The Florida Supreme Court recently issued a decision with potentially wide-ranging effect on the duty to defend construction defect claims in the state of Florida, depending upon the terms of the policy at issue. See Altman Contractors, Inc. v. Crum & Forster Specialty Insurance Company, 2017 WL 6379535 (Fla. Dec. 14, 2017). Under Florida law, before a claimant can litigate a claimed construction defect, the claimant must “serve written notice of claim on the contractor, subcontractor, supplier, or design professional, as applicable” and afford them an opportunity to investigate and repair any alleged damage. Fla. Stat. § 558.004. In Altman, the general contractor for a condominium project was insured by Crum & Forster under a general liability policy that defined “suit” as “a civil proceeding,” including “any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent.” The property owner served the general contractor with more than 800 notices of various construction defects under Section 558.004. The contractor submitted the notices to Crum & Forster and requested a defense. Crum & Forster denied coverage, contending that the 558 notices did not constitute a “suit” as defined in the policy.
January 31, 2018 Practice Points
Florida Supreme Court: Florida Statute § 558.004 Process May Trigger a Duty to Defend
Carriers and policyholders alike will need to carefully consider the scope and application of the defense language of liability insurance policies in the 558 context
by Nancy G. Cook and Steven J. Rapp
The contractor sought a declaration in federal court that Crum & Forster had a duty to defend, and the district court vindicated the insurer’s position by entering summary judgment in favor of Crum & Forster. The district court reasoned that a 558 notice did not constitute a “suit” under the policy because it was not a “civil proceeding.” The contractor appealed, and the Eleventh Circuit Court of Appeals certified the following question to the Florida Supreme Court:
Is the notice and repair process set forth in chapter 558, Florida Statutes, a “suit” within the meaning of the commercial general liability policy issued by C & F to Altman?
In response to the question, the Florida Supreme Court agreed that “the chapter 558 notice and repair process cannot be considered a civil proceeding under the policy terms because the recipient's participation in the chapter 558 settlement process is not mandatory or adjudicative.” In fact, under the statutory scheme, the recipient does not have to respond at all and, instead, can force the claimant to file a lawsuit to recover any alleged damages. The court explained that the 558 process is essentially a voluntary dispute resolution mechanism in which that the insured can choose to participate, but is not required to do so.
However, the court next considered whether the 558 notice procedure is an “alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent.” In this context, the court held that, similar to mediation, “Chapter 558 falls within this definition as a statutorily required pre-suit process aimed to encourage the claimant and insured to settle claims for construction defects without resorting to litigation.” The court further noted that the claimant in a 558 process can seek damages, which satisfied the second requirement of the definition. Accordingly, the court concluded that the chapter 558 pre-suit process is an “alternative dispute resolution proceeding” included in the definition of a “suit” in the Crum & Forster policy, which potentially triggered a duty to defend.
The court did not determine whether Crum & Forster had in fact “consented” to the insured’s participation in the 558 process as required under the Policy because that issue was outside the scope of the question certified to the court. The court furthermore noted that it involved an issue of fact which was disputed by the parties.
Carriers and policyholders alike will need to carefully consider the scope and application of the defense language of liability insurance policies in the 558 context.
Nancy G. Cook and Steven J. Rapp are with Weinberg, Wheeler, Hudgins, Gunn & Dial, LLC.
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