Defining Occurrence – When Policy Definitions Do Not Apply To All Coverages
September 24, 2020
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.