In Florida, parties are required to issue a notice and opportunity to cure construction defects prior to filing suit. See Chapter 558, Florida Statutes. In the last several years there have been conflicting decisions at the trial court level as to whether a Chapter 558 notice constitutes a “suit” so as to trigger coverage under a CGL policy. In Altman Contractors, Inc. (“Altman”) v. Crum & Forster Specialty Ins. Co. (“Crum”), No. 15-12816 (11th Cir. August 2, 2016), this issue has arisen again.
Altman was the General Contractor on a high-rise condominium in south Florida. Altman purchased seven (7) consecutive one (1) year CGL policies from Crum. In April 2012, the Condominium served Altman with a Chapter 558 notice alleging various construction defects, resulting in property damage. In January of 2013, Altman tendered to Crum and demanded defense and indemnify under its CGL policy. Crum hired counsel to represent Altman in response to the Chapter 558 notice under a Reservation of Rights and took the position the Chapter 558 Notice did not equate to a “suit”, as defined in the policy. Crum refused to reimburse Altman for attorney’s fees incurred prior to Crum providing a defense and Altman filed suit against Crum seeking a declaratory judgment on Crum’s duty to defend and indemnify Altman and also seeking damages for breach of contract.
The Policy at issue states “[Crum] will have the right and duty to defend the insured against any “suit” seeking [“bodily injury” or “property damage”]. “However, [Crum] will have no duty to defend the insured against any “suit” seeking “bodily injury” or “property damage” to which this insurance does not apply.” A “suit” is defined as:
. . . a civil proceeding . . . includ[ing]: an arbitration proceeding in which such damages are claimed and to which the insured must submit or does submit with our consent; or [a]ny other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent.
Altman argued the Chapter 558 process is a “civil proceeding” and therefore a “suit” under the policy as “[it] is a condition precedent to bringing a lawsuit and impacts any subsequent lawsuit.” Altman alternatively argued if the Chapter 558 process is not a “suit,” it still qualifies as an “alternative dispute resolution proceeding,” triggering Crum’s duty to defend. In opposition, Crum argued a “suit” requires a proceeding that determines the insured’s legal liability to pay damages and the Chapter 558 process “provides no mechanism to seek, and no adjudicatory procedure for, a determination of the insured’s legal obligation to pay damages[.]”
Both parties argued that if the Court ruled against them, the outcome would frustrate the intent of the Florida Legislature. Altman argued if the Chapter 558 Notice process did not trigger a carrier’s duty to defend, then many insured would simply not respond to the Chapter 558 Notice so as to invite litigation which would then require a carrier to defend the insured. Crum on the other hand, argued forcing carriers to participate in the Chapter 558 process would increase costs to carriers and thus insureds. Moreover, Crum argued forcing carriers to defend the insured during the Chapter 558 process may cause claimants to obtain counsel during the process and result in both sides accumulating legal fees and diminishing the chance of settlement pre-suit.
After hearing conflicting motions for summary judgment, the United States District Court for the Southern District of Florida ruled in favor of Crum, holding the language of the policy was not ambiguous and the Chapter 558 process was not a “suit” triggering Crum’s duty to defend. Further, the Court held the Chapter 558 process does not satisfy the definition of a “civil proceeding” under Black’s Law Dictionary and was not a “proceeding” as the overall purpose was to avoid the commencement of litigation altogether, and was not, as Altman had argued, a part of a larger civil action.
Altman appealed to the Eleventh Circuit who found the terms “suit” and “civil proceeding” were ambiguous and although the policy defined a “suit” as a “civil proceeding,” there was no corresponding definition of a “civil proceeding.” As “civil proceeding” was undefined, the Court found the definitions presented by both Altman and Crum were reasonable interpretations. The Court went further and discussed that although the Florida Supreme Court had interpreted the meaning of a “proceeding” in a statute, no Florida court to date had addressed the same issue as to an insurance policy. The Court attempted to look further by going outside of Florida but did not find any states whose notice and repair statute contained the same language as Chapter 558.
In light of the lack of clear case law, the significant policy implications, and the interplay with a state statute, the Eleventh Circuit certified the following question to the Florida Supreme Court: “Is the notice and repair process set forth in Chapter 558 of the Florida Statutes a “suit” within the meaning of the CGL policies issued by Crum to Altman?”
We will continue to follow this emerging case law closely and will report on any future rulings impacting these issues.
Elizabeth B. Ferguson
Board Certified Construction Lawyer
Partner / Practice Group Leader