July 17th, 2017
By, Amanda K. Anderson, Esq.
An insurance professional or coverage attorney may have experience in first-party coverage or third-party coverage, but often not both. When a mid-construction casualty like a fire or collapse occurs, the loss is likely to implicate both a builder’s risk policy – a first party coverage usually purchased by the owner – and commercial general liability (CGL) policies purchased by the general contractor and subcontractors.
- Different Types of Applicable Coverage
- Builder’s Risk Coverage
Courts have described builder’s risk coverage as “‘a unique form of property insurance that typically covers only projects under construction, renovation, or repair and insures against accidental losses, damages or destruction of property for which the insured has an insurable interest.” Vision One, LLC v. Philadelphia Indem. Ins. Co., 276 P.3d 300, 303 n.1 (Wash. 2012) (quoting Fireman’s Fund v. Structural Sys. Tech., Inc., 426 F. Supp. 2d 1009, 1025 (D. Neb. 2006)). The policy pays only for damage to the construction project itself. Id. “A typical builder’s risk policy provides work site insurance on a building, renovation, or construction project for property as it is brought to the site and made part of the improvements on the property.” John V. Garaffa & Heidi Hudson Raschke, The Valuation of Losses Under Builder’s Risk Policies, Brief, Fall 2010, at 50–51.
Although builder’s risk policies are not standardized, they are typically “all risk” policies – meaning that they cover all direct physical loss to covered property, except where exclusions apply. Builder’s risk policies, with varying language, typically exclude loss caused by defective workmanship, but not ensuing loss from covered causes like fire. 4 Bruner & O’Connor Construction Law § 11:234; see, e.g., Vision One, 276 P.3d at 308.
The authority on builder’s risk policies is sparse, but there are at least two state Supreme Court decisions on the scope of the faulty workmanship exclusion. In Swire Pac. Holdings, Inc. v. Zurich Ins. Co., 845 So. 2d 161 (Fla. 2003), the Florida Supreme Court addressed an exclusion for “[l]oss or damage caused by fault, defect, error or omission in design, plan or specification,” with an exception for “physical loss or damage resulting from such fault, defect, error or omission in design, plan or specification.” Id. at 165. When a pre-occupancy inspection of a condominium revealed serious structural deficiencies, the project owner sought coverage for $4.5 million in corrective costs, claiming that the exclusion did “not exclude any costs for work that necessarily damages or destroys portions of the insured property as a result of required remediation or repair of defective property.” Id. at 164. Rejecting this argument, the court held that “[n]o loss separate from, or as a result of, the design defect occurred,” and that the owner was “not entitled to recover the expenses associated with repairing the design defect. To hold otherwise would be to allow the ensuing loss provision to completely eviscerate and consume the design defect exclusion.” Id. at 168.
In Vision One, 276 P.3d at 302, the Washington Supreme Court addressed the scope of coverage for a building collapse caused by defective shoring for concrete slabs. Shortly after the concrete subcontractor finished pouring the first section of the floor, “the shoring underneath the concrete gave way. The framing, rebar, and newly poured concrete came crashing down onto the lower level parking area, where the wet concrete eventually hardened. It took several weeks to clean up the debris, repair the damage, and reconstruct the collapsed floor.” Id. To illustrate the scope of the faulty workmanship exclusion, the court analogized the case to one where faulty wiring work causes a fire: “the ensuing loss clause would preserve coverage for damages caused by the fire. But it would not cover losses caused by the miswiring that the policy otherwise excludes. Nor would the ensuing loss clause provide coverage for the cost of correcting the faulty wiring.” Id. at 307. Because collapse was a covered peril, and because the framing, rebar, and poured concrete were not themselves defective, the court affirmed that there was coverage for the non-defective items damaged in the collapse – but not for the defective shoring. Id. at 510–11, 519–22.
- General Liability Coverage
In the event of a mid-construction event like a collapse or fire, the scope of coverage under a CGL policy differs from the coverage under a builder’s risk policy. The standard CGL insuring agreement provides that the insurer will pay “ those sums that the insured becomes legally obligated to pay as damages  because of  ‘bodily injury’ or  ‘property damage’  to which [the] insurance applies.” Commercial General Liability Coverage Form (2013), Miller’s Standard Insurance Policies Ann. (7th ed.) (numbering added). Each of those five parts of the insuring agreement distinguishes a CGL policy from a builder’s risk policy.
First, the “legally obligated to pay as damages” requirement is central to the distinction between first-party and third-party coverage. The CGL coverage is fundamentally narrower, incorporating concepts of fault and legal responsibility that do not apply under first-party coverage.
Second, however, the “because of” language broadens the scope of potentially covered damages. Economic loss, standing alone, is not “property damage” under a CGL policy. Allan D. Windt, 3 Insurance Claims & Disputes § 11:1 (6th ed.). Nevertheless, the “because of” language means that a liable party’s CGL policy may pay consequential economic damages (id.), which a builder’s risk policy does not.
Third, in a catastrophic event like a fire or collapse, individuals may sustain “bodily injury” within the CGL insuring agreement. A builder’s risk policy does not pay for such bodily injury.
Fourth, the scope of “property damage” is similar, but not identical, to the risk of direct physical loss under a builder’s risk policy. “Property damage” is defined, in principal part, as “[p]hysical injury to tangible property, including all resulting loss of use of that property.” Commercial General Liability Coverage Form (2013), Miller’s Standard Insurance Policies Ann. (7th ed.). “Physical injury to tangible property” is similar in scope to “risk of direct physical loss” under a builder’s risk policy. Compare Auto-Owners Ins. Co. v. Pozzi Window Co., 984 So. 2d 1241, 1249 (Fla. 2008), with Swire, 845 So. 2d at 168. Nevertheless, there is a division of authority whether “rip and tear” damage – injury to undamaged property in the course of remedying an uncovered condition – can, standing alone, constitute “property damage.” Compare Desert Mountain Props. L.P. v. Liberty Mut. Fire Ins. Co., 236 P.3d 421 (Ariz. Ct. App. 2010), aff’d, 250 P.3d 196 (Ariz. 2011), with U.S. Metals, Inc. v. Liberty Mut. Grp., Inc., 2015 WL 7792557, at *7 (Tex. Dec. 4, 2015). There is no comparable authority finding coverage for “rip and tear” under a builder’s risk policy. Moreover, “property damage” under a CGL policy – unlike loss under a builder’s risk policy – can include third-party damages, such as when a fire spreads to another property or forces nearby businesses to shut down.
Fifth, a CGL policy’s ongoing operations exclusions may apply more broadly than the defective work exclusion under a builder’s risk policy. Exclusion J5 applies to property damage to “[t]hat particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the ‘property damage’ arises out of those operations.” Commercial General Liability Coverage Form (2013), Miller’s Standard Insurance Policies Ann. (7th ed.). Exclusion J6 applies to property damage to “[t]hat particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it,” but J6 “does not apply to ‘property damage’ included in the ‘products-completed operations hazard.’” Id.
The most widely cited case on the meaning of the phrase “particular part” is Columbia Mut. Ins. Co. v. Schauf, 967 S.W.2d 74 (Mo. 1998). Schauf held that exclusion J5 “denies coverage for more than just damage to the insured’s work … by excluding from coverage damage to the particular part of property on which the insured is performing operations.” Id. at 77. During the construction of a new home, a subcontractor hired to “paint, stain, or lacquer all interior and exterior surfaces” accidentally started a fire while cleaning his equipment immediately after spraying lacquer on the kitchen cabinets. Id. at 76. Exclusion J5 barred coverage under the subcontractor’s policy for any damage to the kitchen cabinets, but not to the fire damage to the rest of the home. Id. at 81. However, Florida courts appear to have moved toward a more liberal interpretation of these exclusions. See American Equity Ins. Co. v. Van Ginhoven, 788 So. 2d 388 (Fla. 5th DCA 2001) and Essex Ins. Co. v. Kart Const., Inc.,
2015 WL 4730540 (M.D. Fla. Aug. 10, 2015). For other examples, see Allan D. Windt, 3 Insurance Claims and Disputes § 11:18A (6th ed.), and 4 Bruner & O’Connor Construction Law § 11:100. Thus, the CGL ongoing operations exclusions – unlike the builder’s risk defective workmanship exclusion – can bar coverage for physically injured property other than the defective work itself.
When it comes to evaluating a case’s settlement value, a CGL insurer faces the prospect of paying the cost of defending its policyholder in the liability action. An insurer for a subcontractor often faces a second set of defense costs – if the general contractor is named as an “additional insured” on the subcontractor’s policy, the insurer may also pay a share of the general contractor’s defense costs. Indeed, because many CGL policies limit “additional insured” coverage to injury arising out of the named insured’s ongoing operations, e.g., Weitz Co., LLC v. Mid-Century Ins. Co., 181 P.3d 309, 312 (Colo. Ct. App. 2007), mid-construction damage is more likely than post-completion damage to trigger an obligation to defend a general contractor under its subcontractors’ insurance policies.
- Particular Questions that Arise
- “Other Insurance” Clauses
A CGL policy’s “other insurance” clause typically states that the “insurance is excess over … (a) Any of the other insurance, whether primary, excess, contingent or on any other basis … (i) That is Fire, Extended Coverage, Builder’s Risk, Installation Risk or similar coverage for ‘your work.’” Commercial General Liability Coverage Form (2013), Miller’s Standard Insurance Policies Ann. (7th ed.). This clause has been held to refer “solely to first-party property coverage.” Colony Ins. Co. v. Ga.-Pac., LLC, 27 So. 3d 1210, 1214 (Ala. 2009).
It does not appear that courts have addressed the mechanics of how a third-party liability coverage and a first-party property coverage can be primary or excess to one another. But, as discussed in the next section, the more pressing question is the scope of a builder’s risk insurer’s subrogation rights after it pays for a loss.
- Risk Transfer
Effective risk management is an important goal in any contract negotiation, particularly when the parties’ performance under the contract exposes them to potential third party claims for bodily injury, property damage, and other alleged injuries. One tool in the bag of effective risk management is contractual risk transfer: the process by which one party transfers the potential liability from particular risks to another party by specific contract provisions. By effectively implementing contractual risk transfer and risk management measures, you can minimize your client’s liability to third parties, and you may be able to positively impact your client’s own insurance coverage profile.
Even if a builder’s risk policy pays first, the builder’s risk insurer will then have a subrogated right to sue responsible parties. But, as a general matter, the “anti-subrogation rule” precludes an insurer from asserting a subrogated claim against a person who qualifies as an insured under the policy. 16 Couch on Ins. § 224:1.
A builder’s risk policy often will provide that various persons, such as contractors and subcontractors, are additional insureds “as their interests may appear.” Dyson & Co. v. Flood Eng’rs, Architects, Planners, Inc., 523 So. 2d 756, 758 (Fla. 1st DCA 1988). Some courts have held that this language triggers the anti-subrogation rule and bars subrogated claims against all such persons. Id. at 758–59 (collecting authority on both sides of issue); see 4 Bruner & O’Connor Construction Law § 11:200. The builder’s risk insurer can always try to seek recovery from responsible parties who do not qualify as its insureds – perhaps including architects, construction managers, engineers, suppliers, or manufacturers.
- Alternative Dispute Resolution
Disputes may arise regarding which insured holds the power to settle a builder’s risk loss. The answer most likely will come from the general contract, the terms of which typically are incorporated by reference into subcontracts. Standard language promulgated by the American Institute of Architects provides:
The Owner as fiduciary shall have power to adjust and settle a loss with insurers unless one of the parties in interest shall object in writing within five days after occurrence of loss to the Owner’s exercise of this power; if such objection is made, the dispute shall be resolved in the manner selected by the Owner and Contractor as the method of binding dispute resolution in the Agreement. If the Owner and Contractor have selected arbitration as the method of binding dispute resolution, the Owner as fiduciary shall make settlement with insurers or, in the case of a dispute over distribution of insurance proceeds, in accordance with the directions of the arbitrators.
Werner Sabo, Legal Guide AIA Documents § 4.65.
In some cases, it may make sense for the owner or the insurer to demand appraisal under the policy. A common policy provision states:
If we and you disagree on the value of the property or the amount of loss, either may make written demand for an appraisal of the loss. In this event, each party will select a competent and impartial appraiser. The two appraisers will select an umpire. If they cannot agree, either may request that selection be made by a judge of a court having jurisdiction. The appraisers will state separately the value of the property and amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will be binding.
Builders Risk Coverage Form, Miller’s Standard Insurance Policies Annotated (7th ed.).
This language contemplates a two-party process between the insurer and “you” (i.e., the named insured). Thus, the insurer and the owner will select the two appraisers. Nevertheless, insureds other than the owner likely can submit materials to the appraisers and umpire for their consideration. Cf. 15 Couch on Ins. § 211:58 (appraisal binds other interested parties, such as mortgagees, if they receive adequate notice and an opportunity to be heard).
Although the appraisers cannot resolve questions of policy construction or conditions of coverage, they often can decide which items of claimed loss resulted from covered or excluded causes. State Farm Fire & Cas. Co. v. Licea, 685 So. 2d 1285, 1288 (Fla. 1996) (“[Appraisal] necessarily includes determinations as to the cost of repair or replacement and whether or not the requirement for a repair or replacement was caused by a covered peril or a cause not covered, such as normal wear and tear, dry rot, or various other designated, excluded causes.”).
Each case will present its own facts and contract provisions. In most cases, however, the builder’s risk insurer must pay to repair the portions of the property that have sustained direct physical loss, minus the cost of repairing the initially defective work that caused the loss. If the negligent parties are named insureds or additional insureds under the builder’s risk policy, the builder’s risk insurer is likely to face difficulty pursuing subrogated claims against their CGL insurers. But the CGL insurers face a broader set of risks and, if a case cannot settle quickly, the steep cost of defending their policyholders and additional insureds. A builder’s risk insurer, by contrast, often can avoid significant legal fees by demanding appraisal to resolve questions regarding the scope and valuation of the covered loss.
November 19th, 2015
The Eleventh Circuit’s Decision in Carithers v. Mid-Continent Cas. Co., 782 F.3d 1240 (11th Cir. 2015)
By: Amanda K. Anderson, Esquire
Prior to the Eleventh Circuit’s recent decision in Carithers, the law surrounding the removal and replacement of the defective work itself, even if it caused “property damage”, was less than clear. SeeBoran Craig Barber Homes v. Mid-Continent, No. 2:06-cv-89 – Doc. 262 (M.D. Fla. Feb. 19, 2009); Arnett v. Mid-Continent Cas. Co.,2010WL2821981 (S.D. Fla. 2010); Assurance Company of America v. Lucas Waterproofing Co. Inc., 581 F.Supp.2d 1201 (S.D. Fla.2008).
In Carithers, the district court found that a balcony was defectively constructed, which caused damage to a garage. Carithers v. Mid-Continent Cas. Co., 782 F.3d 1240 (11th Cir. 2015). The district court also recognized that, under Florida law, the defectively constructed balcony was not covered by the policy. Id. However, the district court found as a fact that, in order to repair the garage (which the parties agree constituted property damage), the balcony had to be rebuilt. Id.
The insurer, Mid–Continent Casualty Company (“MCC”), did not contend that this factual finding was clearly erroneous. Id.Rather, MCC claimed that the Carithers cannot recover for any defective work, even where repairing that work is a necessary cost of repairing work for which there is coverage. Id.
The Eleventh Circuit held that the district court did not err in awarding damages for the cost of repairing the balcony. Id. Under Florida law, the Carithers had a right to “the costs of repairing damage caused by the defective work….” U.S. Fire Ins. Co. v. J.S.U.B., Inc., 979 So.2d 871, 889 (Fla. 2007). Since the district court determined that repairing the balcony was part of the cost of repairing the garage, which was defective work, the Carithers were entitled to these damages.Carithers, 782 F.3d at 1251. Thus, the Eleventh Circuit has clarified that removal and replacement of the defective work itself is covered a “damages because of ‘property damage’”.
June 17th, 2014
By Amanda K. Anderson, Esquire
Boyle, Gentile, Leonard & Crockett, P.A.
- What is Trigger?
Typically, a Commercial General Liability (“CGL”) policy covers “property damage [that] occurs during the policy period,” when the damage is caused by an “occurrence.” “Occurrence” is defined by the typical post-1986 ISO CGL form as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” This type of policy is referred to as an “occurrence policy.” Arad v. Caduceus Self Ins. Fund, Inc., 585 So. 2d 1000 (Fla. 4th DCA 1991). Today, some CGL policies explicitly refer to a “trigger of coverage,” and if so, that “trigger” applies.
Trigger is simply “a label for the event or events that under the terms of the insurance policy determines whether a policy must respond to a claim in a given set of circumstances.” Robert D. Fram, End Game: Trigger of Coverage in the Third Decade of CGL Latent Injury Litigation, 454 PRACTICING L. INST. 9 (1993). In most circumstances, the event causing damage occurs simultaneously with the resulting harm. The issue is more complex where the damage occurs (or is reasonably alleged to have occurred), but is not discovered until a later time. Courts in different jurisdictions have reached disparate conclusions under comparable facts and identical policy language. In continuing damage or delayed discovery cases, which is the only time a trigger argument applies, courts have adopted no fewer than five trigger theories. Dow Chems. Co. v. Assoc. Indem. Corp., 724 F. Supp. 474, 478-79 (E.D. Mich. 1989).
- Five Main Theories Regarding Trigger of Coverage.
First is the continuous trigger approach, which holds that all policies on the risk from the initial exposure through manifestation are triggered. See e.g., Keene Corp. v. Ins. Co. of N. Am., 667 F.2d 1034 (D.D.C. 1981).
Second is the exposure theory, which presumes that damage occurs when exposure to the causative agent or event takes place and not when the symptoms of the exposure become evidence. See e.g., Ins. Co. of N. Am. v. Forty-Eight Insulations, Inc., 633 F.2d 1212 (6th Cir. 1980).
Third is the actual injury or injury-in-fact theory, which focuses on when the injury or damage actually occurred, irrespective of when it was found, who found it or who was capable of finding it. (This trigger is sometimes referred to as the “actual damage” or “damage-in-fact” trigger, though the more common phrase uses the term “injury”, regardless of whether the context is property damage or bodily injury.) If it happened in more than one policy period, then multiple policies of insurance may be triggered. See Axis Surplus Ins. Co. v. Contravest Construction Co., 2012 WL 2048303, at * 1 (M.D. Fla. June 5, 2012), 23 Fla. L. Weekly Fed. D. 279; Johnson-Graham-Malone, Inc. v. Amerisure Ins. Co., 18 Fla. L. Weekly Supp. 870 (Fla. 4th Cir. Apr. 29, 2011) appealdismissed by Amerisure Ins. Co. v. Johnson-Graham-Malone, Inc., 66 So. 3d 415 (Fla. 1st DCA 2011); see e.g., Don’s Bldg. Supply, Inc. v. OneBeacon Ins. Co., 267 S.W. 3d 20 (Tex. 2008); Am. Home Prods. Corp. v. Liberty Mut. Ins. Co., 565 F. Supp. 1485 (S.D.N.Y. 1983), aff’d as modified, 748 F.2d 760 (2d Cir. 1984).
Fourth is the manifestation theory, which holds that policies are triggered when the damage becomes “manifest,” or is discovered. Eagle-Picher Indus., Inc. v. Liberty Mut. Ins. Co., 682 F.2d 12 (1st Cir. 1982). The question always remains: to whom must the property damage have manifested.
Last, there is a double-trigger theory, which holds that there are two triggers, exposure and manifestation, regardless of whether damage continues between those two events. See e.g., Zurich Ins. Co. v. Raymark Indus., Inc., 514 N.E. 2d 150 (Ill. 1987). As Dow Chemicals counsels, however, “trigger rulings are most appropriately derived by reference to the operative policy language, as opposed to the judicial gloss placed upon similar language in ostensibly analogous cases.” Dow Chemicals 724 F. Supp. at 479.
III. Case Law in Florida
There are two main theories of trigger in Florida: (1) injury-in-fact; and (2) manifestation. The focus is on the “property damage” as the signaling event – the only event under the language of the CGL – that must “occur” during the policy period in order to be covered. See Travelers v. C.J. Gayfer’s, 366 So. 2d 1199 (Fla. 1st DCA 1979); Johnson-Graham-Malone, 18 Fla. L. Weekly Supp. 870; and Trizec v. Biltmore, 767 F. 2d 810 (11th Cir. 1985)(Florida courts have rejected the “manifestation trigger” in favor of coverage triggered by property damage alone taking place during the policy period).
- Plain Meaning Analysis and Florida’s Rules of Contract Construction Support the Injury-in-Fact Trigger
The primary case in Florida holding that the “injury-in-fact” trigger applies is Axis Surplus Ins. Co. v. Contravest Construction Co., 2012 WL 2048303, at * 1 (M.D. Fla. June 5, 2012), 23 Fla. L. Weekly Fed. D. 279. The court reasoned that because the policy at issue required the insurer to cover “property damage . . . caused by an occurrence,” just as the court in Trizec did, the physical injury or destruction of tangible property had to occur during the policy period in order to trigger coverage, and thus, “injury-in-fact” was the applicable trigger. Id.
Under Florida law, courts must construe insurance policies according to the plain meaning of the policy language. Auto-Owners Ins. Co. v. Anderson, 756 So. 2d 29, 34 (Fla. 2000); see also Fla. Stat. § 627.419(1) (“Every 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 any application therefore or any rider or endorsement thereto.”). Florida rules of insurance policy interpretation do “not allow courts to rewrite contracts, add meaning that is not present, or otherwise reach results contrary to the intentions of the parties.” Excelsior Ins. Co. v. Pomona Park Bar & Package Store, 369 So. 2d 938, 942 (Fla. 1979). If a policy is silent on an issue, a court may not “add to or read in language not contained on the face of the policy.” Meister v. Utica Mut. Ins. Co., 573 So. 2d 128, 130 (Fla. 4th DCA 1991).
Furthermore, in the case of Mid-Continent Cas. Co. v. Frank Casserino Const., Inc., the Middle District interpreted a CGL policy in support of the proposition that damage must occur during the policy period even if it is not discovered until after the policy expires by holding that that a plaintiff’s expert’s affidavit could provide support showing that even though damage had not yet been discovered, that damage was occurring during the policy period. Mid-Continent Cas. Co. v. Frank Casserino Const., Inc., 721 F. Supp. 2d 1209 (M.D. Fla. 2010).
Additionally, Judge Hugh A. Carithers of the Duval County Circuit Court of the Fourth Judicial Circuit, in the case of Johnson-Graham-Malone, Inc. v. Amerisure Ins. Co.held that the carrier owed the insured a duty to defend because the operative underlying complaint gave rise to at least a potential that covered property damage actually occurred during one or more of the carrier’s CGL policies. Johnson-Graham-Malone, Inc, 18 Fla. L. Weekly Supp. 870 appeal dismissed by Amerisure Ins. Co. v. Johnson-Graham-Malone, Inc., 66 So. 3d 415 (emphasis added). Judge Carithers relied on the case of Travelers Insurance Co. v. C.J. Gayfer’s & Co., 366 So. 2d 1199 (Fla. 1st DCA 1979).
C.J. Gayfer’s is one of many Florida cases that have long held that, under an occurrence-based CGL policy where damage and the causative event do not occur simultaneously, it is the damage that must occur, or be fairly alleged to occur, during the policy period, in order for coverage to exist and not the happening of the event or act that caused the damage. The applicable line of cases begins in 1964 with New Amsterdam Casualty Co. v. Addison, 169 So. 2d 877 (Fla. 2d DCA 1964), in which the Second District Court of Appeal held, as a matter of first impression in Florida, that “[t]he time of the occurrence of an accident, within the meaning of a policy of liability, is generally deemed to be the time when the complaining party actually was damaged and not when the wrongful act was committed.” Id. at 886.
Relying on New Amsterdam Casualty Co. v. Addison, the First District Court of Appeal in 1978 similarly held that occurrence-based liability coverage is triggered “when the complaining party is damaged,” regardless of when the causative act occurred. Hertz Corp. v. Pugh, 354 So. 2d 966, 969 (Fla. 1st DCA 1978). A year later, the same court held in C.J. Gayfer’s, that “the phrase ‘caused by an occurrence’ informs the insured that an identifiable event other than the causative negligence must take place during the policy period.” C.J. Gayfer’s, 366 So. 2d 1199. The term ‘occurrence’ is commonly understood to mean the event in which negligence manifests itself in property damage or bodily injury, and it is used in that sense [in the policy].” Id.at 1202. Although the court used the term “manifest”, it applied the actual injury/injury-in-fact trigger: the date the water damage actually occurred. See Id.
As discussed supra, in Trizec, the Eleventh Circuit relied in part on this line of cases to hold that under Florida law and the language of an occurrence-based policy, damage that continues, or is fairly alleged to continue, through multiple policy periods can trigger coverage under each successive policy. Trizec, 767 F. 2d 810. The court specifically rejected manifestation as a trigger of coverage. Id. at 813 (emphasis added). Under facts similar to those here, Trizec involved a carrier’s duty to defend its policyholder against a claim alleging property damage caused by negligent construction of a roof deck. Id. The construction took place from 1971 to 1975, the carrier was on the risk from 1972 to 1976, and the damage was discovered in 1979. Id. The carrier claimed it did not have a duty to defend, arguing “the occurrence of the damage can only trigger coverage where it is discovered or has ‘manifested’ itself.” Id.
The court disagreed: “the language of the policy itself belies Liberty’s assertions,” adding:
The potential for coverage is triggered when an “occurrence” results in “property damage.” There is no requirement that the damages “manifest” themselves during the policy period. Rather, it is the damage itself which must occur during the policy period for coverage to be effective. Here, the actual date that the damage occurred is not expressly alleged, but the language of the complaint, at least marginally and by reasonable implication, could be construed to allege that the damage (cracking and leaking of roof deck with resultant rusting) may have begun to occur immediately after installation, 1971 to 1975, and continued gradually thereafter over a period of time . . . . Because the complaint alleges facts which fairly bring the cause within the coverage of the insurance contract, there is a potential for coverage and [the carrier] owes [the policyholder] a duty to defend the main action.
Id. at 813 (internal citation omitted); see also Boardman Petroleum, 135 F.3d at 754 n. 13 (“[c]ourts applying Georgia, Florida, and Alabama law . . . have rejected the ‘manifestation trigger of coverage’ approach in favor of an approach under which coverage is triggered by property damage alone taking place during the policy period” citingTrizec)(emphasis added).
- Cases Supporting the Manifestation Trigger
The primary case holding that “manifestation” is the applicable trigger in Florida is Auto Owners Ins. Co. v. Travelers Cas. & Surety Co. , 227 F.Supp. 2d 1248 (M.D. Fla. 2002). The issue becomes the question of whether there can be more than one manifestation. See Boran Craig Barber Homes, Inc. v. Mid-Continent Cas. Co., Case Number 2:06-cv-00089-UA-SPC (M.D. Fla. Feb. 19, 2009)(holding there can be more than one manifestation).
The Middle District of Florida then uniquely took an odd turn with regard to trigger of coverage decisions, in the Auto Owners case, in support of the position that the appropriate trigger of coverage is manifestation. In Auto Owners, the court was called upon to decide whether a policy covered property damage caused by a leaking pipe, where the leak was discovered after the applicable policy expired but the damage occurred during the policy period. Auto Owners, 227 F.Supp. 2d 1248.
The court started out in the right direction, finding that in Florida “the potential for coverage is triggered when an ‘occurrence’ results in ‘property damage.’ There is no requirement that the damages be ‘manifest’ during the policy period. Rather, it is the damage itself which must occur during the policy period for coverage to be effective.” Id. at 1265-66 (citing Trizec, 767 F. 2d at 813).
Two paragraphs later, however, the court, without explanation or solace in logic and in contravention to Trizec, states, “Florida courts follow the general rule that the time of occurrence within the meaning of an ‘occurrence’ policy is the time at which the injury first manifests itself”, and thus “the ‘trigger’ for coverage for the CGL policies is when the damage occurs and if damage is continuously occurring, the ‘trigger’ is the time the damage ‘manifests’ itself or is discovered.” Id. at 1266. The court then held that the trigger of coverage (and the occurrence) was the date the leaking pipe was discovered, even though the damage caused by the leaking pipe “undisputedly occurred” before it was discovered. Id. at 1268.
The Auto Owners court’s internally inconsistent position resulted from its reliance on an Alabama case: American Motorists Insurance Co. v. Southern Security Life Insurance Co., 80 F. Supp. 2d 1280, 1284 (M.D. Ala. 2000), which in turn relies on C.J. Gayfer’s & Co., 366 So. 2d 1199. Auto Owners, 227 F. Supp. 2d at 1266. The C.J. Gayfer’scourt stated that an “occurrence” under the policy “is commonly understood to mean the event in which negligence manifests itself in property damage or bodily injury.” C.J. Gayfer’s & Co., 366 So. 2d 1199. Although the court used the term “manifest”, it applied the actual injury/injury-in-fact trigger: the date the water damage actually occurred. See Id.
Moreover, in the case of Amerisure Ins. Co. v. Albanese Popkin the Oaks Dev. Group, L.P., 2010 WL 4942972 (S.D. Fla. Nov. 30, 2010), the Southern District made the distinction that in Trizec, “[b]ecause the complaint in the underlying case was construed to have alleged that the damage occurred during the policy period, the question of when the damage manifested itself was irrelevant to the analysis,” but recognized Trizec’s holding that with an occurrence policy, “the critical inquiry is when did the insured sustain actual damage.” Id. Despite this, in purposely ignoring any continuously occurring damage, the Southern District found that “[m]anifestation of the damage [was] relevant…because it establishe[d] that…actual damage [was sustained] before the policy became effective.” Id. This holding further demonstrates inconsistencies in Florida as the court concluded that actual damage was sustained when those actual damages were manifest or seen or viewed or discovered and completely ignores any time frame between when the damages began or ended. At some point in time the damage began to happen/occur/exist/take place. At some point in time, prior to repair, those damages were iscovered/seen/observed/viewed/manifest. And there is some point in time that the damages were finally repaired – meaning – the damage ended. The Southern District has seemingly decided this case in a vacuum where time does not exist.
As demonstrated by the case law above, and given the recent Axis case, the courts appear to be shifting away from manifestation trigger and applying actual policy language in holding that the correct trigger is injury in fact.
November 12th, 2013
What is the Scope of Your Additional Insured Coverage?
by Amanda K. Anderson, Esquire
Boyle and Leonard P.A.
- Types of Additional Insured Endorsements
There are many variations when it comes to additional insured endorsements, but there are a couple main categories of additional insured endorsements. Additional insured endorsements can be separated into two main categories, scheduled and blanket. The most common scheduled endorsement is the 20 10 11 85, which commonly states “WHO IS AN INSURED is amended to include as an insured the person or organization shown in the Schedule, but only with respect to liability arising out of “your work” for that insured by or for you.” On the other hand, blanket additional insured endorsements are typically dependent on the existence of a written contract which has been executed prior to the loss. Blanket language typically consists of some iteration of the following: “Who is an insured is amended to include any person or organization that the insured has agreed or is required by contract to add as an additional insured.”
An examination of the particular language in the endorsement is vital. There are three phrases which are typically used: (1) “arising out of”; (2) “caused, in whole or in part”; and (3) “because of”. Additional insured endorsements which cover damages “arising out of” the subcontractor’s work are the broadest of all the endorsements. See Taurus Holdings, Inc. v. U.S. Fid. & Guar. Co., 913 So. 2d 528 (Fla. 2005). In Florida, courts have universally ruled that the additional insured is insured for its own liability under the “arising out of” language. See Koala Miami Realty v. Valiant Ins. Co., 913 So. 2d 25 (Fla. 3d DCA 2005); Monticello Ins. Co. v. City of Miami Beach, 2008 WL 906537 (S.D. Fla. April 3, 2008). Thus, the additional insured has coverage for its own negligence and not just the additional insured’s vicarious liability. The “in whole or in part” language gives coverage to the additional insured so long as there was any fault on the part of the named insured. See Zep Construction v. Interstate Fire & Cas. Co., 18 Fla. L. Weekly Supp. 65a (Fla. 12th Cir. 2010); Am. Empire Surplus Lines Ins. Co. v. Crum & Forster Specialty Ins. Co., 2006 WL 1441854 (S.D. Tex. May 23, 2006); and Penn Nat’l Mut. Cas. Ins. Co. v. Ipsco Steel (Alabama), Inc., 2008 WL 4183345 (S.D. Ala. Mar. 10, 2008). As such, additional insured coverage under this language is not limited to vicarious liability. Lastly, additional insured status providing coverage to additional insured “because of” named insured liability has been held to be limited to mere vicarious liability. See Garcia v. Federal Ins. Co., 969 So. 2d 288 (Fla. 2007).
- Ongoing Operations Limitation
Many additional insured endorsements contain language which limits coverage to damages arising out of the named insured’s “ongoing operations.” Whether that phrase is intended to remove coverage for damages included in the “products completed operations hazard” is unclear. However, most of the courts interpreting this language have found that without more limitation in the endorsement to make clear that there is no coverage for completed operations, the “ongoing operations” limitation is insufficient to removed completed operations coverage. See Tri-Star Theme Builders, Inc. v. OneBeacon Ins. Co., 426 Fed.Appx. 506 (9th Cir. 2011); McMillin Constr. Servs.,L.P. v. Arch Specialty Ins. Co., 2012 WL 243321 (S.D. Cal. Jan. 25, 2012); and Jaynes Corp. v. American Safety Indem. Co., 925 F.Supp.2d 1095 (D. Nev. 2012). But seeColorado Cas. Ins. Co. v. Safety Control Co., Inc., 288 P.3d 764 (Az. Ct. App. 2012).
III. 2013 ISO Amendments
In April 2013, the Insurance Services Office, Inc. (“ISO”) revised its standard CGL forms and endorsements, including 24 of its 31 standard additional insured endorsements. The revised ISO endorsements contain three significant modifications of particular concern to contracting parties: coverage is provided “to the extent permitted by law”; coverage “will not be broader than” the contract; and limits are the lesser of the contract requirement or the policy declarations.
One of the revised additional insured endorsements now states that the insurance afforded to the additional insured “only applies to the extent permitted by law.” This provision was presumably inserted to address state anti-indemnification statutes. Another additional insured endorsement option, which could be added to a policy, states: that if the coverage is required by a contract or agreement, the insurance afforded to the additional insured “will not be broader than” the coverage that the insured is “required by the contract or agreement to provide.” It seems likely that the new language is intended to incorporate into the insurance policy any express limits on additional insured coverage that the parties have specified in the contract; for example, where the contract specifies that additional insured coverage will only extend to vicarious liability. The last major change reflected in some endorsements states: that the most the insurer will pay on behalf of the additional insured is either the amount “[r]equired by the contract or agreement”; or the applicable Limits of Insurance shown in the Declarations, whichever is less. The intent of this language is to limit the insurer’s exposure to the lesser of the policy limits or the amount agreed to by the contracting parties.
Certainly, all general contractors and subcontractors should be aware of these changes and adjust their contracts accordingly.
January 15th, 2013
By Amanda K. Anderson, Esquire
Boyle & Leonard P.A.
Can a “forum defendant” escape the confines of 28 U.S.C. §1441(b)(2) by removing prior to being served with a pleading?All of the cases addressing removal prior to service involve a non-forum defendant; most courts have held that removal is proper in that instance. But is it the same when a forum defendant seeks to remove prior to being served? I would suggest that it is, however improper or unfair it may seem.
A defendant may remove an action from state court to federal court only when a federal court would have had original jurisdiction over the action. 28 U.S.C. § 1441; Caterpillar, Inc. v. Williams, 482 U.S. 386 (1987). However, §1441(b)(2) states “a civil action otherwise removable solely on the basis of jurisdiction under section 1332(a) of this title may not be removed if any of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought.” 28 U.S.C. §1441(b)(2) (emphasis added). This restriction on the removal of diversity cases is known as the “forum defendant rule.” See Allen v. GlaxoSmithKline PLC, 2008 WL 2247067, at * 2 (E.D. Pa. May 30, 2008).
Even where there is complete diversity between the parties, then a defendant may not remove a case brought in a state court sitting in the same state in which any properly joined and served defendant is a citizen. North v. Precision Airmotive Corp., 600 F.Supp.2d 1263, 1267 (M.D. Fla. 2009). Removal is “intended to protect out-of-state defendants from possible prejudices in state court,” and the purpose of the forum state defendant rule is to allow plaintiffs to choose a forum because a forum state defendant does not need the protection of removal rights. Valerio ex rel. Valerio v. SmithKline Beecham Corp., 2008 WL 3286976, at *2 (S.D. Fla. Aug. 7, 2008)(citingLively v. Wild Oats Markets, Inc., 456 F.3d 933, 940 (9th Cir.2006)).
It is well established that for removal to be proper under 28 U.S.C. § 1441, “no defendant can be a citizen of the state in which the action was brought.” Tillman v. R.J. Reynolds Tobacco, 253 F.3d 1302, 1305 (11th Cir. 2001); see also Armstrong v. JLG Industries, Inc., 2008 WL 4665556 at *2 (M.D. Fla. Oct. 21, 2008);McMahon v. Presidential Airways, Inc., 410 F.Supp.2d 1189, 1194-95 (M.D. Fla. 2006) (recognizing that removal from Florida state court was not proper on the basis of diversity jurisdiction because the defendants were Florida residents). Only an out-of-state defendant can remove an action to federal court and not, as here, a Florida citizen. See Bank of New York Mellon Trust Co., N.A. v. Johnson, 2010 WL 5426783, at *3 (N.D. Fla. Nov. 24, 2010). Therefore, “a defendant who is a citizen of the State of Florida cannot remove an action to federal court based upon diversity between the parties.” Id. (citing Tillman, 253 F.3d at 1305; and McMahon, 410 F.Supp.2d at 1194-95). The court inJohnson held that “[b]ecause Defendants are Florida residents, sued in a Florida state court, they cannot remove this action based upon diversity of citizenship.”
Thus, it would seem as though even a forum defendant can remove as long as they do so prior to the joining of any other forum defendants and prior to service.
August 3rd, 2012
By Amanda Anderson
What is Contractual Indemnity and Why is it Important for General Contractors
What is Indemnification?
Indemnification allows one party, such as a general contractor or lessor, to shift payments or liability to another party, such as a subcontractor or lessee. Indemnification can arise from a multitude of factual situations. A more formal legal definition of indemnity is a form of restitution that involves the shifting of the entire loss from one who has paid it to another who would be unjustly enriched at the expense of another. The specifics depend on the facts of your project, the law of the applicable state, and the contract you signed.
A claim for indemnification is usually filed before a party has actually paid or suffered the loss in question. Thus, where a general contractor is facing a claim that potentially arises from the fault of a subcontractor, the general contractor may raise its indemnification claim against the subcontractor in the same lawsuit.
Contractual indemnification involves indemnity based on the agreement of the parties. In Florida, construction contracts with contractual indemnity provisions are limited by Fla. Stat. §725.06. Typically, contractual indemnification involves a party agreeing to indemnify and hold a party harmless against a list of possible harms. The indemnity obligation can also include a defense obligation as well.are disallowed.
Contractual indemnity is important because the General Contractor bears the ultimate responsibility for the workmanship and quality of the finished project. Substandard workmanship, or work which falls short of building code requirements, can expose the General Contractor to liability for property damage occurring well after the structure has been completed. A General Contractor using all subcontractors to perform the work under its contract with the Owner/Developer can insulate itself from legal and financial destruction through the use of an indemnification provision in its contract with its subcontractors.
Actual Cases in Florida Involving Contractual Indemnification
The Defense Obligation in Contractual Indemnity
In Metropolitan Dade County v. Florida Aviation Fueling Co., Inc., 578 So. 2d 296 (Fla. 3d DCA 1991), the District Court considered whether an indemnitor had the duty to defend when the complaint filed against the indemnitee alleged more than one theory of liability, one which was covered by the indemnification clause and another which is not. The court held that when a complaint contains a covered claim and a claim which is not covered by the indemnity agreement, then the duty to defend extends to the entire lawsuit. General contractors should strive to have all three in their contracts with subcontractors. However, general contractors should be wary of entering into contracts with owners or developers when they insist on having all three. It is important to note that indemnification clauses wherein the general contractor seeks to have the subcontractor indemnify him for purely his own negligence
Is the Duty to Pay Defense Costs and Attorneys’ Fees Severable from the Duty to Indemnify?
In Barton-Marlow Co. v. Grunau Co., 835 So. 2d 1164 (Fla. 2d DCA 2002), the District Court answered this very question. There, the trial court had determined that the indemnity provision was void and unenforceable under §725.06, Florida Statutes, because it did not contain a monetary limit on the subcontractor’s liability and no special consideration was given by the subcontractor for the indemnity provision. In voiding the indemnity provision, the court determined that the defense obligation was severable from the indemnity obligation and thus still enforceable. The trial court ultimately apportioned the defense obligation based the proportion of each subcontractors’ contribution to the overall settlement. On appeal, Barton-Marlow, the general contractor, argued that it was entitled to recover all of its defense costs and attorneys’ fees because the duty to defend was severable from the duty to indemnify. On the other hand, the subcontractors argued that the duty to defend is part and parcel of the duty to indemnify, and the duty to defend arises only out of the unenforceable indemnity provision, and the general contractor cannot enforce one portion of an otherwise unenforceable provision. The District Court ultimately held that the “duty to defend” is not severable from the remainder of the indemnity provision.