The Eleventh Circuit recently issued a lengthy opinion in Amerisure Mut. Ins. Co. v. Auchter Co., No. 10-10960 (11th Cir. Mar. 15, 2012) (“Auchter”), in which it dove back into insurance coverage issues involving construction defects. Unlike the Florida Supreme Court decisions in United States Fire Ins. Co. v. J.S.U.B., Inc., 979 So. 2d 871 (Fla. 2007) (“J.S.U.B.”), and Auto-Owners Ins. Co. v. Pozzi Window Co., 984 So. 2d 1241 (Fla. 2008) (“Pozzi Window”), the outcome in Auchter was not favorable to the policyholder.
First, some facts. Auchter involved an underlying construction defect claim by a building owner against its general contractor. The owner claimed that its roof was defectively installed by the GC’s subcontractor, causing roof tiles to fall off and necessitating the installation of a new roof. The parties stipulated to many things, among them: the roof tiles were not defective, the installation of the roof tiles was defective, the defective roof tile installation constituted an “occurrence”, and no property other than the roof was damaged.
The court held that there was no coverage for the cost to replace the roof because the CGL policy was not triggered. The court noted that there were two requirements for the coverage to be triggered: (1) there must be an “occurrence” (2) of “property damage”. Under settled Florida law, the defective work constituted an “occurrence”, and the parties so stipulated. Therefore, the court’s decision focused on whether the claim involved “property damage”.
The court extensively reviewed J.S.U.B. and Pozzi Window and ultimately concluded that there was no “property damage” to trigger the policy because the only damage occurred to the defective work itself. Further, the only damage sought by the policyholder was the cost of repairing its subcontractor’s defective work. Therefore, the court never reached the “business risk” exclusions to the standard CGL policy, including the “your work” exclusion and its subcontractor exception.
Although the Auchter decision is already being cited by insurers in Florida in construction defect-related coverage disputes, the holding is narrow. Unlike the groundbreaking J.S.U.B. and Pozzi Window decisions, Auchter breaks no new ground, nor does it extend or limit J.S.U.B. or Pozzi Window. And, despite the lengthy opinion, the holding rests on a fairly simple application of Florida Supreme Court precedent to the undisputed facts presented in the case.
The owner/policyholder in Auchter allowed the insurer to narrow the factual issues by agreeing to stipulations of fact, in particular the stipulation that there was no damage to any property other than the roof. The policyholder also allowed the insurer to frame the damages claim by failing to seek damages related to the damaged roof tiles, and by facilitating the characterization of the damages as resulting from the subcontrator’s failure to deliver on its contractual obligation to install the roof correctly.
Trigger is the key to any construction-related coverage case. The policyholder has the burden of proving in the first instance that the loss comes within coverage. Once that burden is met, the insurer has a heavy burden to prove the applicability of policy exclusions. Because of this burden shift, it is critical for policyholders to present the case in a way that triggers the policy. Failure to do so is fatal to the coverage claim, as it was in Auchter.
The policyholder’s failure to prove third-party property damage — and, in fact, its stipulation that none existed — sunk its case in Auchter. If the policyholder had alleged and proven any damage to property other than the roof, it would have met its trigger burden and forced the insurer to labor through the application of the exclusions.
A construction defect case almost always involves some damage to other components of the structure, and it should not have been difficult for the policyholder in Auchter to find damage to trigger the policy. Once the coverage is triggered, the insurer must prove each and every element of damage falls within a policy exclusion. Frequently, the insurer is unable to meet its burden on application of the policy exclusions, and much, if not all, of the case moves forward for a damages determination by the jury. At that point, the policyholder at a minimum will receive its prevailing party attorney’s fees under Fla. Stat. 627.428, and, if its case has been developed properly, will receive a judgment covering the bulk of its damages.
Auchter no doubt will become a favorite case for insurers to cite in Florida construction defect coverage cases, particularly in federal court. Insurers invariably will stretch Auchter well beyond its precedential limits, and will use it to bully policyholders into accepting low-ball settlements of their coverage claims. But J.S.U.B. and Pozzi Window remain the law of the land in Florida, and these decisions give Florida policyholders many tools to work with in construction defect coverage cases. So long as the third-party property damage case is developed and presented properly, with assistance from coverage counsel early in the process, policyholders in Florida should continue to be able to trigger CGL insurance coverage for construction defect claims and recover from their insurers the vast majority of their damages, as well as their Fla. Stat. 627.428 attorney’s fees.