In December, the Florida Supreme Court held that a Chapter 558 notice of construction defect constitutes a “suit” under a commercial general liability (CGL) insurance policy so as to potentially trigger the insurer's duty to defend the contractor in the proceedings. The case is captioned Altman Contractors v. Crum and Forster Specialty Insurance, No. SC16-1420 (Fla. Dec. 14, 2017).

The insured, Altman Contractors, Inc. (Altman) was insured by Crum & Forster Specialty Insurance Co. under seven consecutive commercial general liability policies that each contained standard language obligating the insurer to “pay those sums that the insured becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage' to which this insurance applies.” The policies further provided that the insurer “will have the right and duty to defend the insured against any 'suit' seeking those damages.” Those policies defined “suit” in relevant part as “a civil proceeding in which damages because of 'bodily injury,' 'property damage' or 'personal and advertising injury' to which this insurance applies are alleged.” The policies also defined “Suit” to include: “b. Any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent.” The policies did not define “civil proceeding” or “alternative dispute resolution proceeding.”

Altman was the general contractor for the construction of a condominium project. In 2012, Altman was served with several Chapter 558 notices of claim alleging construction defect related to that work. In January 2013, Altman notified Crum & Forster of the notices and demanded that Crum & Forster defend and indemnify Altman in the Chapter 558 proceedings. Crum & Forster denied coverage and denied that it had a duty to defend, asserting that the chapter 558 notices did not constitute a “suit” sufficient to trigger its defense and indemnity obligations under the applicable policies. Ultimately, Altman settled all of the claims raised by the Chapter 558 notices without its insurer's involvement.

Following its settlement of the Chapter 558 notices, Altman filed a declaratory judgment action against Crum & Forster in the U.S. District Court for the Southern District of Florida in which it sought a declaration that Crum & Forster owed Altman a defense with respect to the notices. The Southern District of Florida, however, held that the Chapter 558 process did not satisfy the definition of “civil proceeding” sufficient to trigger the policies' defense provision. On appeal, the Eleventh Circuit certified to the Florida Supreme Court the issue of whether the notice and repair process set forth in chapter 558, Florida Statutes, constitutes a “suit” within the meaning of the commercial general liability policy issued by Crum & Forster to Altman.

The Florida Supreme Court answered the certified question affirmatively. While the court held that the Chapter 558 process did not constitute a “civil proceeding” within the definition of suit, the court explained that the Chapter 558 process is clearly an “alternative dispute resolution” for “damages” under subparagraph (b) of the definition of suit in the policy, citing Sections 558.004(5), 558.004(1), 558.002(3), Fla. Stat. The court, however, did not determine whether the insurer had “consented” to Altman's submission to the Chapter 558 process, consistent with the policy language obligating the insurer to defend “any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent.”

This case is important for construction industry policyholders who may routinely receive Chapter 558 notices in connection with their work as a contractor, subcontractor, or design professional on a project and who will inevitably seek the defense benefits owed to them under their commercial general liability policies. In addition, the holding is consistent with the legislature's intent of resolving construction disputes without the need for litigation because it sets forth circumstances in which insurers must participate in the process, thereby encouraging insureds to participate in the process rather than wait for a formal suit to be filed to trigger their insurance policy's defense provision.

Nonetheless, the opinion is problematic for policyholders whose policies contain similar consent language. Policyholders should ensure that they provide early notice to their insurers of a Chapter 558 notice and request insurer consent in writing to their participation in this alternative dispute resolution process so as to avoid further coverage disputes. If the insurer withholds consent however, construction industry insureds may opt not to respond to the notice and instead wait for the claimant to file suit so as to trigger coverage. As Justice Barbara Pariente explains in her dissenting opinion, the majority's holding thus may incentivize an insured to “opt out of the chapter 558 process in favor of subjecting itself to a lawsuit, which would undoubtedly constitute a 'suit' that invokes the insurer's duty to defend… Creating such disincentives undermines the Legislature's intent in enacting chapter 558 to 'reduce the need for litigation.'”

Walter J. Andrews is a partner at Hunton & Williams. He focuses his practice on complex insurance litigation, counseling and reinsurance arbitrations and expert witness testimony.

Andrea DeField, an associate with the firm, focuses her practice on insurance coverage counseling and litigation, with an emphasis on directors and officers liability, professional liability, and windstorm insurance matters.