On June 4, 2015, the United States District Court for the Southern District of Florida issued an opinion discussing whether an insurance company had a duty to defend a construction defect claim brought against its insured.
The Insured was a contractor on a condominium project. The condo owner sent the Insured a notice of claim under Florida Statute Section 558.004. This notice is a prerequisite to pursuing a lawsuit against a contractor for construction defects.
The Insured submitted the 558 notice to its insurance company, and demanded that the insurer defend and indemnify the Insured against the claim.
Most insurance policies do not require an insurance company to defend claims. Instead, most policies say that the insurance company “may” investigate and settle any claim; and “shall” or “will” or has the “duty” to defend any “suit.” This insurance policy was no different.
Recognizing this, the Insured claimed that the Section 558 notice constituted a “suit” under the language of this particular policy. This policy defined suit as a “civil proceeding.”
After a lengthy (and fascinating, to me) discussion reviewing the law from various jurisdictions, the District Court determined that a Section 558 notice was not a “civil proceeding,” and therefore was not a “suit.” As a result, the insurance company had no duty to defend its insured against the condo owner’s claim.
The basic reasoning behind the Court’s decision is that the Section 558 framework is simply a way to encourage builders and owners to resolve a claim prior to resorting to litigation. However, because there is no process, no set procedure, no outside decision maker or fact finder, and no requirement to resolve the case, it is not a “suit.”
A copy of the Court’s decision can be downloaded here: Altman Contractors, Inc. v. Crum & Forster
One should not lose sight of the fact that the insurance company would still be required to defend any suit filed by the condo owner. And, although it won this narrow issue, the insurance company still has a duty of good faith and fair dealing with regard to the Section 558 claim. Thus, if the insurer refuses to settle the Section 558 claim it may later be on the hook for bad faith damages if there is a judgment in excess of the available policy limits.