Florida Appellate Court Determines Faulty Workmanship Exclusion in Homeowner’s Policy Is Not Ambiguous and Thus Damage Caused by Contractor’s Conduct Is Not a Covered Loss

Matthew Lewis | PropertyCasualtyFocus

The Florida Third District Court of Appeal recently ruled that an insurer did not waive its right to appraisal after choosing to cover only part of a property damage loss claimed by its insured. The case, People’s Tr. Ins. Co. v. Farua Portuondo, No. 3D20-266 (Fla. 3d DCA Oct. 7, 2020), involved a property damage claim regarding alleged damage sustained to the insured’s home following Hurricane Irma in September 2017.

In December 2018, Farua Portuondo first reported roof and interior damage to his property insurance carrier, People’s Trust Insurance Company (“People’s Trust”). Following an inspection of the purported damage, People’s Trust agreed to cover only the interior damage and not the claim for roof damage.

On July 30, 2019, Portuondo filed suit against People’s Trust based on the insurer’s denial of coverage related to the roof damage claim. On August 26, 2019, People’s Trust demanded appraisal, as allowed under its policy with Portuondo, and proceeded with the appraisal process.

On September 16, 2019, People’s Trust was served with the lawsuit filed by Portuondo. Following service of the lawsuit, People’s Trust halted the appraisal process and filed a motion to compel appraisal, along with several other motions to compel related to the claim. The trial court denied the motion to compel appraisal. As such, People’s Trust appealed the ruling to the Third District Court of Appeals.

The district court reviewed the transcript of the hearing from the trial court and determined that the motion to compel appraisal was denied by the lower court because People’s Trust only provided partial coverage to the Portuondo claim. In support of the denial of the motion to compel appraisal, Portuondo had argued that People’s Trust waived its right to appraisal by choosing to cover only part of the loss.

The district court disagreed with Portuondo’s argument, holding that a motion to compel appraisal should be granted when an insurer has agreed to repair a covered loss, but the parties disagreed as to the scope of the repairs. The district court cited to a case it decided earlier in 2020, Baptiste v. People’s Tr. Ins. Co., 299 So. 3d 1148 (Fla. 3d DCA 2020), which involved the same policy language in a similar situation where the insurer and insured disagreed on the “amount of loss” and “scope of repairs.” Because People’s Trust did not wholly deny coverage for Portuondo’s claim, the district court held that the trial court should have granted the motion to compel appraisal as allowed under the policy.

In addition, the district court rejected arguments made by Portuondo that People’s Trust waived its right to appraisal by abating the original appraisal and filing the motion to compel with the trial court. Because People’s Trust did not “actively” participate in the lawsuit or engage in conduct inconsistent with its right to appraisal, the district court held that People’s Trust did not waive its right to appraisal. Once People’s Trust received service of the lawsuit, it merely paused appraisal and sought an order from the trial court to require the parties to go through the appraisal process.

The district court reversed the order of the trial court and remanded back to the trial court with instructions to grant the motion to compel appraisal.

Coverage for Defective Work? Michigan Joins Majority

Alexander G. Thrasher and Heather Howell Wright | Buildsmart

Michigan has joined the majority of jurisdictions in holding that a general liability policy may provide coverage for claims for property damage allegedly caused by the defective work of a subcontractor. In a unanimous decision reversing the Michigan Court of Appeals, the Michigan Supreme Court held that a subcontractor’s unintentional defective work was an “accident” and, thus, an “occurrence” covered under the subcontractor’s commercial general liability (CGL) policy.

In Skanska USA Building Inc. v. MAP Mechanical Contractors, Inc., Skanska USA Building Inc. served as the construction manager on a medical center renovation project. Skanska hired defendant MAP Mechanical Contractors, Inc. (MAP) to perform heating and cooling work that included the installation of expansion joints on part of a steam boiler and piping system.  Several years after the installation, extensive damage to concrete, steel, and the heating system occurred, and Skanska determined that the cause was MAP’s incorrect installation of some of the expansion joints. Skanska repaired and replaced the damaged property at a cost of about $1.4 million and submitted a claim to MAP’s insurer, co-defendant Amerisure Insurance Company. Amerisure denied coverage for the claim, and Skanska filed suit.

The trial court denied competing summary judgment motions, and Skanska and Amerisure both filed applications for leave to appeal to the Court of Appeals. The applications were granted, and the appeals were consolidated.

The policy provided coverage for “property damage” caused by an “occurrence.” The term “occurrence” was defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Interpreting this language, the Michigan Court of Appeals held that summary judgment should be granted to Amerisure as “there was no ‘occurrence’ under the CGL policy because the only damage was to the insured’s own work product.” The term “accident” is not defined in the policy and the Court of Appeals, applying a definition of “accident” from Michigan appellate court precedent, reasoned that there was no “accident” and thus no “occurrence” to trigger coverage under the policy.

Skanska appealed to the Michigan Supreme Court. The Skanska Court began its review by focusing on the policy’s definition of “occurrence” as an “accident.” In doing so, the court relied on a definition of “accident” as “an undefined contingency, a casualty, a happening by chance, something out of the usual course of things, unusual, fortuitous, not anticipated and not naturally to be expected.” Amerisure contended that an “accident” must involve “fortuity,” or “something over which the insured has no control,” but the court disagreed. Instead, the court concluded that the term “accident” is both plain and broad in its meaning and a subcontractor’s faulty work may fall within the court’s definition of an “accident.” Although “fortuity” is one way to show an accident occurred, the court was steadfast that it is not the only way to do so.

The court also rejected the Court of Appeals’ conclusion that “accident” cannot include damage limited to the insured’s own work product because the policy at issue did not limit the definition of “occurrence” with any reference to the owner of the damaged property.

Finally, the court rejected Amerisure’s argument that providing coverage for the faulty subcontractor’s work would convert the insurance policy into a performance bond. The court observed: The fact that “coverage may overlap with a performance bond is not a reason to deviate from the most reasonable reading of the policy language.”

Whether faulty or defective workmanship constitutes an “occurrence” under the CGL is a state-specific question, and courts across the country are divided on this issue. While some states have held that faulty workmanship or improper construction is not an “occurrence” because it can never be an “accident,” others have held that faulty workmanship can be an “accident” if the resulting damage occurs without the insured’s expectation or foresight. The recent trend has been for courts to find that a construction defect or faulty workmanship satisfies the “occurrence” and “property damage” requirements under a general liability policy and losses sustained as a result of such defects may be covered. The Michigan Supreme Court’s decision is yet another example that the tide continues to change in favor of insureds as to whether property damage caused by defective work may be covered under a general liability policy.Print:EmailTweetLikeLinkedIn

“Please” Is Not a Material Condition of an Insurance Policy’s Notice of Claim Provision

Larry P. Schiffer | Squire Patton Boggs

It is fundamental that a policyholder has to notify its insurance company about a claim if it expects the insurer to defend and indemnify the policyholder against that claim.  When and where that notice has to be given, however, varies.  Sometimes the notice requirement is expressed as a mandatory condition and sometimes the policy wording is more polite.  In a recent non-precedential case, the Fifth Circuit Court of Appeals addressed this issue in a legal malpractice case.

In Landmark American Insurance Co. v. Lonergan Law Firm, P.L.L.C., No. 19-10385 (5th Cir. Jun. 4, 2020) (not for publication), a lawyer sued for legal malpractice had a claims-made professional liability policy with the following notice provision: “Please send all claim information to: Attention: Claims Dept [address].”  The insured never sent the underlying claims information to the insurer’s claims department.  Instead, when renewing the policy, the policyholder reported the claim on a claims supplement to the renewal application.

The insurer refused to defend the underlying lawsuit and brought a declaratory judgment action claiming it did not have any obligation to defend the case because of the lack of notice to its claims department.  The district court agreed and granted summary judgment to the insurer.  The Fifth Circuit reversed and remanded.

In reversing, the court held that the policyholder “reported” the underlying claim information to the insurer as required by the policy when it included the information in the claim supplement.  The court noted that the insurer did not dispute that it received the claims information in the claims supplement.  While the court conceded that other circuits had held reporting to the claims department fulfills an essential feature of notice provisions, in this case the notice provision was permissive and not mandatory.  In other words, saying “please send” is very different than saying the insured “must” or “shall” send the notice to the claims department.

Thus, the court held that the notice provision in this policy was not a material condition of the policy and breach of this permissive requirement, unlike a mandatory condition, did not result in a justifiable denial of coverage.  In this case, the insurer could be relieved of its duty to defend and indemnify only upon a showing that it was prejudiced by the breach.  Because the district court never reached that issue, the circuit court remanded the case for further proceedings.  The circuit court made it clear that it was not deciding whether the insured breached the notice provision or whether any breach may have prejudiced the insurance company.

Leveraging the 50-State Initiative, Connecticut and Maine Team Secure Full Dismissal of Coverage Claim for Catastrophic Property Loss

Regen O’Malley | Insurance Coverage Law Blog

On behalf of Gordon & Rees’ surplus lines insurer client, Hartford insurance coverage attorneys Dennis BrownJoseph Blyskal, and Regen O’Malley, with the assistance of associates Kelcie ReidAlexandria McFarlane, and Justyn Stokely, and Maine counsel Lauren Thomas, secured a full dismissal of a $15 million commercial property loss claim before the Maine Business and Consumer Court on January 23, 2020. The insured, a wood pellet manufacturer, sustained catastrophic fire loss to its plant in 2018 – just one day after its surplus lines policy expired.

Following the insurer’s declination of coverage for the loss, the wood pellet manufacturer brought suit against both its agent, claiming it had failed to timely secure property coverage, as well as the insurer, alleging that it had had failed to comply with Maine’s statutory notice requirements. The surplus lines insurer agreed to extend the prior policy several times by endorsement, but declined to do so again. Notably, the insured alleged that the agent received written notice of the non-renewal prior to the policy’s expiration 13 days before the policy’s expiration. However, the insured (as well as the agent by way of a cross-claim) asserted that the policy remained effective at the time of the loss as the insured did not receive direct notice of the decision not to renew coverage and notice to the agent was not timely. Although Maine’s Attorney General and Superintendent intervened in support of the insured’s and agent’s argument that the statute’s notice provision applied such that coverage would still be owed under the expired policy, Gordon & Rees convinced the Court otherwise.

At issue, specifically, was whether the alleged violation of the 14-day notice provision in Section 2009-A of the Surplus Lines Law (24-A M.R.S. § 2009-A), which governs the “cancellation and nonrenewal” of surplus lines policies, required coverage notwithstanding the expiration of the policy. The insured, the agent, and the State of Maine intervenors argued that “cancellation or nonrenewal” was sufficient to trigger the statute’s notice requirement, and thus Section 2009-A required the insurer to notify the insured directly of nonrenewal. In its motion to dismiss, Gordon & Rees argued on behalf of its client that Section 2009-A requires both “cancellation and nonrenewal” in order for the statute to apply. Since there was no cancellation in this case – only nonrenewal – Gordon & Rees argued that Section 2009-A is inapt and that the insurer is not obligated to provide the manufacturer with notice of nonrenewal. Alternatively, it argued that the statute is unconstitutionally vague and unenforceable.

The Court agreed with Gordon & Rees’ client that the statue is unambiguous because the terms “cancellation and nonrenewal” are not “mutually exclusive,” as was argued by the insured, agent and State intervenors. In doing so, the Court held that it was not bound by the definitions of “cancellation” and “non-renewal” found in Maine’s personal lines statutes (the definitions there expressly do not apply) and must interpret those terms based on their plain and common meanings. Based on this, the Court held: “the phrase ‘cancellation and non-renewal’ refers to the termination of a surplus lines insurance policy prior to the end of the policy period, with a failure to renew the policy.” The Court dismissed the complaint and cross-claim as no cancellation occurred, and the statute does not apply. Accordingly, there was no need to reach the arguments regarding constitutional infirmity.

Policy Language Expressly Prohibits Replacement of Undamaged Material to Match Damaged Material

Tred R. Eyerly | Insurance Law Hawaii

    Construing an all-risk Businessowners Policy, the court found that the policy language did not required replacement of undamaged material match materials that were damaged. Pleasure Creek Townhomes Homeowners’ Ass’n v. Am. Family Ins. Co., 2019 Minn. App. Unpub. LEXIS 1095 (Minn. Ct. App. Nov. 25, 2019).

    The policy covered the Association’s 14 townhome buildings. In June 2017, a hail storm damaged siding on all 14 buildings. An appraisal panel included the cost to replace the undamaged, faded siding in its appraisal award so that it would match the new siding. American Family refused to pay this component – which was appraised at about $211,382 – of the award. 

    An exclusion in the policy provided,

We will not pay to repair or replace undamaged material due to mismatch between undamaged material and new material used to repair or replace damaged material. 

We do not cover the loss in value to an property due to mismatch between undamaged material and new material used to repair or replace damaged material. 

After declining to pay for the undamaged mismatched siding, American Family moved for summary judgment, which the district court granted, finding that the policy excluded coverage.

    The appellate court affirmed. The Minnesota Supreme Court in Cedar Bluff Townhome Cond. Ass’n v. Am. Family Mut. Ins. Co., 857 N.W. 2d 290 (Minn. 2014), found that the mismatch between the old siding and new siding available constituted a covered loss, and obligated American Family to pay to replace all of the siding. But the policy in Cedar Bluff had no matching exclusion. Therefore, this case was distinguishable and the district court’s granting of summary judgment to American Family was affirmed.