Florida: J.S.U.B., Inc. v. United States Fire Ins. Co.
Florida’s Second District Court of Appeal recently reversed a final declaratory judgment rendered in favor of an insurer and found that coverage for damages to homes which were caused by a subcontractor’s faulty work is not excluded from coverage by the general contractor’s commercial general liability (CGL) policy.
J.S.U.B., Inc. and Logue Enterprises, Inc., as partners of First Home Builders of Florida (collectively referred to as J.S.U.B.), were the builders of certain homes in Lee County, Florida, which, after completion suffered damage (which included structural damage) when the exterior walls moved or sank as a result of improper testing of the soil, compaction, poor soil, or fill material, or a combination thereof. J.S.U.B. hired subcontractors to perform all work related to soil acquisition, compaction and testing.
J.S.U.B. sought coverage under its CGL policy for the damages to the homes. The insurer, United States Fire Insurance Company (insurer), denied coverage. J.S.U.B. filed a declaratory judgment action against the insurer, seeking a declaration that the CGL policy provided coverage for the losses alleged. After a nonjury trial, the trial court determined that the damage to the homes was excluded from coverage as it was the result of faulty workmanship on the part of the subcontractors, and based its decision on the Florida Supreme Court’s opinion in Lamarche v. Shelby Mutual Ins. Co., 390 So. 2d 325 (Fla. 1980), which determined that CGL policies exclude coverage for the cost of replacing defective materials and workmanship and that coverage is provided for damages caused by the completed product, but not for repair and replacement of the product.
On appeal, J.S.U.B. argued that the trial court’s reliance on Lamarche was misplaced because not only have the standard provisions in the CGL policies changed since Lamarche was decided, but also, CGL coverage has been broadened by recent Florida decisions. The appellate court, agreeing with these general propositions, first analyzed the coverage provided by J.S.U.B.’s CGL policy.
According to the Court, the policy contained broad insuring language covering property damage caused by an occurrence. Recent case law has broadened the definition of an occurrence by including not only an accidental event, but also an unexpected injury or damage resulting from the insured’s intentional acts. Thus, the appellate court determined that it could not agree with the trial court’s reliance on Lamarche and held that the occurrences alleged fell within the coverage provisions of the policy.
The Court then analyzed whether any exclusions contained in the policy barred coverage and, in doing so, the Court again reasoned that it was not required to follow Lamarche, as the trial court had done, because the exclusions in the CGL policy before the court differed significantly from the policy at issue in LeMarche. Specifically, the “Damage To Property” and the “Damage To Your Work” exclusions did not apply, because unlike the policy at issue in Lamarche, these exclusions both contained exceptions to each such exclusion. For instance, while the “Damage To Your Work” exclusion excluded coverage for “‘property damage’ to ‘your work’ arising out of it or any part of it and included in the ‘products completed operations hazard,’” the exception to the exclusion provided that it “does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.” Because the defective work was caused by the subcontractors hired by J.S.U.B., the exception to the exclusion applied, thus, coverage was not excluded. The appellate court also ruled that there were no other exclusions which barred coverage in this instance.
Accordingly, the appellate court concluded that the trial court erred in its decision denying coverage because the CGL policy at issue did in fact provide coverage which was not excluded by the policy.
As a practical consequence, this opinion demonstrates that general contractors must review their insurance policies on a regular basis and that coverage may in fact exist even despite an insurer’s insistence to the contrary. Additionally, it is important to determine whether your policy is similar to that provided in this case. Given the general uniformity of CGL policies, general contractors’ CGL policies may well contain the same or similar provisions. If so, coverage may be provided for faulty or defective work provided by your subcontractors. Depending on the scope of any indemnity agreements between the general contractor and its insurer, such exposure could come back on the insured’s general contractor.