The firm’s Nicholas D. Siegfried was interviewed as part of the Expert Interview Series for the Surety Solutions blog. Nicholas discusses construction law and some of the elements of the Florida Construction Lien Law in the article. Surety Solutions specializes in the Surety Bonds and has over 50 years of experience in the industry. Its clients range from local construction contractors to Fortune 500 companies, foreign conglomerates to financial institutions, government entities to hedge funds, and both public and privately held companies.
In the recent decision of Carithers v. Mid-Continent Casualty Company, the Eleventh Circuit Court of Appeals affirmed a trial court’s decision that a general liability carrier had an obligation to defend a homebuilder and satisfy a $90,000 consent judgment, which had been entered against the homebuilder.
The appeal stemmed from a lawsuit filed by homeowners Hugh and Katherine Carithers against Cronk Duch Miller, their homebuilder. The Carithers alleged that their home, built in 2005, had been constructed with numerous defects. The suit alleged that shoddy work by subcontractors had resulted in a faulty electrical system, damage to tile and exterior bricks and a leaky balcony that caused wood rot in the garage.
The court first examined what appropriate “trigger” controlled the date on which the property damage “occurred” and thus what policy period was implicated. The court noted that Florida state courts were divided as to whether the injury occurred when it “in fact” occurred or when it “manifested” itself. In this instance, the damages allegedly “manifested” themselves in 2010 after the Mid-Continent policy had expired. However, the trial court found that, although the injury might have manifested itself in 2010, it “in fact” occurred in 2005 giving rise to coverage. Notably, in affirming the trial court, the appellate court limited its holding that the “in fact” trigger applied to this case, noting that its application would be problematic where it is difficult or impossible to determine when the injury actually occurred:
“We note the difficulty that may arise, in cases such as this one, where the property damage is latent, and is discovered much later. We also note that the district court found as a fact in this case that the property was damaged in 2005. For this reason, we limit our holding to the facts of this case, and express no opinion on what the trigger should be where it is difficult (or impossible) to determine when the property was damaged. We only hold that the district court did not err in applying the injury-in-fact trigger in this case.”
In the remainder of the decision the appellate court applied Florida law from United States Fire Insurance Co. v. J.S.U.B., Inc. and its progeny in concluding what did and did not constitute covered property damage. Generally speaking, the J.S.U.B. court held that damage which resulted from the defective work of a subcontractor constitutes covered property damage. The Carithers court followed Amerisure Mutual Ins. Co. v. Auchter Co., 673 F.3d 1294 (11th Cir. 2012), which held that property damage constituted an occurrence, giving rise to coverage, if it was damage to work other than that which the subcontractor performed. For instance, if the bricks were damaged by the application of the brick coating, and the installation of the bricks and application of the brick coating was performed by two separate subcontractors, the damage to the brick constituted property damage.
Most notably, perhaps, the court held that the cost to demolish and repair the defective balcony, which was not otherwise covered, was covered property damage because it was necessary to repair the damage to the non-defective garage. The court held that this was part of the “cost of repairing damage caused by the defective work . . . “, quoting U.S. Fire Ins. Co. v. J.S.U.B., Inc., 979 So. 2d 871, 889 (Fla. 2007).
Complications often arise when ongoing property damage remains latent and is not discovered for years, and this decision will only add some clarity to cases involving the exact set of circumstances and policy language that applied in this case. However, the court’s decision to cover “rip and tear” costs as property damage could have far reaching implications.
The Insurance Services Office (ISO), which issues forms widely used in the construction industry, released a new additional insured endorsement form on April 1, 2013 to be appended to Commercial General Liability (CGL) policies. The new form includes a number of provisions of which members of the construction industry should be aware.
Coverage Limited by Contract
The new form provides that both the scope and amount of coverage will be limited to that required by the underlying contract. Therefore, if the policy provides $10 million of liability coverage, but the contract, for example, between owner and contractor requires contractor to provide owner with coverage as an additional insured in an amount of $1 million, the owner is only insured for $1 million irrespective of the limits of the policy. Additionally, if the contract specifically prescribes the scope of coverage which the contractor is to provide that is narrower than the coverage afforded under the policy, the contract scope governs.
Finally, under the new endorsement, coverage is limited to the “extent permitted by law.” Consequently, if the indemnity required by the contract is limited or otherwise extinguished for a failure to comply with Fla. Stat. 725.06, insurance coverage may be jeopardized as well.
Insurance related issues are common on construction projects. When issues or doubts exist as to the coverage your firm enjoys, it is best to contact a qualified attorney to review the policies at issue and advise you of the rights you do and do not enjoy.