11th Circuit Interprets Post-1986 CGL Policy Under Florida Law

In July 2014, the 11th U.S. Circuit Court of Appeals issued an unpublished decision interpreting the terms of a commercial general liability (CGL) policy in a construction defect dispute which, as a result of an endorsement, did not include a subcontractor exception with respect to the scope of “your work.”

According to the unpublished opinion in J.B.D. Constr., Inc. v. Mid-Continent Cas. Co. (MCC), 2014 U.S. App. LEXIS 13358 (11th Cir. Fla. July 11, 2014), in connection with a storm, certain project work proved to have been defectively installed, the result of which allowed water to penetrate the structure and damage completed work. In J.B.D., the 11th Circuit held that not only did the “your work” exclusion of the CGL policy support denial of claims made by the contractor for the cost to repair damage to its work, but it also supported denial of the contractor’s claim with respect to property damage that occurred as a result of its subcontractor’s defective work.

The Florida Supreme Court has yet to interpret a post-1986 CGL policy that does not include the subcontractor exception. However, in two consecutive opinions, the Florida Supreme Court did interpret a CGL policy to determine whether property damage to a contractor’s completed work caused by the defective work of subcontractors constituted an occurrence under a CGL policy, which was covered by the policy. Auto-Owners Ins. v. Pozzi Window Co., 984 So. 2d 1241 (Fla. 2008); U.S. Fire Ins. Co. v. J.S.U.B., Inc., 979 So. 2d 871 (Fla. 2007).

In J.S.U.B., the Florida Supreme Court considered a CGL policy that included the subcontractor exception. The J.S.U.B. court held that the costs to repair damage to property caused as a result of a subcontractor’s defective work is an occurrence and, therefore, a covered claim under a CGL policy. Insurers, contractors, developers and practitioners will be watching, if and when the Florida Supreme Court decides the issue addressed in J.B.D.

Worthy of note: In J.B.D., the insurer, MCC, determined after a claim was made that it had no duty to defend the contractor in the case. The 11th Circuit – citing Jones v. Fla. Ins. Guar. Ass’n, 908 So. 2d 435, 442–43 (Fla. 2005) – disagreed finding that MCC had a duty to defend under Florida law based upon the facts stated in the contractor’s complaint. The 11th Circuit found that “[e]ven if the facts in the complaint potentially bring the suit within policy coverage, an insurer may avoid the duty to defend if an exclusion applies to the face of the complaint.”

Based upon MCC’s conduct, the 11th Circuit held that MCC breached its duty to defend and remanded the case for a determination of J.B.D.’s damages, including consequential damages, from the time of tender through the conclusion of the case at the trial level.