Florida Federal Court Finds Insurer Must Defend Contractor in Defective Condo Construction Suit

Michael S. Levine | Hunton Andrews Kurth LLP | December 27, 2018

The United States District Court for the Middle District of Florida recently granted summary judgment in favor of developer, KB Homes, ruling that Southern Owners Insurance Co. must defend KB Homes under various Commercial General Liability policies.

The action arises from the construction of the Willowbrook Condominium project, a 51-building, 270-unit condominium project located in Manatee County Florida. Gallo Building Services, Inc., a subcontractor, entered into a master subcontract with KB Home, the developer and contractor for the project. Following the completion of the project, the association retained an engineering firm who discovered several defects at the project. The association sued KB, which then sued multiple subcontractors, including Gallo, forming the underlying litigation.

Southern, Gallo’s insurer, then filed the coverage action seeking a declaration that it had no duty to defend or indemnify Gallo under its policies of insurance. After Gallo became insolvent, KB Home stepped in and moved for summary judgment on the duty to defend.

Southern opposed the motion, arguing that the “your work” exclusion and the Exterior Finishing and Stucco Exclusion barred coverage, and that the association’s underlying complaint failed to allege property damage. The Court rejected Southern’s arguments and held that the Southern’s duty to defend was triggered by the broad allegations of “damage to other building components,” “damage to other property,” “water intrusion,” and relocation of resident,” which encompassed damage besides the work completed by Gallo. Moreover, the Court rejected the application of the Exterior Finishing and Stucco Exclusion stating that “Southern does not describe how each defect relates to stucco or an exterior finishing system,” therefore, determining the exclusions did not do away with Sothern’s duty to defend.

Not only is the decision a substantive win for policyholders, the decision provides a firm example of the value that can be obtained from other people’s insurance. By obtaining insurance from Gallo’s insurers instead of its own, not only did KB Home secure a complete defense in the litigation, it did so without implicating coverage under its own insurance and potentially impairing its own policy limits and without impacting its own loss ratios. Policyholders should therefore consider all potentially applicable insurance and indemnity agreements when faced with a claim or potential liability.

Florida Decides Against Adopting Daubert

Rahul Gogineni | Subrogation Strategist | December 12, 2018

In Delisle v. Crane Co., 2018 Fla. LEXIS 1883, 43 Fla. L. Weekly S 459, the Supreme Court of Florida reaffirmed that the appropriate test for admissibility of an expert opinion about new or novel scientific evidence is the “Frye” test, not the “Daubert” test.

As result of developing mesothelioma, Richard Delisle sued sixteen defendants, including Crane Company (Crane) and R.J. Reynolds, claiming that each exposed him to asbestos, which is a leading cause of mesothelioma. At trial, Crane and R.J. Reynolds sought to preclude the expert opinions of Mr. Delisle’s causation experts. The trial denied the motions and the jury awarded Mr. Delisle $8 million.

Crane and R.J. Reynolds appealed the trial court’s decision to admit the plaintiff’s expert causation testimony. Upon review, the Fourth District Court of Appeal concluded that under Daubert, the trial court erred in admitting the plaintiff’s expert causation testimony. In addition, it remanded the case for a new trial against R.J. Reynolds and the entry of a directed verdict in favor of Crane.

The plaintiff appealed the appellate decision, arguing that in accordance with past precedent, the trial court correctly applied the Frye test rather than the Daubert test.

Daubert v. Frye

In the United States, all states apply a variation of either the “Frye” test or the “Daubert” test to determine the admissibility of expert opinions. Under Frye, expert testimony need only be generally accepted by a meaningful segment of the associated scientific community. Under Daubert, expert testimony is admissible if: (1) the expert’s scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue; (2) the testimony is based on sufficient facts or data; (3) the testimony is the product of reliable principles and methods; and (4) the expert has reliably applied the principles and methods to the facts of the case. In 2013, the Florida state legislature codified the requirement that courts apply the Daubert test in Section 90.702 of the Florida Statutes. Prior to this legislation, Florida courts applied the Frye test.

In Delisle, the court addressed whether the legislature had the authority to legislate the appropriate test for the admissibility of expert testimony. In citing to Article II, Section 3 and Article V, Section 2 of the Florida Constitution, the court held that the state legislature did not have the authority to pass legislation that, “determine[s] matters of [court] practice or procedure” through a mere majority vote.[1] It further held that the test for the admissibility of expert testimony is a procedural rule and, therefore, within the sole purview of the Judiciary. The court concluded by reaffirming “that Frye, not Daubert, is the appropriate test in Florida courts.” The court noted, however, that the Frye test is “inapplicable to the vast majority of cases because it applies only when experts render an option that is based on new or novel scientific techniques.” However, with respect to the medical causation testimony at issue, the court held that the trial court properly admitted the testimony because medical causation testimony is not new or novel, and not subject to a Frye analysis. This case serves as a good reminder that, prior to filing suit, subrogation practitioners should be aware of which test will apply to the admissibility of the testimony of the expert or experts involved in the case.

[1] It should be noted that the Florida Constitution does permit the repeal of a rule of the Court if the legislation is enacted by two-thirds votes of both houses of the legislature.

Get Your Experts Opinions Nailed Down Ahead of Trial, or Else!

Erin Dunnavant | Property Insurance Coverage Law Blog | December 8, 2018

Recently, Florida’s Third District Court of Appeal found that a trial court abused its discretion by allowing the trial testimony of an insured homeowner’s expert when he expanded on his opinions during trial. The case is Citizens Property Insurance Corporation v. Vazquez.1

The loss dealt with an explosion inside a marijuana grow house located across the street from the insured homeowners’ residence. The explosion at the grow house occurred on September 22, 2012. Just after the explosion, the homeowners reported their claim to Citizens. After Citizens’ experts inspected they found the cause of damage to be wear and tear, excluded causes under Citizens policy and not due to the explosion. As such, Citizens denied the claim.

The homeowners then sued Citizens for breach of contract based on the denial. Although the trial was originally set in June of 2014, it was continued four times allegedly at the request of the homeowners and their counsel and the case did not actually go to trial until August 17, 2015. To support their position, the homeowners hired Dr. Calvin Konya, a blaster from Ohio to testify on their behalf. Mr. Konya was finally produced for his deposition on the eve of trial, despite several attempts by Citizens to depose him prior to that, according to the record. Mr. Konya’s deposition testimony was that the explosion at the house across the street could have caused damage to the home. He also admitted that he had never been to the insured property and could not testify regarding specific damages. According to the record, Dr. Konya arrived in Florida on day two of the trial (August 18, 2015) and went to the homeowners’ property that evening to finally inspect. The homeowners’ counsel did not disclose Konya’s visit to Citizens. On August 21, 2015—three days after Dr. Konya’s inspection, the homeowners’ counsel called him to testify. There Citizens learned for the first time he had been out to the property. Having now observed the property, Dr. Konya was able to expand on his previously given opinions and found that with certainty the explosion had caused specific damages. (A significant step beyond could have caused the damage).

During Citizens’ lawyer’s cross examination, Dr. Konya also admitted that without the inspection, he could not have given an opinion on specific damages. Citizens moved to suppress the witness’ testimony, but the trial court denied the motion. Then once Konya’s testimony came out, and the “beans were spilled” Citizens moved for new trial and that was also denied. After the jury awarded the homeowners $100,000.00, Citizens appealed.

Ultimately the appellate court agreed with Citizens, finding that the trial court had abused its discretion in allowing Dr. Konya’s testimony as it not only resulted in “unfair surprise” to Citizens but it was also “prejudicial” and required reversal. The appellate decision was based on the notion that parties have the right to rely on discovery deadlines and that expert opinions will not change after those deadlines. The mid-trial inspection of the homeowners’ expert that ultimately caused him to expand on his opinions given at deposition violated the discovery deadline and caused unfair surprise to Citizens. This was exhibited by the fact that Citizens’ trial counsel relied on the testimony during opening statement, particularly during a part where he stated that the jury should be listening to the homeowners’ experts who could not prove causation with certainty. In addition to causing unfair surprise to Citizens and their counsel, the appellate court found the allowance of Dr. Konya’s trial testimony to be prejudicial as the previously undeveloped and never disclosed opinion of Dr. Konya became the foundation of the homeowners’ case. The court also found that the timing of the testimony did not permit Citizens to challenge Dr. Konya’s qualifications or rebut this critical testimony.

Ultimately the appellate court summed up its holding:

Accordingly, we conclude that the trial court abused its discretion when it allowed Konya to testify because Konya’s opinion was based on information obtained post-discovery and mid-trial. Because Konya’s trial testimony both surprised and prejudiced Citizens during trial, we reverse the final judgment and remand for a new trial.

While writing about a loss for insured policyholders is not my favorite task, I feel like I need to make my fellow policyholder advocates aware of “what not to do” when issues like this cause both parties to expend the time and resources to start over with a trial. However, I am unaware of the facts and circumstances surrounding why the trial was continued so many times and why the expert couldn’t appear sooner. It may have concerned an illness or events that occurred outside of everyone’s control. (I am giving homeowners’ counsel the benefit of the doubt here).

Here are some tips to avoid what happened in this case:

  1. Obtain your experts early and picture your case going before a jury from the onset; ironically it may help your case settle early if the insurance company knows you are coming in well prepared;
  2. Conversations regarding your expert’s obligations should always include the chance that the claim might have to get tried. You never know when an insurance carrier is going to dig their heels in or when your client is going to just get so fed up that they want to go to trial on principal. However, your expert should expect to be visiting the property and needs to know that he will have to sit for deposition at some time prior to the discovery deadline. In an ideal world, their initial opinions should be thorough enough to support your case in chief on the off-chance that their deposition is not taken prior to trial.
  3. If you are a trial lawyer, some work on the weekends is inevitable as preparing a Civil Case for trial is a massive undertaking. As such, be willing to produce your expert on a weekend prior to the discovery cutoff in an absolute pinch as its better than violating the Court’s discovery deadline.
  4. If some emergency happens requiring a during trial inspection, the homeowners’ counsel here MIGHT have been able to salvage this one if they’d simply disclosed to Citizens that he’d been out there and let Citizens lawyer depose him the night before he testified.

With all that said, I would also like to remind my friends, colleagues, and fellow lawyers out there representing Citizens that this is a very narrow holding based on these very particular facts and should not be applied too sweepingly.
1 Citizens Prop. Ins. Corp. v. Vazquez, Case No. 3D15-2864 (Fla. 3d DCA November 21, 2018).

Florida Supreme Court Invited to Resolve Assignment-Of-Benefits Controversy

Michael Morehead | Property Insurance Law Observer | December 5, 2018


At least two Florida appellate courts have directly contradicted each other on an increasingly-important question facing Floridians and the insurance industry. The question is as follows: “Are insurance provisions valid which condition the validity of third-party benefits assignments upon the written consent of all insureds and named property mortgagees?” The answer to this question is important because Floridian policyholders often assign their insurance rights to construction companies post-loss to receive services without up-front payment. The Florida Supreme Court was recently asked to answer this important question, and it is likely to weigh in, although it has not yet formally decided to do so.

Public Policy

Public policy concerns animate assignment-of-benefits (“AOB”) legal disputes in Florida. Florida construction companies and policy-holder attorneys argue that AOB is good for policy-holders because it allows them to immediately repair damaged property. However, insurance advocates contend that certain AOB limitations are necessary to mitigate abuse, fraud, needless litigation, and ultimately to minimize insurance premiums to policyholders.

A 2016 Insurance Journal article explained that unscrupulous contractors often obtain AOBs, submit inflated repair-cost claims to insurers, and then work closely with “highly litigious” trial groups to sue the insurers for denying these claims, whether in whole or in part. Amy O’Connor, Florida Fights Back Against Assignment of Benefits Abuse, Insurance Journal (Feb. 8, 2016). A 2018 article indicates that as a result, the number of AOB lawsuits in Florida has been “spiraling out of control,” from 405 lawsuits in 2007 to 28,000 lawsuits in 2016—a “68-fold increase.” Liam Sigaud, Florida Insurance Abuse Spiraling Out of Control, Pensacola News Journal (March 14, 2018).

Thus, the legal AOB controversy currently taking place in Florida is the tip of a much larger public policy iceberg. Because of the breadth and depth of the public policy considerations at play, even those Florida courts which have taken a side have done so on purely legal grounds, recognizing that the complex policy considerations are best addressed by the Florida Legislature. Unfortunately, the Florida Legislature has repeatedly tried yet been unable to resolve the present dispute.

Florida Appellate Courts are Split

Three of the five Florida District Courts of Appeal have weighed in on the validity of AOB conditions requiring the written consent of all insureds and named property mortgagees. The Second Florida District Court of Appeal (“Second District”) upheld the enforcement of such conditions without comment. See Biologic, Inc. a/a/0 Elizabeth Morgan v. ASI Preferred Ins. Corp., 238 So. 3d 769 (Fla. Dist. Ct. App. 2017). The Fourth Florida District Court of Appeal (“Fourth District”) upheld the validity of such conditions with detailed analysis. See Restoration 1 of Port St. Lucie v. Ark Royal Ins. Co., 2018 WL 4211750, at *1 (Fla. Dist. Ct. App. 2018). Finally, the Fifth Florida District Court of Appeal (“Fifth District”) has twice held such conditions to be invalid under age-old Florida common law. Sec. First Ins. Co. v. Florida Office of Ins. Regulation, 232 So. 3d 1157, 1160 (Fla. Dist. Ct. App. 2017); Restoration 1 CFL, LLC v. ASI Preferred Ins. Corp., 239 So. 3d 747 (Fla. Dist. Ct. App. 2018).

In invalidating the aforementioned AOB consent requirements, the Fifth District cited a 1917 Florida Supreme Court decision for the very general proposition that “it is a well-settled rule that [anti-assignment provisions do] not apply to an assignment after loss.” Sec. First Ins. Co., 232 So. 3d at 1158 (quoting from W. Florida Grocery Co. v. Teutonia Fire Ins. Co., 77 So. 209, 210–11 (1917)). However, the Fourth District subsequently disagreed, holding that the Fifth District overgeneralized the Teutonia Fire rule, which invalided a clause requiring the insurer to consent to third-party benefits assignments, not other insureds and property mortgagees. Ark Royal Ins. Co., 2018 WL 4211750, at *3.

AOB consent from an insurer constituted a needless restraint on the insured’s right to assign benefits because the insurer had no interest in the assignment. Id. Thus, the insurer-consent requirement was “superfluous.” Id. In contrast, says the Fourth District, requiring the consent of other insureds and named mortgagees is not superfluous because they have a “a vested interest that a reputable, legitimate third-party contractor perform repairs on the home.” Id. The Fourth District recognized that freedom of contract may be limited where it would impose “great prejudice to the dominant public interest,” but declined to find any such prejudice because “[t]he contract here does not prohibit assignment—it imposes a condition, requiring the approval of all insureds and the mortgagee.” Id. at 4.

In sum, the Fourth and Fifth Circuit’s disagreement stems from differing opinions about the scope of the Teutonia Fire rule. Noting this conflict, the Fourth Circuit “certify[ied] conflict” for purposes of appeal to the Florida Supreme Court. Id.

The Issue Has Been Appealed to the Florida Supreme Court

Interestingly, the Fourth District’s opinion was appealed by the underlying winner—Ark Royal Insurance Company. In mid-October 2018, the loser, Restoration 1 agreed with Ark Royal that the Florida Supreme Court should take up the case to provide unity in Florida on the issue. The Florida Supreme Court has not yet determined whether to take up the appeal, although the circumstances suggest that it is likely to do so. Indeed, a former Associate Justice—Ken Bell—recently authored an article indicating that the Florida Supreme Court should and will take up the appeal and side with the Fourth District. Ken Bell, AOB Issue Finally Headed to Florida’s Supreme Court, Insurance Business America (Oct. 11, 2018).

Importantly, the seven-member Florida Supreme Court is about to change significantly. Justices Barbara Pariente, Fred Lewis and Peggy Quince will be leaving the court in January 2019, having reached the applicable state judicial age limit. Lloyd Dunkelberger, Florida Supreme Court direction hinges on governor’s race, Orlando Weekly (October 23, 2018). These justices are considered to be policy-holder friendly. Newly-appointed Republican Governor Rick Scott, who will take office in January 2019, has the power to make new appointments. Id. The AOB appeal, which was filed in late September 2018, will likely be decided after this seismic judicial shift takes place. These changes are likely to work in favor of insurers with regard to the AOB appeal.


Until the Florida Supreme Court resolves the present AOB debacle, the law is likely to be treated in a piecemeal fashion across the state, depending upon where suit is filed. Cases filed in the Fifth District are subject to binding Fifth District precedent, and insurer/mortgagee-consent requirements will likely be found invalid. Insurers in these jurisdictions cannot rely upon insurer/mortgagee-consent failures to function as a proper basis for denial and to shield them from liability. The relevant counties in which this is the case are as follows: Citrus, Hernando, Lake, Marion, Sumter, Flagler, Putnam, St. Johns, Volusia, Orange, Osceola, Brevard and Seminole.

The opposite is true in the Fourth District. Insurers can rely upon insurer/mortgagee-consent failures to function as a proper basis for denial of a claim by the assignee, as well as to shield them from liability that would otherwise flow from such a denial. The counties in which this is the case are as follows: Palm Beach, Broward, Indian River, Martin, Okeechobee and St. Lucie. In this regard, the Fourth District’s approach is arguably more important than the Fifth District’s approach, as the majority of AOB abuse is concentrated in Southern Florida.

Insurer’s should tread carefully in the Second District, including the following counties: Pasco, Pinellas, Hardee, Highlands, Polk, DeSoto, Manatee, Sarasota, Hillsborough, Charlotte, Collier, Glades, Hendry and Lee. Although one Second District opinion enforced an insurer/mortgagee-consent requirement, it did so without comment. Because it did not reason out its judgment, it is very difficult to gauge the Second District’s commitment to the position it has so far taken. Nevertheless, applicable case law favors the validity of insurer/mortgagee-consent requirements in Second District counties.

Florida’s Fourth District Appeals Court Clarifies What Actions Satisfy Florida’s Construction Defect Statute of Repose

Rahul Gogineni | The Subrogation Strategist | October 29, 2018

In Gindel v. Centex Homes, 2018 Fla.App. LEXIS 13019, Florida’s Fourth District Court of Appeal recently concluded that the date on which the plaintiffs provided a pre-suit notice in compliance with §558.004 of Florida’s construction defect Right-to-Cure statute, Fla. Stat. §§ 558.001 to 558.005, et. seq., is the date on which the plaintiff commenced a “civil action or proceeding,” i.e.an “action,” within the meaning of Florida’s construction defect statute of repose, Florida Statue § 95.11(3)(c). Thus, reversing the decision of the trial court, the Fourth District held that the plaintiffs timely-filed their construction defect action against the defendants.

The Gindel case arises from the allegedly defective construction of a group of homes by Centex Homes. On March 31, 2004, Mr. Gindel (the lead plaintiff) as well as the other homeowners (hereinafter collectively referred to as either “plaintiffs” or “homeowners”) took possession of their homes. After discovering an alleged construction defect, the homeowners provided a pre-suit notice of defect to Centex on February 4, 2014. After being notified that Centex would not cure the defect, the homeowners filed suit on May 2, 2014, against Centex and its subcontractor, Reliable Roofing and Gutters, Inc. Upon motion, the district court dismissed the case against Centex, finding that: (1) Florida’s 10-year statute of repose applied; and (2) the plaintiffs failed to bring their action within 10 years of taking possession of their homes.

Statute of Repose

In the United States, almost all states have adopted a statute of repose in connection with improvements to real property. Similar to a statute of limitations, a statute of repose imposes a time limitation within which a plaintiff has to file suit. However, a statute of repose is different from a statute of limitations in that it can start to run even before the plaintiff’s claim arises. Accordingly, a plaintiff’s claim may be barred by a statute of repose before the plaintiff is even aware of the latent construction defect giving rise to the plaintiff’s claim.

In Florida, there is a 10-year statute of repose for claims brought in connection with an improvement to real property. Under § 95.011 of the Florida Statutes, “[a] civil action or proceeding, called “action” in this chapter… shall be barred unless begun within the time prescribed in this chapter.” That time is further defined in §95.11(3)(c) of the Florida Statutes, which states:

An action founded on the design, planning or construction of an improvement to real property… must be commenced within 10 years after the date of actual possession by the owner, the date of the issuance of the certificate of occupancy, the date of abandonment of construction if not completed, or the date of completion or termination of the contract between the professional engineer, registered architect, or licensed contractor and his or her employer, whichever date is latest.” (Emphasis added).

In overturning the lower court’s decision, the appellate court concluded that, by including both “civil action” and “proceeding” within the definition of the term “action,” the statute contemplated that more than the filing of a civil action would satisfy the time requirement for the Statute of Repose. It further concluded that, because the Right-to-Cure statute, §558 of the Florida Statutes, sets out a series of mandatory steps that must be taken prior to bringing a judicial action, it sufficiently constituted an “action” for purposes of Florida’s Statute of Repose. Accordingly, the appellate court found that the plaintiffs, through their pre-suit notice sent on February 4, 2014, brought their “action” against Centex within 10 years of taking possession of the property. Thus, the court held that the plaintiffs were not time-barred from bringing their claims in a subsequent civil action.

This case serves as a good reminder to review the applicable statute of repose for any possible exception that may apply to your case. Additionally, it should be noted that some jurisdictions have “Right-to-Cure” statutes, which should also be reviewed prior to bringing litigation related to a construction defect.

Post-Opinion Motions

As of this writing, the parties have filed post-opinion motions related to the case, including a motion to certify the matter for appeal to Florida’s Supreme Court. Thus, the precedential value of the case, whether in the Fourth District or in other Florida appellate districts, is subject to change. Accordingly, until the Supreme Court of Florida addresses this issue, subrogation practitioners should contemporaneously file both the pre-suit notice required by Florida’s Right-to-Cure statute and a civil suit in the appropriate court. To the extent that the defendant contends that the suit is premature, a court should, pursuant to Florida Statute § 558.003, stay the suit to allow the parties time to comply with the Right-to-Cure statute.