Florida Supreme Court Holds Statutory Construction Defect Notice is a “Suit” Under Commercial General Liability Policy

Homeowner and condominium associations received a favorable ruling from the Florida Supreme Court, which may improve resolution of pre-suit construction litigation. Construction defect claimants are now far more likely to enjoy earlier participation by insurance companies in the pre-suit resolution process.

United States Court of Appeals for the Eleventh Circuit 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?

In Altman Contractors, Inc. v. Crum & Forster Specialty Insurance Company, Case No. SC16-1420, 42 Florida Law Weekly S 960 (Fla. December 14, 2017), the state’s high court answered in the affirmative.  

Construction defect claimants have been frustrated with Chapter 558 Fla. Stat. (2012) pre-suit notification process because developers and contractors were unable to meaningfully engage in pre-suit resolution without insurance coverage. The stumbling block before this ruling was that contractors had difficulty engaging insurers once a defect was discovered and notification was received.

The basic chain of communication was that a claimant would contact the contractor and that entity would convey the issue to sub-contractors. The Chapter 558 defect notice was designed to engage all parties as if a claim had been filed and triggering insurance carriers’ duty to defend in commercial general liability policies.

However, insurance carriers did not treat such notices as rising to the level of a “claim” under their commercial general liability policies.  Under such policies, carriers had a “right and duty to defend the insured against any ‘suit’ seeking those damages [of personal or property damage].” However, that engagement was not occurring due to an ambiguity about what constitutes a “claim” and an obligation to defend.

In the Altman case, defects were reported in the Sapphire Condominium project, erected in Broward County. Altman Construction had a policy with Crum & Forster Specialty Insurance Company (“C&F”) and sought to engage the carrier in pre-suit negotiations. When C&F balked at the Chapter 558 defect notice as constituting a duty, Altman asked for a declaratory judgment that the insurance carrier had breached their agreement.

The policy defined “suit” to include the following.

• An arbitration proceeding in which such damages are claimed and to which the insured must submit or does submit with our consent; or
• Any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent.

The Florida Supreme Court held that the chapter 558 process is included in the policy’s definition of “suit” as an “alternative dispute resolution proceeding.”

While the Florida Supreme Court ruling makes great strides to include an insurance carrier’s early participation, the ruling does not place any affirmative obligation on the insurer to participate in the chapter 558 process. The chapter 558 framework has never been anything other than a voluntary dispute resolution mechanism on the part of the insured.  Chapter 558 was always intended to act as a voluntary pathway for parties to avoid protracted construction litigation.

Although an insurance provider’s pre-suit involvement remains purely optional, the court’s clarification improves the likelihood of avoiding civil litigation. That’s because without the insurer’s involvement, contractors and sub-contractors would be responsible for the costs associated with negotiating pre-suit settlements.

If insurers wait for formal lawsuits, they could incur the costs of hiring inspectors to assess and investigate the defect’s origin and defend lawsuits from multiple entities. Insurance companies are likely to conclude that the best way to protect their bottom line from excessive and protracted construction defect lawsuits is to give early consent and fulfill their duty to defend out-of-court claims.

Given the Florida Supreme Court’s ruling, homeowner and condominium associations may be well served to provide detailed and expert-certified documentation regarding construction defects claims and provide loss assessments in their Chapter 558 notifications in an effort to motivate insurer participation. Efforts consistent with the court’s ruling are expected to improve pre-suit resolutions going forward.