Florida Supreme Court Tackles Chapter 558 Defense Obligation for Insurers but Questions Remain as to When Defense Obligation is Triggered
On December 14, 2017 the Florida Supreme Court in Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co. answered a certified question of law posed by the U.S. Court of Appeals for the Eleventh Circuit regarding whether the notice and repair process set forth in Florida Statutes Chapter 558 is a “suit” within the meaning of a commercial general liability (CGL) policy of insurance.
Chapter 558 provides a mandatory pre-suit process for construction defect claims that requires a claimant to provide written notice to a contractor, subcontractor, supplier, or design professional (the “recipient”) outlining the alleged defects, and to provide the recipient a statutorily imposed period to inspect the property and consider resolving the claim by making repairs and/or providing monetary payments before litigation begins.
It is still too early to evaluate the full impact of the Altman Contractors decision, but we can begin to assess the Florida Supreme Court’s answer to the Eleventh Circuit’s certified question. According to the court, a Chapter 558 proceeding “is” an alternative dispute resolution proceeding as provided in a CGL policy’s definition of “suit.” However, the court specifically did not address whether an insurer’s “consent” is required to trigger a duty to defend the insured in a 558 proceeding.
This lack of discussion on “consent” only serves to create more confusion between insurers and their insureds regarding the impact of Altman Contractors. This is because typical CGL policy language defines the applicable part of the definition of “suit” as follows:
18. “Suit” means a civil proceeding in which damages because of “bodily injury,” “property damage” or “personal and advertising injury” to which this insurance applies are alleged. “Suit” includes:
b. Any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent. (Emphasis added).
Further, the court’s silence on the issue of “consent” makes likely future litigation on this issue, including the question of whether an insured has implied consent from its insurer to participate in the 558 process or whether an insurer can wrongfully withhold consent to defend its insured in the 558 process.
Notably, the U.S. District Court for the Southern District of Florida (the same court that first heard the Altman Contractors matter), in a matter affirmed by the Eleventh Circuit, recently addressed issues similar to “consent.” In Embroidme.com, Inc. v. Travelers Property Cas. Co. of America, the Court held that an insured’s defense fees and costs, incurred by the insured without the insurer’s request, were not covered under a CGL policy pursuant to the language in the CGL policy’s Supplementary Payments provision. However, Embroidme.com, Inc. did not involve a dispute concerning whether the insurer wrongfully withheld consent to the insured to incur those fees or if the insurer wrongfully denied the insured’s request for coverage. In fact, the insurer in Embroidme.com, Inc. agreed to defend the insured once it was put on notice of the claim for all subsequent defense fees and costs — which the court held was a proper course of action.
Even if the Altman Contractors decision appears to impose a burden on insurers always to defend their insureds in the 558 process, some fundamental issues still remain unresolved. These include:
- Whether an insurer must give consent to its insured to participate in the 558 process.
- Whether an insurer can deny consent to its insured if the defects alleged in the 558 Notice of Claim are only those directly related to the insured’s poor workmanship and which therefore would not be “property damage” as that term is defined by a CGL policy and interpreted under Florida law.
- Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co., — So.3d —, 2017 WL 6379535 (Fla. Dec. 14, 2017)
For more information, please contact: