Eleventh Circuit Vacates District Court Decision Finding No Duty to Defend Faulty Workmanship Claims

Tred R. Eyerly | Insurance Law Hawaii

    The Eleventh Circuit vacated the district court’s grant of summary judgment to the insurer finding there was no duty to defend. Southern-Owners Ins. Co. v. Mac Contractors of Florida, LLC, 2020 U.S. App. LEXIS 23918 (11th Cir. July 29, 2020). 

    Mac Contractors entered into a contract with homeowners to serve as general contractor for the construction of a custom residence. Problems arose during construction and Mac eventually led the job site before completing the project. The home owners sued, alleging that Mac and its subcontractors had left the residence “replete with construction defects.” Damages were sought for having to repair and remediate all defective work performed by Mac. 

    Mac tendered under its CGL policy to its insurer, Southern-Owners. A defense was granted, but later withdrawn when Southern-Owners filed suit seeking a declaration that it owed no duty to defend or indemnify Mac. On cross-motions for summary judgment, the district court found in favor of Southern-Owners based on the exclusion for “Damage to Your Work.” The Eleventh Circuit vacated on appeal, concluding that the underlying complaint could fairly be construed to allege damages that fell outside of the exclusion. 

    On remand, the district court again granted summary judgment to Southern-Owners, this time concluding that the underlying complaint did not allege “property damage” within the meaning of the policy. The court reasoned that the underlying complaint did not allege any damage beyond the faulty workmanship or defective for, which did not qualify as “property damage” under Florida law. 

    Under Florida law, there was a distinction between “a claim for the costs of repairing or removing defective work, which was not a claim for ‘property damage,’ and a claim for the costs of repairing damage caused by the defective work, which was a claim for ‘property damage.'” United States Fire Ins. Co. v. J.S.U.B., Inc., 979 So.2d 871, 889 (Fla. 2007). Thus, faulty workmanship or defective work that damaged the otherwise non-defective completed project caused “physical injury to tangible property” within the plain meaning of the definition in the policy. But if there was no damage beyond the faulty workmanship or defective work, then there could be no resulting “property damage.”

    Here, the underlying complaint could be construed to create potential coverage under the policy. The complaint alleged that Mac used subcontractors for work on the residence and that the residence was “replete with construction defects” and various damage. It did not further allege which subcontractors performed which work or how the damage occurred. Given these ambiguities, the complaint’s allegations were broad enough to allow Mac to prove that one subcontractor negligently damaged non-defective work performed by another subcontractor. If Mac could establish that at least some of the damage arose in this way, there would be damage apart from the work itself and therefore “property damage.” Because there was a potential for coverage, the duty to defend was triggered. 

    The case was remanded for consideration of exclusions raised by Southern-Owners.

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