AN OCCURRENCE UNDER BUILDER’S RISK INSURANCE POLICY IS BASED ON THE LANGUAGE IN THE POLICY

Posted on March 18, 2023March 18, 2023 by David Adelstein

Builder’s risk insurance coverage is a vital property insurance coverage during the course of construction. Builder’s risk insurance is not a one-size-fits-all product so please make sure you are working with your insurance broker to procure this product that factors in and covers risk associated with the project.

Builder’s risk insurance is typically an occurrence-based policy. No different than other occurrence-based policies (such as commercial general liability), a dispute may arise as to the occurrence. This could be due to the triggering of the actual policy during the coverage period or it could be due deductible obligations, as in the case discussed below. When dealing with a builder’s risk insurance policy–again, no different than any policy–the language in the policy matters. Definitions used in the policy to define specific terms matter and, in numerous cases, the ordinary dictionary meanings of terms matter. But it all starts with the policy language.

In KT State & Lemon, LLP v. Westchester Fire Insurance Co., 2023 WL 2456499 (M.D.Fla. 2023), a builder’s risk policy provided coverage from April 2018 through the end of November 2019. There was a $50,000 per occurrence deductible for loss caused by or from water damage. An extension to the builder’s risk policy was negotiated through the end of January 2020 that increased this water damage deductible to $250,000 per occurrence. During construction and the testing of the fire suppression (sprinkler) system, leaks started to occur resulting in water damage. Two leaks occurred in September 2019, one leak in October 2019, one leak in November 2019, and two leaks in December 2019 (during the extension and higher water damage deductible period).

The plaintiff-insured argued that all of the leaks in the fire sprinkler system should constitute one single occurrence. Naturally, it did so because one occurrence would be a $50,000 deductible since the initial leak occurred prior to the extension period. The insurer took a contrary position and argued that each leak was a separate occurrence meaning there were four leaks with a $50,000 per occurrence deductible and two leaks in December 2019 each with a $250,000 deductible. This is a big deal from a dollar’s perspective as it means each leak would have to have damages in excess of the per occurrence deductible and the insured would potentially be responsible for the first $700,000 in water damage based on the six leaks.

“In Florida, the [insurance] contract should be ‘construed according to the plain language of the policy,’ and any ambiguities must be ‘construed against the insurer and in favor of coverage.’ KT State, supra, at *2 (citations omitted).

The Court looked at the policy language, specifically how the builder’s risk policy defined the term “occurrence” as it would be this definition in the policy that shed light on whether there would be one occurrence or multiple occurrences:

All LOSS attributable directly or indirectly to [1] one originating cause, event, incident or repeated exposure to the same originating cause, event or incident, or [2] to one series of similar originating causes, events, incidents or repeated exposures to the same originating cause, event or incident first occurring in the Policy period. All such LOSS will be treated as one OCCURRENCE, unless a specified period of time is included in this Policy. The most the Company will pay for LOSS in any one OCCURRENCE is the applicable Limit of Insurance shown on the Declarations.

As to the underlined above, the policy did not define the terms “series” or “similar.” Yet, these terms are not technical terms so the Court looked at the ordinary dictionary definitions. “The dictionary meaning of ‘series” is ‘[a] number of things of one kind (freq. abstract, as events, actions, conditions, periods of time) following one another in time or in logical order.’ The dictionary meaning of ‘similar’ is ‘alike in substance’ or ‘having characteristics in common.’” KT State, supra, at *3 (citations omitted). Based on the definition of “occurrence” in the policy, and the ordinary dictionary definitions of “series” and “similar,” the Court found the six fire sprinkler leaks constituted only one occurrence:

Reading the policy language from the standpoint of an ordinary person, in light of the common meaning of the terms used, and in a common-sense and natural manner produces only one reasonable conclusion. Plaintiffs’ claimed loss was attributable, directly, or indirectly, to a “series of similar originating causes, events, [or] incidents,” and therefore resulted from one occurrence. The loss resulted from leaks in the same sprinkler system, due in whole or part to improper installation by the same [subcontractor] crew under the same contract, in the same general location in the same building, and occurred one after the other in a relatively short span of time from late September to December 2019.

KT State, supra, at *4.

Yet, despite there being one occurrence, the Court applied a caveat to the benefit of the insurer since there were two leak incidents during the extension of the policy with an increased $250,000 per occurrence deductible:

Accordingly, under the Policies’ definition of “occurrence,” the leaks at issue together constituted one occurrence. For damage from leaks that occurred prior November 30, 2019, therefore, a single deductible of $50,000 applies. The result is different, however, for leaks after that date, because the parties expressly modified the Policies at that point. The original policy term ended on November 30, 2019. Plaintiffs were only entitled to purchase an extension of coverage beyond that date on the same terms as before if no “risk aggravating situation” was present at the time of the extension. But such a situation was present, because Plaintiffs had reported multiple leaks, and that was obviously the reason the parties changed the water damage deductible to $250,000 when they extended coverage to January 30, 2020. It is clear that the increased deductible was intended to apply to similar water damage events occurring during the extended policy period. Therefore, the increased deductible applies to water damage from leaks occurring after November 30, 2019, notwithstanding the definition of “one occurrence.”

KT State, supra, at *5.

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).

INTERPRETING THE LANGUAGE IN AN INSURANCE POLICY

Posted on July 4, 2019April 23, 2020 by Edward Garber

Lawsuits by an insured against an insurer that include a claim for declaratory relief are common when an insurer denies coverage. The insured will argue that there are ambiguities in the policy. One argument may pertain to the use or definition of a term (or language) in the policy that is not defined in the policy. Another argument may pertain to an exclusion or limitation in the policy that ultimately renders insurance coverage illusory.

[I]n construing insurance policies, courts should read each policy as a whole, endeavoring to give every provision its full meaning and operative effect. When the language of an insurance policy is clear and unambiguous, a court must interpret it according to its plain meaning, giving effect to the policy as it was written. A policy term is not ambiguous simply because it is complex or requires analysis.

Arguelles v. Citizens Property Insurance Corp., 44 Fla. L. Weekly D1726a (Fla. 3d DCA 2019) (internal quotations and citations omitted).

When a term in an insurance policy is not defined in the policy (and there is an argument that there is an ambiguity), a court may look to dictionary definitions. Id. (looking to dictionary definition of the term “reside” which was not a defined term in the policy). This is because a dictionary definition contains a common acceptance of the meaning of the word. Id.

If a limitation or exclusion completely swallows up an insuring provision, then there is an argument that coverage is illusory. Id. citing Warwick Corp. v. Turetsky, 227 So.3d 621, 625 (Fla. 4^thDCA 2017). “When limitations or exclusions [in the policy] completely contradict the insuring provisions, insurance coverage becomes illusory.” Purrelli v. State Farm Fire and Cas. Co., 698 So.2d 618 (Fla. 2d DCA 1997).

It is important to work with counsel when dealing with an insurance coverage dispute. Counsel will help you maximize insurance coverage based on the facts and the law.