Plaintiffs’ Bar Hits A Wall When It Comes to “Access” Damages

Jorge Cruz-Bustillo | Chartwell Law

In Florida, for years, the plaintiffs’ bar has been filing first-party property law suits for ensuing water damages caused by the failure of cast-iron pipes. In those cases, in which there is no evidence of interior water damages, the plaintiffs’ bar has been claiming repair costs associated with “access” (i.e., tear out and replacement) through the flooring to repair a plumbing drain line. Of course, with this “access,” the plaintiffs’ bar seeks recovery for damages based on matching which could include continuous flooring, baseboards, drywall, painting, etc.

A typical homeowner’s insurance policy in Florida will have a “perils insured” provision similar to the following:

“We insure against risk of direct loss to property described in Coverages A and B only if that loss is a physical loss to property; however, we do not insure loss:***

2. caused by:***

h. (1) wear and tear . . . deterioration; ***

If any of these cause water damage not otherwise excluded, from a plumbing . . . system . .., we cover loss caused by the water including the cost of tearing out and replacing any part of a building necessary to repair the system or appliance. We do not cover loss to the system or appliance from which this water escaped.”

The last paragraph of the “perils insured” provision is referred to as the “ensuing loss” exception. This “ensuing loss” exception provides coverage for any resulting water damage caused by the discharge of water from a plumbing system or household appliance, that is not otherwise excluded under the policy. This “ensuing loss” exception also includes “the cost of tearing out and replacing any part of the building necessary to repair the system.”  The latter provision is known, in first-party property litigation, as “access.”  

In Homeowners Choice Property & Casualty v. Maspons, 211 So. 3d 1067,1069 (Fla. 3d DCA 2017) the Third District Court of Appeal clarified that a homeowner’s insurance policy does not cover “access” through the flooring unless the plaintiff can prove that there are ensuing water damages caused by a back-up covered under the Policy.

In Maspons, supra, the plaintiff furnished a video showing a “break” in the drain line. The insurance carrier retained a plumbing company that inspected and found a “large hole” in the drain line. The trial court entered summary judgment in favor of the insureds. Id. at 1068 (“Based upon this state of there cord, the trial court found there was no coverage under the insurance policy for the repair and replacement of the pipe, but that Homeowners Choice was responsible for the greater cost of tearing out and replacing the slab to make the repair.”)

The Third District reversed and remanded directing the trial court to enter summary judgment in favor of Homeowners Choice. Id. at 1070. The Third District held: “At the time of the summary judgment proceeding . . . There was no evidence that the water exiting the pipe had caused any damage to its surrounding.”  Id. Based on the plain language of the “perils insured” provision, the Third District concluded that ensuing water damages was a necessary condition precedent to coverage for “access” through the flooring (even though the camera inspection did in-fact show that the drain line was broken).

The Third District’s analysis is important for the defense bar to understand. Specifically, the Third District wrote: “Any analysis must begin with the language of the insurance contract.” Id. at 1069. “We give the undefined words of an insurance contract their ordinary meaning, just as we would with any other type of contract.” Id. “‘Direct’ and ‘physical’ modify loss and impose the requirement that the damage be actual.” Id. “Examining the plain language of the insurance policy in this case, it is clear that the failure[i.e. break and/or large hole identified in Maspons] of the drainpipe to perform its function constituted a ‘direct’ and ‘physical’ loss to the property within the meaning of the policy.” Id. The Third District continued:

“However, the last paragraph of the “perils insured” provision, often referred to the “ensuing loss” provision of the policy, cautions that we not prematurely abort our inquiry. That clause provides the homeowner with coverage for an‘ ensuing’ loss that is not specifically excluded. Thus, while the exclusion for“[w]ear and tear” or “deterioration” might mean, and this case does mean by virtue of the Maspons’ concession that Homeowners Choice is not obligated to compensate the Maspons for their corroded drain pipe, if the Maspons suffered consequential loss as a result of the corroded pipe and that consequential or “ensuing” loss is not excluded under another provision of the policy, the loss is covered.” (emphasis added) [citations omitted]. Id. at 1070.

“Happily, for us, we can quickly conclude the interpretative gymnastics in which we are engaged at this point.” Id. “There was no evidence that the water exiting the pipe had caused any damages to its surroundings.” Id. “Thus, the trial court erred by entering judgment against Homeowners Choice for the cost of the repair and replacement of the slab necessary to reach the broken pipe at this time.” Id. “For this reason, we reverse and remand this case for entry of judgment in favor of Homeowners Choice Insurance Company, but without prejudice to the Maspons filing another claim of loss at a later date, if appropriate.” Id.

In Maspons, ensuing water damages were covered. The Third District, however, found that there was no evidence of ensuing water damage. Since the necessary predicate condition precedent did not exist, the Third District directed the trial court to enter summary judgment in favor of Homeowners Choice. For those Florida policies which contain a “water back-up” exclusion, under Maspons “access ”damages would never be covered.

Coverage for Defective Work? Michigan Joins Majority

Alexander G. Thrasher and Heather Howell Wright | International Law Office

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.

Heads I win, Tails You Lose: Southern Owners Insurance Company v. MAC Contractors

Julius Parker | Butler Weihmuller Katz Craig

On July 29, 2020, the Eleventh Circuit Court of Appeals issued its opinion in Southern Owners Ins. Co. v. MAC Contractors, of Fla., LLC, — Fed. Appx. —, 2020 WL 4345199 (11th Cir. July 29, 2020).  While claiming to follow its own precedent, which narrowly interpreted the Florida Supreme Court’s decisions in United States Fire Ins. Co. v. J.S.U.B., Inc., 979 So. 2d 871 (Fla. 2007) and Auto-Owners Ins. Co. v. Pozzi Window Co., 984 So. 2d 1241 (Fla. 2008), the Court reached the conclusion that a complaint which alleged that a newly-constructed home was “replete with construction defects” sufficiently pled “property damage” within the meaning of a general liability policy.  As such, it concluded that the insurer owed a duty to defend its insured home builder against a construction defect claim. This constitutes a departure from the court’s previous position on this issue.

In Amerisure Mut. Ins. Co. v. Auchter Co., 673 F.3d 1294 (11th Cir. 2012), the Eleventh Circuit interpreted the J.S.U.B. and Pozzi Window cases to reach the conclusion that a general liability policy did not cover a claim made against the insured general contractor for a roof which was defectively installed by a subcontractor.  The roof was composed of ceramic S-shaped tiles which required fastening at a precise torque in order to function as designed.  The roofing contractor failed to apply the correct torque, leading to the tiles becoming dislodged and falling off the building during heavy winds.  

The Court explained its reasoning:

The only damages Amelia alleges are those to correct the faulty roof supplied by Auchter’s subcontractor.  In so claiming, Amelia is effectively seeking to secure the roof that Auchter should have installed in the first instance: one that conformed with the contract specifications.  Amelia’s claim is thus simply a “claim for the cost of repairing the subcontractor’s defective work.”  U.S. Fire Ins. Co. v. J.S.U.B., Inc., 979 So. 2d 871, 890 (Fla. 2007).  As such, Amelia’s claim alleges no “property damage.”  See id.

Auchter, 673 F.3d at 1307.

Following Auchter, the Eleventh Circuit held that where the work of one subcontractor damages the work of another subcontractor, the complaint alleges “property damage” requiring the insurer to defend.  See Carithers v. Mid-Continent Cas. Co., 782 F.3d 1240 (11th Cir. 2015).  There, a brick mason installed brick veneer on a house and a different subcontractor defectively applied a coating over the bricks.  The Court thus held that the complaint alleged property damage to property other than the coating subcontractor’s work (i.e., the bricks).

Relying on Carithers, the Eleventh Circuit in MAC Contractors held that the District Court erred in granting summary judgment in favor of the insurer:

Here, the language of the underlying complaint, “at least marginally and by reasonable implication, could be construed” to create potential coverage under the policy. …  The operative amended complaint alleged that KJIMS 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 are broad enough to allow KJIMS to prove that one subcontractor negligently damaged nondefective work performed by another subcontractor.

MAC Contractors, 2020 WL 4345199 at *4, citing Trizec Props., Inc. v. Biltmore Constr. Co., Inc., 767 F.2d 810, 813 (11th Cir. 1985).

The problem with MAC Contractors is that it departs from the firmly-established rule that the plaintiff must plead concrete facts which show that coverage is implicated.  Nat’l Union Fire Ins. Co. v. Lenox Liquors, Inc., 358 So. 2d 533 (Fla. 1977).  The complaint in MAC Contractors did not allege that any one subcontractor damaged the work of any other subcontractor, only that the house was “replete with construction defects.”  Rather, the Eleventh Circuit found the duty to defend based upon the possibility that the complaint could be interpreted to allege that one subcontractor damaged the work of another subcontractor.  Basing the duty to defend on the ambiguity of a complaint turns the duty to defend on its head.

Following MAC Contractors, plaintiffs’ counsel in construction defects will be encouraged to plead vague allegations of property damage, because the more vague the complaint, the more it could be read to allege that which it does not.  Fortunately for insurers, the Court elected not to publish its decision in the Federal Reporter.  Therefore, under Rule 36-2 of the Eleventh Circuit’s Rules, the case may not be cited as binding precedent.  That of course begs the question, “Why issue an opinion which runs roughshod over prior established law and then banish it to the ethereal realm of unpublished decisions?”  The decision is pending a Motion for Reconsideration by the three-judge panel only, so perhaps there is hope for a sounder outcome upon reconsideration. 

Alleging Property Damage in Construction Defect Lawsuit

David Adelstein | Florida Construction Legal Updates

When there is a construction defect lawsuit, there is an insurance coverage issue or consideration.  As I have said repeatedly in other articles, it is all about maximizing insurance coverage regardless of whether you are the plaintiff prosecuting the construction defect claim or the contractor(s) alleged to have committed the construction defect and property damage.  It is about triggering first, the insurer’s duty to defend, and second, the insurer’s duty to indemnify its insured for the property damage.   

The construction defect claim and lawsuit begins with how the claim and, then, lawsuit is couched knowing that the duty to defend is triggered by allegations in the lawsuit (complaint).  Thus, preparing the lawsuit (complaint) is vital to maximize the insurer’s duty to defend its insured.

In a recent opinion out of the Eleventh Circuit, Southern-Owners Ins. Co. v. MAC Contractors of Florida, LLC, 2020 WL 4345199 (11th Cir. 2020), a general contractor was sued for construction defects in the construction of a custom home.  A dispute arose pre-completion and the owner hired another contractor to complete the house and remediate construction defects.   The contractor’s CGL insurer originally provided a defense to the general contractor but then withdrew the defense and filed an action for declaratory relief asking for the declaration that it had no duty to defend the contractor because the underlying lawsuit did NOT allege property damage.  The trial court agreed with the contractor and granted summary judgment in its favor finding that the underlying complaint did not allege property damage beyond defective work.  But, on appeal, the Eleventh Circuit reversed.

Among other allegations, the owner’s underlying complaint against the contractor asserted that the contractor committed defects through chipped pavers in the driveways and walkways, inconsistent paint finish, marks on ceilings, damage to exterior doors, damage to the top stair tread, damage to hardwood floors, metal roof dents, scratches in granite, holes in ceilings, etc.  The owner sought its costs to repair and remediate the defects and damage from the contractor.  In looking at whether the  contractor’s CGL insurer had a duty to defend the contractor–the insured–the Eleventh Circuit (focusing on precedent out of the Eleventh Circuit) stated:

The operative amended complaint alleged that [the contractor] 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 are broad enough to allow [the contractor] to prove that one subcontractor negligently damaged nondefective work performed by another subcontractor.  If [the contractxor] could establish that at least some of the damage arose in this way, there would be “damage apart from the defective work itself” and therefore “property damage.”

***

For these reasons, we conclude that the underlying operative complaint can fairly be construed to allege “property damage” within the meaning of the CGL policy and Florida law. Accordingly, the district court erred in granting summary judgment to [the CLG insurer] on this basis.

MAC Contractors of Florida, 2020 WL at *4 (internal citations omitted).

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