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The Florida Supreme Court, in response to a question certified by the U.S. Court of Appeals for the Eleventh Circuit, has ruled that the notice and repair process in chapter 558, Florida Statutes, which sets forth procedural requirements before a claimant may file an action for a construction defect, was a “suit” within the meaning of a commercial general liability insurance policy.

The Case

Altman Contractors, Inc., was the general contractor for the construction of a high-rise residential condominium in Broward County, Florida, known as Sapphire Condominium.

Between April 2012 and November 2012, Sapphire served Altman with several notices of claim under chapter 558, Florida Statutes, that cumulatively claimed over 800 construction defects in the Sapphire project.

On or about January 14, 2013, Altman notified its insurer, Crum & Forster Specialty Insurance Company (“C&F”), of Sapphire’s claims and demanded defense and indemnity.

C&F denied that Sapphire’s notices of claim invoked its duty to defend, asserting that the notices did not constitute a “suit.” When C&F refused to defend Altman, it retained counsel to defend the notices of claim.

On May 28, 2013, Sapphire served Altman with a supplement to its November 2012 notice, claiming 13 additional deficiencies in the Sapphire project. Sapphire demanded that Altman “take all measures necessary to correct the identified construction and/or design defects.”

On August 5, 2013, C&F, though maintaining its position that Sapphire’s notices of claim did not invoke its duty to defend Altman under the policy, hired counsel to defend the claims under a reservation of rights. Altman objected to C&F’s selection of counsel, demanded that its original counsel be paid to continue defending, and requested reimbursement from C&F for the fees and expenses it had incurred since notifying C&F of Sapphire’s notices of claim.

C&F denied Altman’s requests.

Ultimately, Altman settled all of Sapphire’s claimed construction defects without any lawsuit being filed and without C&F’s involvement.

Altman asked the U.S. District Court for the Southern District of Florida to declare that C&F owed it a duty to defend and to indemnify it under the policy. The district court ruled in favor of C&F, and Altman appealed to the Eleventh Circuit.

The circuit court 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 issued by C&F to Altman?

The C&F Policy

The C&F policy provided:

We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies. We will have the right and duty to defend the insured against any “suit” seeking those damages. However, we will have no duty to defend the insured against any “suit” seeking damages for “bodily injury” or “property damage” to which this insurance does not apply. We may, at our discretion, investigate any “occurrence” and settle any claim or “suit” that may result.

(Emphasis added.)

The policy also provided:

“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:

a. An arbitration proceeding in which such damages are claimed and to which the insured must submit or does submit with our consent; or

b. Any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent.

The Chapter 558 Process

Chapter 558, titled “Construction Defects,” sets forth procedural requirements before a claimant may file an action for a construction defect. Specifically, a claimant must:

serve written notice of claim on the contractor, subcontractor, supplier, or design professional, as applicable

before the claimant may file an action for a construction defect. Upon receipt of a chapter 558 notice of claim, the recipient:

must serve a written response to the claimant

within the statutorily specified time-period, providing either an offer:

to remedy the alleged construction defect at no cost to the claimant,

to compromise and settle the claim by monetary payment,

to compromise and settle the claim by a combination of repairs and monetary payment,

a statement disputing the claim, or a statement that any monetary payment will be determined by the recipient’s insurer.

Once the claimant has received a timely settlement offer, the claimant in writing

must accept or reject the offer

The Florida Supreme Court’s Decision

The Florida Supreme Court answered the certified question in the affirmative.

In its decision, the court ruled that the chapter 558 process was an “alternative dispute resolution proceeding” within the meaning of the definition of “suit” because it was a “statutorily required presuit process aimed to encourage the claimant and insured to settle claims for construction defects without resorting to litigation.” The court added that the legislature had explicitly described chapter 558 as “[a]n effective alternative dispute resolution mechanism,” intended to be beneficial for reducing construction defect litigation.

The court next found that the chapter 558 process, which explicitly provided for damages, met the requirement in the policy’s definition of “suit” that damages be claimed in the alternative dispute resolution proceeding.

The court did not address whether C&F had consented to Altman’s participation in the chapter 558 process, explaining that it was outside the scope of the certified question and an issue of fact disputed by the parties, but it concluded that the notice and repair process set forth in chapter 558 constituted a “suit” within the meaning of the commercial general liability policy issued by C&F to Altman as an “alternative dispute resolution proceeding” to which the C&F’s consent was required to invoke its duty to defend Altman.

The case is Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co., No. SC16-1420 (Fla. Dec. 14, 2017). Attorneys involved include: Adam P. Handfinger and Meredith N. Reynolds of Peckar & Abramson, P.C., Miami, Florida, for Appellant. Kimberly A. Ashby of Foley & Lardner, LLP, Orlando, Florida; and Holly S. Harvey of Clyde & Co., Miami, Florida, for Appellee. Gregory D. Podolak of Saxe Doernberger & Vita, P.C., Naples, Florida, and Brian J. Clifford of Saxe Doernberger & Vita, P.C., Trumbull, Connecticut, Amicus Curiae United Policyholders. Mark A. Boyle, Molly Chafe Brockmeyer, and Alexander A. Brockmeyer of Boyle & Leonard, P.A., Fort Myers, Florida; Christine A. Gudaitis and Ashley B. Jordan of Ver Ploeg & Lumpkin, P.A., Miami, Florida, Amici Curiae Construction Association of South Florida, South Florida Associated General Contractors, Leading Builders of America, Florida Homebuilders Association, and National Association of Home Builders. W. Gray Dunlap, Jr. of W. Gray Dunlap, Jr., P.A., St. Petersburg, Florida; and Steven M. Klepper of Kramon & Graham, P.A., Baltimore, Maryland, Amici Curiae American Insurance Association, Florida Insurance Council, and Property Casualty Insurers Association of America.

About The Author

Steven A. Meyerowitz, Esq., is the Director of FC&S Legal, the Editor-in-Chief of the Insurance Coverage Law Report, and the Founder and President of Meyerowitz Communications Inc. As FC&S Legal Director, Mr. Meyerowitz, a member of the team that conceptualized FC&S Legal, provides daily analysis and commentary on the most significant insurance coverage law decisions from courts across the country and news regarding legislative and regulatory developments. A graduate of Harvard Law School, Mr. Meyerowitz was an attorney at a prominent Wall Street law firm before founding Meyerowitz Communications Inc., a law firm marketing communications consulting company.