Florida Supreme Court Gives Insight Into When a General Contractor's CGL Insurance Policy Provides Coverage for a Subcontractor's Faulty Workmanship

Posted on December 28, 2007 by Mark Nation

The Florida Supreme Court has recently issued two opinions which shed light on whether standard form commercial general liability (CGL) insurance policy covers a general contractor's liability for defective work performed by its subcontractor.  

On the same day, the supreme court issued its opinions in U.S. Fire Ins. Co. v. J.S.U.B., Inc., 2007 WL 4440232 (Fla. December 20, 2007) and Auto-Owners Ins. Co. v. Pozzi Window Co., 2007 WL 4440389 (Fla. December 20, 2007).  Both cases involved interpretation of the "occurrence" and "property damage" provisions of standard form CGL insurance policies with "Products Completed Operations Hazard" coverage.  In both cases, the insurance company had denied coverage claiming the subcontractor's faulty workmanship was not an "occurrence" and did not cause "property damage."

In J.S.U.B., after a general contractor completed the construction of several homes, damage to the foundations, drywall, and other interior portions of the homes appeared due to subcontractors' use of poor soil, improper soil compaction, and improper testing.  The contractor sought coverage under its CGL policies, and the insurance company denied coverage.  The contractor instituted a declaratory judgment action to see whether the insurance policy provided coverage. 

The issue presented to the court was "whether a post-1986 standard form commercial general liability policy with products-completed operations hazard coverage, issued to a general contractor, provides coverage when a claim is made against the contractor for damage to the completed project caused by a subcontractor's defective work."  Id. at 6.  The court addressed the issue in two parts, and held: faulty workmanship that is neither intended nor expected from the standpoint of the contractor can constitute an "occurrence" under a post-1986 CGL policy; and the subcontractors' defective soil preparation caused "property damage" within the meaning of the policy.  The court specifically noted "[i]f there is no damage beyond the faulty workmanship or defective work, then there may be no resulting 'property damage.' "  Id. at 14.  The court determined the claims were covered by the insurance policy.

In Auto-Owners, a general contractor constructed a multimillion dollar house in Coconut Grove, Florida.  The house's windows were defectively installed by a subcontractor, causing water leakage around the windows.  The contractor's insurance company tried to avoid coverage, arguing the subcontractor"s defective installation was not an "occurrence", and the resulting damage was not "property damage", as those terms were defined by the policy.  The court applied the J.S.U.B. analysis regarding whether faulty workmanship constituted an "occurrence" under a post-1986 standard form commercial general liability policy with products-completed operations hazard coverage, issued to a general contractor.  However, unlike J.S.U.B., the court agreed with the insurance company and found the defective installation was not "property damage", precluding coverage under the insurance policy.

The court clearly distinguished J.S.U.B., on the basis that it involved a claim for costs to repair damage caused by the subcontractor's defective work, and Auto-Owners involved a claim for costs to repair or replace the defectively installed windows.  The court recognized a difference between a claim for the costs of repairing or removing defective work (such as replacing defectively installed windows in Auto-Owners) which is not a claim for "property damage", and a claim for the costs of repairing damage caused by the defective work (such as cracks in the walls due to settling from improperly compacted soil in J.S.U.B.) which is a claim for "property damage."  The court held because the subcontractor's defective installation of the windows was not "physical injury to tangible property," there was no "property damage" under the terms of the CGL policies and no coverage for the costs of repair or replacement of the defective work.

These cases provide valuable insight into when an insurance company has a duty to defend and indemnify general contractors under a commercial general liability insurance policy for subcontractors' faulty work.

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When PIP Payments Only Went Toward Medical Expenses, PIP Setoff Should Not Be Applied to Past Lost Wages

Posted on December 12, 2007 by Mark Nation
The Third District has held that personal injury protection (PIP) benefits should only be setoff against those categories of damages actually paid for by PIP.  This decision could impact whether PIP benefits should be requested for, and allocated to, medical bills or lost wages. 

The Third District issued its opinion in Benites v. Almeida today (12/12/07).   The court reviewed a post-verdict setoff for personal injury protection (PIP) benefits, where the verdict attributed a certain specific sum for past medical expenses, and a certain sum for past lost wages.  Since the injured party exhausted all his PIP benefits for payment of medical expenses and allocated/accepted no benefits for lost wages, the court held PIP should only be set off against that portion of the verdict awarding past medical expenses. The court held the jury award of past wages was unaffected by the setoff.

After being injured in an auto collision, the PIP insured submitted medical bills of $18,702 to his PIP insurance company. The PIP printout showed the insured exhausted his $10,000 in PIP benefits, and all PIP benefits were applied to medical expenses. 

The insured then brought suit against the defendants, contending that he had suffered a permanent injury. The jury, however, returned a verdict finding "no permanency."  Significantly, the jury awarded $5,000 for past medical expenses and $2,500 for lost earnings, for a total verdict of $7,500. 

The question of the PIP setoff against the jury's verdict was submitted to the trial court post-trial.

The parties agreed the entire $10,000 PIP insurance coverage was expended for medical bills and agreed none was paid for lost wages. The PIP insured argued that since the PIP benefits were paid for medical bills only, the PIP setoff only applied to the $5,000 for past medical expenses, leaving the jury's past lost wage award untouched.  The defendants disagreed, and argued that the $10,000 PIP amount should be aggregated and applied to the total verdict of $7,500, which would result in a "zero" recovery for the PIP insured.

Under the no-fault law, a PIP insured has "no right to recover any damages for which personal injury protection benefits are paid or payable." ยง 627.736(3), Fla. Stat. (2003). The Florida Supreme Court's decision in Rollins v. Pizzarelli, 761 So. 2d 294 (Fla. 2000), interpreted the phrase "paid or payable" narrowly, and said "the proper interpretation of the term 'payable' is that only PIP benefits 'currently payable' or owed by the PIP carrier as a result of expenses incurred by the plaintiff should be set off from a verdict that includes an award of future medical expenses." Id. at 301.

The Third District held it was undisputed that the entire $10,000 in PIP was "paid" for medical benefit to the PIP insured.  This payment exhausted the PIP benefits and left nothing "payable."   The Court further held that because all of the PIP benefits were applied to medical expenses, the setoff could only be made against the jury's $5,000 line item for past medical expenses, leaving the $2,500 verdict for lost wages untouched. 

The opinion makes sense, and presumably would support an argument for proportional allocation of the PIP setoff.  When an insurance company has paid out all the PIP benefits, whatever portion of PIP was allocated to medical bills should be set off against a jury award of medical bills, not lost wages.  Similarly, whatever portion of PIP was allocated to lost wages should not be set off against medical bills.  In many cases, this division would become moot.  However, in cases where no permanency is found or where small proposals for settlement are involved, the allocation may be the difference between "something" and "nothing" for the injured party as it was in this case.
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Insurer Doesn't Owe Med Pay when Insured Doesn't Attend EUO

Posted on December 11, 2007 by Mark Nation
A new case out of the Second District reveals how important it is for an insured to comply with the provisions of the insurance contract.  In Amica Mutual Insurance Company. v. Drummond, 32 Fla. L. Weekly D2907, 2007 WL 4270593 (Fla. 2nd DCA December 7, 2007), the court determined the insurer was not obligated to pay any outstanding medical payment ("Med Pay") benefits based on the insureds' refusal to attend an examination under oath.

In this case, both the motor vehicle and passenger were insured by the same insurance company. The driver sought Med Pay benefits under the motor vehicle's policy, and the passenger sought Med Pay benefits under both the motor vehicle's policy and his own policy. The insurance company which insured the vehicle tried to investigate the accident and injuries to both insureds, and began to take sworn statements, which were unfinished. The insurance company then sought to exercise its right to "Examinations Under Oath" (EUOs) as allowed by the insurance policies. The insureds' attorney advised the insurance company his clients would not be pursuing a UM claim, and that since PIP benefits did not require an EUO, the insureds would not participate in any EUOs. The attorney did not produce his clients for EUOs on a date which was previously coordinated by the insurance company, the lawyers, and the insureds.

The insurance company again tried to schedule the EUOs, advising that the insureds' Med Pay benefits were suspended until the examinations occurred. Once again, the lawyer for the insureds informed the insurance company that the insureds would not appear for the EUOs. The insurance company then filed a declaratory judgment action to determine whether the insureds' refusal to attend EUOs relieved the insurer of its duty to pay outstanding Med Pay benefits.

The appellate court noted an EUO was a "condition precedent" which must be performed to trigger the insureds' rights under the insurance policy. The court recognized the insurance policy contained language that the insurance company had "no duty to provide coverage . . . unless there has been full compliance" with the EUO requirement. Thus, the insureds' failure to submit to the EUOs absolved the insurance company of its duty to provide coverage. Because the insureds never submitted to an EUO, the court claimed the insurer was within its rights to refuse payment of Med Pay benefits for treatment which occurred after the insureds' initial refusal to attend an EUO.
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