Coverage issues continue to be at the forefront of construction defect litigation, and are often the economic engine driving how the cases are litigated.
The U.S. District Court for the Middle District of Florida recently issued an opinion in Evanston Ins. Co. v. DiMucci Dev. Corp. of Ponce Inlet, 2016 U.S. Dist. LEXIS 123678 (M.D. Fla 2016) further defining these coverage issues.
In Evanston Ins., the insured, DiMucci Development Corporation, constructed the Towers Grande Condos in Volusia County, Florida, and served as the owner, builder, developer, and seller of the units. Subsequently, the Association sued the insured for its role in developing and constructing the project. The Association also sued the roofing subcontractor. The Association alleged multiple defects related to the roof, generator exhaust pipe, HVAC, and deck, as well as structural issues.
The insured tendered to its carrier, Essex, seeking to be indemnified and defended in the litigation. On a Motion for Summary Judgment, Essex argued it had no duty to defend or indemnify under the policy as Illinois law applied which holds there is no duty to defend under a CGL policy for construction defects. Further, Essex argued that based on the facts alleged, there was no damage to property, other than the property/project itself and therefore the “your work” exclusion applied.
The Court held Florida law in fact applied and outlined Florida’s general rule that the duty to defend arises when “the complaint alleges facts that fairly and potentially bring the suit within policy coverage.” Evanston Ins. Co. 2016 U.S. Dist. LEXIS at 21. Any doubt as to coverage must be resolved in favor of the insured. Id. However, the Court did note “where the underlying complaint clearly brings the claims against an insured within a policy exclusion, an insurer is relieved of its duty to defend.” Id. at 23.
Having found Florida law applied, the Court granted Essex’x Motion for Summary Judgment, holding Essex’s argument that the “your work” exclusion supported its denial was correct. The Court agreed and held “the allegations in the State Court Complaint bring the alleged property damage within the “your work” exclusion, thus extinguishing the insurer’s duty to defend.” Id. at 29. The Court explained the insured’s work “encompasses the overall construction of the Towers, excluding the roof.” Thus, the only thing damaged was the actual work itself and “the ‘Your Work’ exclusion bars coverage and, therefore the insurer has no duty to defend the insured in the underlying action.”
The insured filed a Motion for Reconsideration, which the Court conditionally granted. The insured argued the Court failed to consider the damages that were alleged to have been caused by its roofing subcontractor, which would have rendered the “your work” exclusion inapplicable given the subcontractor exception within that policy exclusion. Evanston Ins. Co. v. Dimucci Dev. Corp. of Ponce Inlet, 2016 U.S. Dist. LEXIS 156560, 4 (M.D. Fla 2016). The Court then vacated its prior ruling and requested additional briefings on the “your work” exclusion and the interplay with the roofing subcontractor’s scope of work and resulting damages. Id. at 5.
To date the Court has not entered a new ruling on this issue. But, it serves as an important reminder that any duty to defend coverage analysis should include a careful consideration of all work completed by subcontractors to determine how the “your work” exclusion might be applied. This is especially true if the “your work” exclusion contains the subcontractor exception, as the Essex policy did.