Florida court rules on insurance coverage

On Dec. 20, the Florida Supreme Court ruled that if a subcontractor's work causes unexpected and unintended property damage, the general contractor's commercial general liability (CGL) policy covers the occurrence of property damage. The American Subcontractors Association (ASA), ASA of Florida (ASAF) and others filed "friends of the court" briefs for two separate cases, and the final ruling was based on a consolidation decision for both cases.

Regarding one case, J.S.U.B., Inc. v. United States Fire Insurance Co., J.S.U.B., Fort Myers, Fla., contracted to build homes, using subcontractors to prepare the foundations. When the project was completed, damage caused by the subcontractors' use of poor soil and improper soil compaction and testing was discovered, and the homeowners demanded repairs. United States Fire Insurance (USF), New York, agreed to cover damage to the homeowners' personal property but not structural damage. Although the circuit court agreed with USF, J.S.U.B. appealed and the Florida 2nd District Court of Appeals reversed the decision, leading the Florida Supreme Court to accept jurisdiction and make the decision.

ASA and ASAF's Aug. 4, 2006, brief argued that excluding coverage in this case would make standard CGL policy provisions superfluous and defraud a contractor that relied on the plain meaning of the policy language. The Florida Supreme Court agreed, deciding that under standard CGL policy, defective work that is not expected or intended by a contractor can be considered an "occurrence." In addition, if a subcontractor's defective work causes physical injury to a project, it can be considered "property damage."

In the other case, Pozzi Window Co. v. Auto-Owners Ins, supplier Pozzi Window, Bend, Ore., manufactured windows for a multimillion dollar home and a subcontractor installed the windows. The homeowner sued Pozzi Window, the builder and the subcontractor for defective construction when water leakage occurred around the windows. Pozzi Window settled with the builder and filed a lawsuit against Auto-Owners Insurance Co., Lansing, Mich., the builder's insurer. The federal district court ruled that coverage for repair or replacement of the defective windows should be provided, but on appeal the 11th Circuit Court reversed the decision.

This influenced the Florida Supreme Court's decision, leading it to determine that though coverage was provided for damages accidentally caused by defective work, the same reasoning does not apply to the repair and replacement of the work itself, and damage to a defective product installed by a subcontractor is not "property damage."

"ASA will seek to clarify why the court distinguishes between damage to the defective work itself and other work, for purposes of the definition of property damage," says ASA Executive Vice President E. Colette Nelson.

Date : 1/15/2008