SDV Insights

Coverage under commercial general liability (CGL) policies for construction defects is laden with issues, with insureds often needing to litigate basic policy terms. One such issue that has recently come to the forefront in Florida involves a CGL insurer’s obligation to defend a non-litigation, yet statutorily mandated, dispute resolution process. CGL policies require insurers to defend their insureds against a “suit.” “Suit” is generally defined as a “civil proceeding,” including an arbitration proceeding or other alternative dispute resolution proceeding. For construction defect claims, certain states like Florida have enacted statutes requiring claimants to notify the responsible contractor and allow the contractor to remedy the alleged defects before commencing litigation. Fla. Stat. §§ 558.001-558.005. The process can be time-consuming, costly, and mirror traditional litigation in many key respects, including retaining counsel and experts to protect the contractor’s interests. However, a CGL insurer may not be obligated to defend the contractor because the process may not constitute a “suit.”

In Altman Contrs., Inc. v. Crum & Forster Specialty Ins. Co., No. 13-80831-CIV-Marra, 2015 U.S. Dist. LEXIS 72466 (D. Fla. June 4, 2015)., a Florida District Court recently concluded that the statutory process was not a “suit” or “proceeding.” The court acknowledged that the statutory process is an alternative to protracted litigation, but concluded that the process is instead a “mechanism to guide the parties to enter into discussions with one another.”  Altman has appealed the decision to the Eleventh Circuit.

Interestingly, the Eleventh Circuit’s decision could also impact coverage law in Georgia, which is a member of the Eleventh Circuit and mandates a similar statutory process (the other member-state, Alabama, has not enacted similar statutes). If the decision stands, contractors without modification to their policies or standard form contracts will have difficulty securing CGL defense or indemnity for any such claims in Florida. The decision could also extend beyond the construction defect setting and impact insureds who must comply with other non-litigation processes to resolve disputes; for example, insureds who are contractually obligated to comply with resolution processes without a third party neutral.

Contractors affected by statutory resolution processes may be able to strengthen their claims for coverage for these processes by:

• amending the language in their policies
• obtaining their clients’ written agreement not to engage in the statutory process where permitted (Florida permits it)
• and/or refuting the claimant’s statutory notice and not participating in the statutory resolution process.

There are solutions to this problem, and SDV can help. Contact us for more information.