March 6th, 2018

The Court of Appeals holds that loss of use of real property constitutes “property damage” under CGL Policy

By, Mark A. Boyle, Esq.

Many lawsuits involving real property and defective construction claims include claims for damages that do not constitute physical damage to tangible property. Generally, COMMERICAL GENERAL LIABALITY (“CGL”) carriers eschew coverage for such claims.  The recent decision in Mid-Continent Cas. Co. v Adams Homes of Northwest Florida, Inc., No. 17-12660, 2018 WL 834896 (11 Cir. Feb. 13, 2018) clearly makes loss of use claims—even where no physical damage to tangible property occurs—potentially covered claims under CGL policies in Florida.

Adams Homes of Northwest Florida (“ADAMS”) was sued by a series of homeowners in an integrated community in which the residents were allotted common access to amenities including golf courses, restaurants, a marina, and shops. ADAMS built a series of homes within the development. The homeowners in the development eventually sued ADAMS claiming “homes, the streets adjacent to the homes, and the common areas they have access to, are now prone to flooding “which has made “[Homeowners’] ordinary use or occupation of their property physically uncomfortable” and “disturb[ed] the [Homeowners’] free use … of their property.” Homeowners sued ADAMS in state court seeking damages for ADAMS’ alleged negligence in failing to ensure the installation of adequate drainage.

Mid-Continent Casualty Company (“MCC”) insured ADAMS under a series of commercial general liability policies which included the standard INSURANCE SERVICES OFFICE’s (“ISO”) CGL property damage definition. Under those policies, MCC had the “right and duty to defend the insured against any ‘suit’ seeking damages because of ‘bodily injury’ or ‘property damages’ covered thereunder.” The policy defined property damage as follows:

  1. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or
  2. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the ‘occurrence’ that caused it.


MCC began defending ADAMS under a reservation of rights but also asserted a declaratory relief action in which MCC attempted to disclaim both the duty to defend and the duty to indemnify. The trial court agreed with MCC that the claims of the Plaintiff did not constitute “property damage” as that terms was defined under the CGL policy.

The 11th Circuit disagreed relying both on the plain language of the policy and a Florida intermediate appellate court decision, McCreary v. Florida Residential Prop. and Cas. Joint Underwriting Ass’n, 758 So.2d 692, 693 (4th Dist. Ct. App. 1999).  In McCreary, the court determined that the actions of the defendant ultimately rendered the Rebalko’s property unsafe and unsecure; thereby resulting in loss of use. Id. at 695. In response to MCC’s response argument that the water was “relatively harmless” and not likely to cause “an immediate danger”, the Court noted:

“But the absence of allegations that the storm water run­off is placing Homeowners in immediate danger does not counsel a different result. Physical discomfort in the use of property, like insecurity and unsafety in the use of property, raises the specter of loss of use. Although it is unclear whether the physical discomfort caused by the run-off is severe enough to prevent Homeowners from using their property, the same was true of Rebalko’s allegations in McCreary. Rebalko did not allege he stopped using his property because of the McCrearys’ dogs; rather, Rebalko alleged he felt insecure and unsafe in its use. Like Rebalko, Homeowners are entitled to have any ambiguity about whether the physical discomfort caused by the run-off was severe enough to cause loss of use resolved in their favor. “If the allegations of the complaint leave any doubt as to the duty to defend, the question must be resolved in favor of the insured.” Lime Tree Vill.Cmty., 980 F.2d at 1405.

Thus, the Court held that there was a duty to defend.

In addition to its holding that a potential loss of use claim required a defense under the CGL policy the 11th Circuit held that the fact that the damages in questions were “purely economic” did not bar the claims under the circumstances of this case noting “We have not found any support for applying the principle that general-liability policies do not cover purely economic damages in a case like this one.”

Until the ADAMS v MCC decision, most of the focus in insurance litigation for defective construction involved the question of whether or not the “property damage” definition had been met by a showing of physical injury to tangible property.  See U.S. Fire Ins. Co. v. J.S.U.B., Inc., 979 So. 2d 871 (Fla. 2007), Auto-Owners Ins. Co. v Pozzi Windows Co., 984 So. 2d 1241 (Fla. 2008). The ADAMS v MCC decision now gives a potential claimant under a CGL policy two avenues for pleading into coverage: 1. physical damage to tangible property; and/or 2. loss of use.  Practitioners who wish to plead their claims into coverage should plead either or both elements as applicable.



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