Thursday, September 24, 2015

Construction Law: A Defect without A Defense - Chapter 558 and CGL Policies

By Michael G. Rothfeldt

     A contractor receives a letter in the mail, and his heart drops. Titled as a Notice of Claim for Construction Defect Pursuant to chapter 558, Florida Statutes, the letter alleges that the contractor’s work on a particular project is defective. The notice explains the contractor’s statutorily prescribed options for responding. No suit has been filed, though the nature of the letter suggests suit is imminent. Remembering the commercial general liability (CGL) policy he purchased, the contractor tenders the chapter 558 notice to his insurer and demands defense and indemnity. The insurer declines, stating that the case was “not in suit.” In response, the contractor sues the insurer for breach of contract and a declaration that insurer has a duty to defend the contractor. The Southern District of Florida recently considered this matter of first impression in Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co., 2015 WL 3539755 (S.D. Fla. June 4, 2015). The insurer in Altman argued that the chapter 558 notice did not trigger the duty to defend under the pertinent CGL policy because the case was “not in suit.” On the contractor’s motion for partial summary judgment on the duty to defend, the court examined whether chapter 558 barred the insured’s claim and whether the policy provided coverage.

     The insurer compared chapter 558 to similar statutes nationwide to support its argument that a chapter 558 notice cannot constitute an insurance claim. Rejecting the insurer’s argument, the court pointed to the statute’s language and concluded that chapter 558 did not bar the insured’s claim because section 558.004(13), Florida Statutes, provides that provision of the notice is not a claim ― it does not say that the notice itself is not a claim. This language differed from that contained in other states’ construction-defect notice statutes that expressly precluded such a notice from triggering coverage.

     The court turned next to the parties’ insurance policy to determine whether the chapter 558 notice was a “suit” that would trigger the insurer’s duty to defend. Because the policy defined “suit” as the undefined term “civil proceeding,” the parties and the court looked to dictionary definitions. Relying on definitions from the edition of Black’s Law Dictionary in publication when the policies were in effect, the court concluded that a “civil proceeding” requires a forum and a decision maker. Because chapter 558 provides neither, its alternative dispute resolution mechanism did not constitute a “civil proceeding” and thus was not a “suit” under the policy. The chapter 558 notice therefore did not trigger the insurer’s duty to defend, and the court accordingly granted summary judgment in favor of the insurer.

     In sum, Altman teaches that while a notice pursuant to chapter 558 can constitute a claim for insurance, the alternative dispute resolution mechanism in chapter 558 is not a “civil proceeding” and thus does not trigger an insurer’s duty to defend under a typical CGL policy. Furthermore, when defining a policy’s terms, the dictionary edition in publication during the policy’s effective date should be used.