAL

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How you plead allegations in your lawsuit to trigger duties of a liability insurance carrier is a critical consideration.  If the complaint is not pled appropriately, it can result in the carrier NOT owing a duty to defend its insured, which is the party(ies) you are suing. If there is no duty to defend, there will be no duty to indemnify the insured to cover your damages.  For this reason, in a number of circumstances, this is NOT what you want because you want to trigger insurance coverage and potential proceeds to be paid by a carrier to cover your damages. There are times when you are confronted with a case that just is not a good insurance coverage case.  This may result in you coming up with creative arguments to maximize insurance coverage.  Even in these times, you want to plead the complaint to best maximize coverage under the creative arguments you have developed.

An example of not pleading allegations in a complaint to trigger an insurer’s duties can be found in the Eleventh Circuit Court of Appeal’s decision in Tricon Development of Brevard, Inc. v. Nautilus Insurance Co., 2021 WL 4129373 (11th Cir. 2021).   This case involved a general contractor constructing condominiums.  The general contractor hired a subcontractor to fabricate and install metal railings.  The subcontractor had a commercial general liability (CGL) policy that named the general contractor as an additional insured with respect to liability for property damage “caused in whole or in part” by the subcontractor’s direct or vicarious acts or omissions.  (This is a good additional insured endorsement.)

A dispute arose as to defective work by the subcontractor in fabricating and installing the railings.  The general contractor, therefore, engaged another subcontractor to fabricate new railings and remove the current railing to install the new ones. The general contractor submitted a claim to its original railing subcontractor’s insurer.  The insurer denied the claim and the general contractor filed a coverage action against the insurer as an additional insured under the CGL policy.

The problem, however, is that the general contractor’s complaint did not appear to truly consider insurance coverage, although it appeared to be a case where insurance coverage was not a great option.   The Eleventh Circuit explained there was no coverage based on the allegations in the complaint:

Here, [the general contractor] alleges that the subcontractor’s railings were deficient due to having defects and damage, not being installed properly, and not satisfying the project’s specifications; it does not allege that the subcontractor’s faulty workmanship damaged otherwise non-defective components of the project…. Thus, the costs that [the general contractor] incurred in removing the subcontractor’s railings and the fabrication and installation of new railings do not constitute “property damage” under the policies….

Tricon Development of Brevard at *2.

This is obviously not what the general contractor wanted and had it pled allegations differently, the outcome may have turned out different.  Although, the general contractor may have been faced with trying to come up with a creative argument recognizing it was not a great insurance coverage action.

Nonetheless, the Eleventh Circuit, finding there was no insurance coverage, includes a worthy paragraph when it comes to property damage in a construction defect/damage dispute so that parties recognize CGL policies do not cover defective workmanship. Take note of this discussion so that you can ensure allegations are pled to best maximize coverage:

The policies at issue in this appeal are post-1986 standard form commercial general liability policies with products-completed operations hazard coverage, which are governed by Florida law. We have held that such policies do not cover the costs of replacing defective products. In Amerisure Mutual Insurance Company v. Auchter Company, we examined a post-1986 standard form commercial general liability policy with products-completed operations hazard coverage. That policy “define[d] ‘property damage’ as ‘physical injury to tangible property, including all resulting loss of use of that property … or … loss of use of tangible property that is not physically injured.’ ” 673 F.3d 1294, 1298 (11th Cir. 2012) (cleaned up). Applying Florida law, we held that “there is no coverage if there is no damage beyond the faulty workmanship, i.e., unless the faulty workmanship has damaged some otherwise nondefective component of the project.” Id. at 1306 (citing U.S. Fire Ins. Co. v. J.S.U.B., Inc., 979 So.2d 871, 889 (Fla. 2007)). We also held that “if a subcontractor is hired to install a project component and, by virtue of his faulty workmanship, installs a defective component, then the cost to repair and replace the defective component is not ‘property damage.’ ” Id. (citing Auto-Owners Ins. Co. v. Pozzi Window Co., 984 So.2d 1241, 1248 (Fla. 2008)). We further held that “nondefective and properly installed raw materials can constitute a defective project component when the contract specifications call for the use of different materials, yet the cost to reinstall the correct materials is not ‘property damage’—even though the remedy for such a nonconformity is to remove and replace that component of the project.” Id. (citing Pozzi, 984 So.2d at 1248).

Tricon Development of Brevard at *2.

 

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.

 

ALLOCATING COVERED AND UNCOVERED DAMAGES IN JURY VERDICT

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When a liability insurer defends an insured from a third-party claim, they oftentimes do so under a reservation of rights.  A reservation of rights letter is issued to the insured that identifies certain coverage exclusions or reservations relative to the insurance policy that may impact the insurer’s duty to indemnify the insured for damages.  In other words, just because the insurer is defending its insured does not mean it will be indemnifying its insured for damages asserted in the third-party claim.

Under Florida law, the party claiming insurance coverage has the initial burden to show that a settlement or judgment represents damages that fall within the coverage provisions of the insurance policy. An insured’s inability to allocate the amount of a judgment between covered and uncovered damages is therefore generally fatal to its indemnification claim. However, the burden of apportioning or allocating between covered and uncovered damages in a general jury verdict may be shifted to the insurer if the insurer did not adequately make known to the insured the availability and advisability of a special verdict.

QBE Specialty Ins. Co. v. Scrap Inc., 806 Fed.Appx. 692, *695 (11th Cir. 2020) (internal citations omitted).

This is an important concept because even when the insurer is defending its insured under a reservation of rights, it may put its insured on notice that because of coverage concerns, the insured needs to include special interrogatory questions in the verdict form for the trier of fact (jury) to answer to determine covered versus uncovered damages.  If the insured fails to do so, it will give the insurer a very strong argument to avoid any indemnification obligation it has with respect to the judgement.  This mean the insured is on the hook to deal with the judgment without insurance coverage.

For example, in QBE Specialty Ins. Co., an insured was sued for a nuisance stemming from its metal shredding operations.  The insured’s liability insurer defended the insured under a reservation of rights.  During the course of the case, the insurer notified the insured that it needed special interrogatory questions in the verdict form because of coverage concerns.  The jury awarded $750,000 in nuisance damages against the insured.  There was no allocation for covered versus uncovered damages.  The insurer then filed a separate declaratory relief coverage action claiming it was not obligated to indemnify the insured for the $750,000 in damages.  The Eleventh Circuit Court of Appeals, affirming the trial court, agreed because “in the absence of an allocated verdict form in the underlying trial, [the insured] never provided the district court with a plausible method for separating those damages awarded by the jury that are covered by [the insurer’s] policies from those that are not.”  QBE Specialty Ins. Co., supra, at *696.

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.

 

ALLEGING PROPERTY DAMAGE IN CONSTRUCTION DEFECT LAWSUIT

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When there is a construction defect lawsuit, there is an insurance coverage issue or consideration.  As I have said repeatedly in other articles, it is all about maximizing insurance coverage regardless of whether you are the plaintiff prosecuting the construction defect claim or the contractor(s) alleged to have committed the construction defect and property damage.  It is about triggering first, the insurer’s duty to defend, and second, the insurer’s duty to indemnify its insured for the property damage.   

The construction defect claim and lawsuit begins with how the claim and, then, lawsuit is couched knowing that the duty to defend is triggered by allegations in the lawsuit (complaint).  Thus, preparing the lawsuit (complaint) is vital to maximize the insurer’s duty to defend its insured.

In a recent opinion out of the Eleventh Circuit, Southern-Owners Ins. Co. v. MAC Contractors of Florida, LLC, 2020 WL 4345199 (11th Cir. 2020), a general contractor was sued for construction defects in the construction of a custom home.  A dispute arose pre-completion and the owner hired another contractor to complete the house and remediate construction defects.   The contractor’s CGL insurer originally provided a defense to the general contractor but then withdrew the defense and filed an action for declaratory relief asking for the declaration that it had no duty to defend the contractor because the underlying lawsuit did NOT allege property damage.  The trial court agreed with the contractor and granted summary judgment in its favor finding that the underlying complaint did not allege property damage beyond defective work.  But, on appeal, the Eleventh Circuit reversed.

Among other allegations, the owner’s underlying complaint against the contractor asserted that the contractor committed defects through chipped pavers in the driveways and walkways, inconsistent paint finish, marks on ceilings, damage to exterior doors, damage to the top stair tread, damage to hardwood floors, metal roof dents, scratches in granite, holes in ceilings, etc.  The owner sought its costs to repair and remediate the defects and damage from the contractor.  In looking at whether the  contractor’s CGL insurer had a duty to defend the contractor–the insured–the Eleventh Circuit (focusing on precedent out of the Eleventh Circuit) stated:

The operative amended complaint alleged that [the contractor] used subcontractors for work on the residence and that the residence was “replete with construction defects” and various damage. It did not further allege which subcontractors performed which work or how the damage occurred. Given these ambiguities, the complaint’s allegations are broad enough to allow [the contractor] to prove that one subcontractor negligently damaged nondefective work performed by another subcontractor.  If [the contractxor] could establish that at least some of the damage arose in this way, there would be “damage apart from the defective work itself” and therefore “property damage.”

***

For these reasons, we conclude that the underlying operative complaint can fairly be construed to allege “property damage” within the meaning of the CGL policy and Florida law. Accordingly, the district court erred in granting summary judgment to [the CLG insurer] on this basis.

MAC Contractors of Florida, 2020 WL at *4 (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.

 

INSURED’S CLAIM FOR DECLARATORY RELIEF IN COVERAGE DISPUTE

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In an insurance coverage dispute, it is common for the insured or the insurer to file a lawsuit that includes a claim for declaratory relief — asking the court to render a ruling as to the coverage issue.  This claim is proper if an insurer denied coverage or a part of coverage relating to an exclusion or endorsement in the policy, or even if there is the argument that the loss or occurrence did not take place within the policy period.    An insurer or insured pursuing an action for declaratory relief must allege:

[1] there is a bona fide dispute between the parties, [2] that the moving party has a justiciable question as to the existence or non-existence of some right, status, immunity, power or privilege, or as to some fact upon which the existence of such right, status, immunity, power or privilege does or may de[p]end, [3] that plaintiff is in doubt as to the right, status, immunity, power or privilege, and [4] that there is a bona fide, actual, present need for the declaration.

Security First Ins. Co. v. Phillips, 45 Fla. L. Weekly D1426b (Fla. 5th DCA 2020) (citation omitted).

An action for declaratory relief is appropriate in an insurance coverage dispute even if it requires a determination of certain facts under which the obligations under the insurance policy at-issue depends.   Id.

If you are involved in an insurance coverage dispute with your insurer, consult with counsel.  Please contact me if I can be of assistance.  Do NOT try to navigate these waters by yourself.  There will be complicated factual and legal issues at stake that will be specifically tied to a coverage determination.  You want to make sure the facts are best positioned under the law to maximize an argument for insurance coverage.

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.