On Dec. 14, 2017, in Altman Contractors v. Crum & Forster Specialty Insurance, No. SC15-1420 (Dec. 14, 2017), the Florida Supreme Court held that the pre-suit notice of claim process under Chapter 558 of the Florida Statutes is a “suit” as defined by standard Commercial General Liability Insurance Policies, and thus, could require insurance companies to provide their insureds a defense through that process and prior to the commencement of formal litigation or arbitration. This decision is beneficial to contractors, subcontractors, suppliers, design professionals and owners, all of whom benefit by insurance carriers’ participation in the Chapter 558 process, designed by Florida’s legislature to “reduce the need for litigation as well as [to] protect the rights of property owners”.
It is also very important to note that the decision is consistent with the intent of the drafters of Chapter 558, who intended the carriers to participate and specifically stated that the process is intended to provide the “insurer of the contractor, subcontractor, supplier or design professional, with an opportunity to resolve the claim through confidential settlement negotiations without resort to further legal process.”
The ultimate question before the court in Altman was whether the contractor’s carrier, Crum and Forster Specialty Insurance Co. (C&F), was required to provide a defense and reimburse the contractor, Altman Contractors, Inc. (ACI), its attorney and consultants’ fees incurred defending and resolving a condominium association’s Chapter 558 notice of claim, which undisputedly alleged resulting property damage covered by the policy issued to ACI by C&F. Since the association never filed a formal lawsuit against ACI (ironically as a result of ACI’s diligence and work with the association to resolve issues), C&F refused to provide a defense and ACI was forced to pay its attorneys and consultants directly.
ACI subsequently filed a lawsuit against C&F to recover its costs. C&F argued that since Chapter 558 is not a formal “lawsuit” or “arbitration”, there was no duty to defend. The trial court agreed and ACI appealed to the Eleventh Circuit Court of Appeals. Following oral argument, the Eleventh Circuit certified the following question to the Florida Supreme Court, as they found it to be a matter of first impression that has not previously been decided by a Florida State Court: Is the notice and repair process set forth in Chapter 558 of the Florida Statutes a “suit” within the meaning of the CGL policies issued by C&F to ACI?
The Florida Supreme Court answered the foregoing question in the affirmative, finding that the Chapter 558 pre-suit process is an “alternative dispute resolution proceeding”, as included in the policy’s definition of “suit.” Accordingly, per the opinion, an insured will be entitled to defense costs when the insurer consents to the insured’s participation. The Supreme Court did not address whether C&F consented in this instance, and thus, remanded that issue back to the Eleventh Circuit for further proceedings.
One of the stated policy goals of Chapter 558 is to “reduce the need for litigation” of construction defect claims. Although it may initially seem counterintuitive to say that having insurers defend contractors with attorneys during the Chapter 558 process is a means of avoiding litigation, a better understanding of the process may assist to explain the dynamic. The process is almost always initiated when the developer or condominium association engages lawyers (often working on a contingency basis), as well as consultants who specialize in conducting forensic analyses of buildings. Those lawyers and consultants generate lengthy and detailed reports of alleged defects, often containing hundreds (if not more) items. In order to effectively respond to the notice and participate in the Chapter 558 process, contractors need counsel and consultants, including engineers and architects. This can be costly, and without the financial assistance of the carriers, many contractors will be unable to effectively respond or choose not to substantively participate. Prior to the decision in Altman, some carriers would only provide a defense after the 558 process was complete and the formal lawsuit or arbitration commenced. Allowing the carriers to refuse to provide a defense during the Chapter 558 process, but then requiring a defense once the lawsuit is filed, would create a disincentive for contractors’ meaningful participation in the 558 process, forcing many of these claims into litigation. The Altman decision changed this and insurer participation in the 558 process will result in more settlements and fewer lawsuits.
The development and construction industries recognized the need for carrier participation in the Chapter 558 process, as demonstrated by the participation of the Construction Association of South Florida, South Florida Association of General Contractors, Leading Builders of America, and United Policyholders as Amicus Curiae in support of ACI’s position.
Not all notices of claim served under Chapter 558 will trigger the duty to defend. Only those that allege resulting property damage covered by the applicable insurance policy, such as water intrusion, could trigger the duty, such that the content of the claim itself remains relevant. Nothing about the Altman decision precludes owners and contractors from working together without carriers to resolve simple and non-covered claims. After all, these are not the types of complicated defect claims Chapter 558 was designed to address. But, for complex claims, carrier participation will promote resolution and increase the effectiveness of the Chapter 558 process.
—Handfinger and Reynolds represented Altman Contractors, Inc. in the above referenced matter.
Adam P. Handfinger is the co-partner in charge of the Miami office of Peckar & Abramson. He focuses his practice on construction law and commercial litigation. Contact him at firstname.lastname@example.org.
Meredith N. Reynolds is a senior associate in the firm’s Miami office. She focuses on construction law and commercial litigation. Contact her at email@example.com.