Insurers May Not Be Required to Defend Contractors In a Florida §558 Proceeding

In recent holding¹, the Florida Supreme Court held that an insurer may not have a duty to defend a contractor in a Florida §558 proceeding.

Chapter 558 of the Florida Statutes sets forth procedural requirements which must be met before a claimant may file a construction defect action. These requirements include serving a contractor, subcontractor or supplier with written notice of the claim. The contractor, in turn, must serve a written response to the notice of claim in which the contractor provides either an offer to repair the alleged construction defect at no cost to the claimant, resolution of the claim through a monetary payment, a statement disputing the claim, or a statement that any monetary payment will be determined by the recipient’s insurer.² The claimant may file suit if the contractor disputes the claim and refuses to remedy the alleged defect or provide monetary compensation.

In the case of Altman Contractors, Inc. v. Crum & Forster Specialty Insurance³, Altman Contractors was the general contractor for a condominium project in Broward County, Florida. Altman Contractors was insured by Crum & Forster Specialty Insurance (“C&F”) through seven consecutive one-year commercial general liability policies that were essentially identical. The policies required C&F to defend Altman Contractors against any “suit” seeking damages because of bodily injury or property damage. The policies defined “suit” as follows:

“Suit” means a civil proceeding in which damages because of “bodily injury,” “property damage” or “personal and advertising injury” to which this insurance applies are alleged. “Suit” includes:

1. An arbitration proceeding in which such damages are claimed and to which the insured must submit or does submit with our consent; or
2. Any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent.

The policies did not provide further definitions for “civil proceeding” or “alternative dispute resolution proceeding” as used within the definition of “suit.”

After being served with a §558 notice, Altman Contractors notified C&F of the claims and demanded that C&F defend and indemnify it. C&F denied that the notice invoked its duty to defend because it did not constitute a “suit” as defined by the policy. Altman Contractors ultimately resolved the construction defect claims without a lawsuit being filed and without C&F’s involvement. Altman Contractors then filed suit for declaratory relief in which it sought a declaration that C&F owed a duty to defend and indemnify it under the policies.

The Florida Supreme Court held that Florida’s Chapter 558 notice and repair process “cannot be considered a civil proceeding under the policy terms because the recipient’s participation in the chapter 558 settlement process is not mandatory or adjudicative.”⁴ Rather, a recipient of a Chapter 558 notice may “choose to not respond and, thereby, force the claimant to file a lawsuit to recover for the identified construction defect.”⁵ The court nevertheless recognized that the policies’ definition of “suit” included “[a]ny other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent.”⁶ The court then held that, while the Chapter 558 process was not a civil proceeding, it was an alternative dispute resolution proceeding under which the insurer’s consent was required to invoke its duty to defend.

Based on this ruling, an insurer is not necessarily required to defend a Florida contractor that received a Chapter 558 notice. The Florida Supreme Court does not interpret Chapter 558 as constituting a “civil proceeding” as defined in many CGL policies. Even if the policy in question contains language pertaining to “alternative dispute resolution proceedings,” the insurer’s duty to defend can only be invoked with its consent. This could have broad ramifications in Florida construction defect actions, as a contractor’s ability to investigate and contest the allegations could be adversely impacted without the assistance of counsel.

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¹ Altman Constrs., Inc. v. Crum & Forster Specialty Ins. Co., 232 So.3d 273 (Fla. 2017).
² See Fla. Stat. § 558.004(5).
³ 232 So.3d 273 (Fla. 2017).
⁴ Id. at 278.
⁵ Id.
⁶ Id.