Construction Update – Duty to Defend Continues to Grow

February 3, 2016 by on News

Duty to Defend Continues to Grow

Elizabeth B. Ferguson and Kellie M. Humphries

In September 2015, the case law in Florida regarding the duty to defend was expanded once again when the United States District Court for the Northern District of Florida, Panama City Division, issued an Order Granting Summary Judgment in the case of Travelers Prop. Cas. Co. of Am. v. Amerisure Ins. Co., 2015 WL 5769247 (N.D. Fla. Sept. 30, 2015). The impact of this case will be felt for years in the construction defect arena.

As background, W.G. Yates & Sons Construction Company (“YATES”) was hired as General Contractor on a condominium project. YATES in turn hired Jemco Plastering, Inc. (“JEMCO”) as the stucco subcontractor. YATES was insured by Travelers Property Casualty Company of America (“TRAVELERS”), and JEMCO was insured by Amerisure Insurance Company (“AMERISURE”). Pursuant to the YATES/JEMCO subcontract, JEMCO was required to provide insurance covering YATES, including providing “Completed Operations” coverage.

After turnover, the Condominium Association became aware of construction defects and filed suit against YATES. The Complaint included allegations of defects in JEMCO’s stucco work. YATES tendered defense of the case to AMERISURE as an Additional Insured under JEMCO’s policy. AMERISURE denied coverage. YATES then tendered defense to its own carrier, TRAVELERS, who undertook a defense and reserved its subrogation rights against AMERISURE.

YATES litigated the construction defect case, including asserting third-party claims against JEMCO and others. After the case settled, TRAVELERS sued AMERISURE seeking to recover the fees and costs TRAVELERS incurred during the litigation, including the amounts spent prosecuting the third-party claims.

On Summary Judgment, the Court held YATES was an Additional Insured under JEMCO’s policy which provided Additional Insured coverage where it was required by written contract. As the YATES/JEMCO subcontract required JEMCO to provide coverage to YATES, YATES was as an Additional Insured. The Court went on to find that although under the terms of the policy JEMCO’s coverage was limited to “Ongoing Operations”, YATES’ coverage was not. This was due to the fact the YATES/JEMCO subcontract required JEMCO to provide “Completed Operations” coverage to YATES. As the subcontract required JEMCO to provide “Completed Operations” coverage, it fell under the provision of the policy that extended coverage to include “Completed Operations”, when required by contract.

When determining whether the alleged defect occurred within the policy period, the Court discussed the current case law regarding trigger of coverage, but did not rule whether “manifestation” or “injury in fact” was the correct trigger in Florida. Instead, the Court held that as the underlying Complaint alleged damage caused by JEMCO’s work, which:

. . . may have occurred during the policy period, either after completion of the work (bringing the case within the . . . completed operations coverage) or perhaps even while the work was ongoing (bringing the case within the ongoing-operations coverage). Amerisure had a duty to defend the claims.

Id., at *11-12.

Having found YATES was an Additional Insured under the policy, and that damage occurred during the policy period, the Court then went on to address the extent of an insurer’s duty to defend. The Court ruled that as the Complaint included covered claims, AMERISURE had the duty to defend YATES as to all the claims against YATES, even if unrelated to JEMCO. This included the prosecution of YATES’ third party claims:

When Amerisure failed to step up, Travelers did what Amerisure should have done: Travelers provided Yates a defense. The attorneys Travelers hired chose to defend the case not only by answering the claims but also by asserting third-party claims against subcontractors . . . Travelers paid the fees and costs incurred in connection with the third-party claims, apparently concluding that this was the best strategy for defending the claims . . . Had Amerisure provided a defense as it should have done, the attorneys it hired might or might not have made the same strategic decisions[ …b]ut now Amerisure can complain, at most, about unreasonable decisions, not about decisions that reasonably could have gone either way.

Id., at *11-12.

With this latest case, it is clear Florida courts are increasingly finding in favor of coverage. Although the Court did not specifically rule on trigger, it is clear the courts are trending toward coverage in as many instances as possible.

 

Elizabeth B. Ferguson
Elizabeth B. Ferguson
Board Certified Construction Lawyer
Partner / Practice Group Leader
Direct: 904.353.6245
Fax: 904.520.7393
Email: eferguson@boydjen.com

 

Associate, Kellie M. Humphries, thumbnail
Kellie M. Humphries
Associate
Direct: 904.309.6785
Fax: 904.520.7596
Email: khumphries@boydjen.com

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