Florida Comes Full Circle On Injury-In-Fact Trigger

I have written several times on what it means to “trigger” an insurance policy for a long-tail claim (see here, here, and here).  Long-tail claims stretch over several years of coverage. Examples are environmental claims, latent bodily injury claims, and many types of construction defect claims.  Unlike a single-point-trigger claim, like a car accident or a slip-and-fall, where the accident and injury occurs at a single point in time, long-tail claims raise the issue of which insurance policies should respond to a loss that starts in year one, causes damage or injury over several years, and manifests the injury or damage years later.

There are four main types of trigger in insurance law: (1) exposure trigger: in which the policy on the risk at the time of first exposure to a harmful condition must respond (e.g., a worker’s first exposure to asbestos); (2) manifestation trigger: the flip side of the exposure trigger which holds that the policy on the risk when the damage or injury is discovered or should have been discovered must respond; (3) injury-in-fact trigger: all policies in effect during the period of time the injury or damage actually takes place must respond; and (4) continuous trigger: the most liberal of the trigger rules holds that all policies in effect from exposure to manifestation must respond, even without specific proof that specific injury occurred during this entire period of time.

The first major trigger decision in Florida was Trizec Properties, Inc. v. Biltmore Construction Co., 767 F.2d 810 (11th Cir. 1985).  Trizec applied an injury-in-fact trigger.  But the next two decades saw little trigger caselaw in Florida.  Then, from 2002 to 2011, there were a series of trigger cases, mainly from the Middle District of Florida, which for some reason started applying a manifestation trigger.  As these cases developed, judges started ruling that manifestation was not when the injury or damage became evident, but when it would have been evident through an investigation.  This brought the manifestation trigger much closer to an injury-in-fact trigger.

Eventually, the caselaw began to shift back to the Trizec injury-in-fact trigger.  Again, it was the Middle District of Florida leading the way in Axis Surplus Ins. Co. v. Contravest Const. Co., 6:11-CV-320-ORL-28, 2012 WL 2048303 (M.D. Fla. June 5, 2012) and then Trovillion Constr. & Dev., Inc. v. Mid-Continent Cas. Co., 2014 U.S. Dist. LEXIS 6265 (M.D. Fla. Jan. 17, 2014).  Finally, last month, the Eleventh Circuit brought trigger law back full circle to the Trizec injury-in-fact trigger where it started and should have stayed.

In Carithers v. Mid-Continent Case. Co., Case No. 14-11639 (11th Cir. Apr. 7, 2015), the Eleventh Circuit ruled that Mid-Continent Casualty Co. owed a duty to defend a general contractor and cover a consent judgment entered into between the contractor and a homeowner after the insurer disclaimed coverage obligations.  Mid-Continent had denied coverage on the basis that the property damage was not discovered until after the Mid-Continent policy expired.  Under a manifestation trigger, Mid-Continent argued that it had no duty to defend or indemnify the contractor.

The Eleventh Circuit disagreed.  It held that the proper trigger was the injury-in-fact trigger that it had held applied 30 years earlier in the Trizec decision.  The Eleventh Circuit had not had a chance to revisit trigger since that time, but seemed perplexed by the flip-flopping decisions, given the clear direction the Eleventh Circuit had given in Trizec.  Further, the Eleventh Circuit held that, even if Mid-Continent was unsure of the correct trigger rule given the inconsistent trial court decisions, the insurer should have provided a defense due to the uncertainty.

The Eleventh Circuit’s ruling on duty to defend is important because it reinforces the broad nature of an insurer’s defense obligation.  An insurer has a duty to defend its policyholder in Florida if there is any possibility that a claim will be covered.  This is much broader than the duty to indemnify a judgment or settlement, which only applies if the actual facts as determined in the underlying case demonstrates the existence of coverage.

Typically, policyholders point to allegations in a complaint that raise the possibility of coverage to secure a defense, even if the allegations as a whole seek uncovered damages.  The rule for duty to defend is that, if any allegation within the four corners of the underlying complaint could result in covered damages, then the insurer is required to defend the entire suit.  The Carithers opinion makes it clear that this “possibility” rule applies not just to the possibility that the facts as developed in the underlying case could create coverage, but also that uncertainties in the law are a basis to create a duty to defend.

The Eleventh Circuit also addressed the scope of the “your work” exclusion, which I have addressed previously here and here.  Like the trigger caselaw, the “your work” caselaw in Florida has been littered with inconsistent opinions.  Most of this caselaw centers around the application of the subcontractor exception to the “your work” exclusion.  The rules were developed by the Florida Supreme Court in a pair of decisions in 2007 and 2008.  See U.S. Fire Ins. Co. v. J.S.U.B., Inc., 979 So. 2d 871 (Fla. 2007) and Auto-Owners Ins. Co. v. Pozzi Window Co., 984 So. 2d 1241 (Fla. 2008).

The JSUB and Pozzi decisions established that a contractor’s defective work is a covered occurrence under a general liability policy.  However, damage caused by a contractor’s defective work is excluded by the “your work” exclusion unless the defective work is performed by a subcontractor, and the policy contains a subcontractor exception to the “your work” exclusion.  Although this standard seems fairly straightforward, it has proven difficult in application.  For example, in Amerisure Mutual Insurance Company v. Auchter Company, 673 F.3d 1294 (11th Cir. 2012), the Eleventh Circuit appeared to apply the “your work” exclusion too broadly to exclude coverage for damage caused to a roof, where the general contractor stipulated that there was no property damage to anything other than the roof on which it was working.  The Auchter decision appeared to require damage to third-party property even though the defective work was performed by a subcontractor.

Last year the Middle District of Florida attempted to reconcile the Auchter decision with the decisions in JSUB and Pozzi by stating:

In determining the scope of coverage under standard-form CGL policies, “the Florida Supreme Court has drawn a distinction between ‘a claim for the cost of repairing the subcontractor’s defective work,’ which is not covered under a CGL policy, and ‘a claim for repairing the structural damage to the completed [project] caused by the subcontractor’s defective work,’ which is covered. Amerisure Mut. Ins. Co. v. Auchter Co., 673 F.3d 1294, 1306 (11th Cir. 2012) (quoting U.S. Fire Ins. Co. v. J.S.U.B., Inc., 979 So. 2d 871, 877 (Fla. 2007)). However, an insurer is only liable for structural damage caused by a subcontractor’s defective work if the damage occurs during the policy period of a CGL policy that includes the “subcontractor exception” to the “your work” exclusion. See J.S.U.B., 979 So. 2d at 891 (observing that an insurer can exclude coverage for damage arising out of a subcontractor’s defective work by eliminating the subcontractor exception to the work exclusion).

Trovillion Construction & Development Inc. v. Mid-Continent Cas. Co. and Casa Jardin Condominium Association Inc., No. 12-914 (M.D. Fla. Jan. 17, 2014).  (See here for a discussion of the Trovillion decision.)   Trovillion’s attempted reconciliation of Auchter and JSUB still puzzles me.

The Eleventh Circuit’s attempted reconciliation of this caselaw in Carithers is just as puzzling.  In effect, the Eleventh Circuit ruled that there is no coverage for defective work performed by a subcontractor, despite the subcontractor exception to the “your work” exclusion, if the only damage is to the subcontractor’s own work.  This is true even if the subcontractor’s work damaged materials purchased by the owner.  But if the subcontractor’s defective work damages the work of other subcontractors then there is coverage for not only the cost to repair the other subcontractor’s work, but also for the cost to remedy the defective subcontractor’s work, if the defective work must be remedied to repair the third-party work.

If this all makes your head hurt you are not alone.  While I believe the Eleventh Circuit’s decision in Carithers is of great service to practitioners by solidifying the application of the injury-in-fact trigger, and by clarifying the broad nature of the duty to defend, the ruling on the “your work” exclusion leaves something to be desired.  Perhaps it is too much to expect any court, even a court as capable as the Eleventh Circuit, to get three esoteric insurance coverage issues right.

I could sum up the decision by paraphrasing President James Dale (Jack Nicholson) when he explained in Mars Attacks! (1996) that, after aliens assassinated members of Congress, “we still got two outta three branches of the government workin’ for us, and that ain’t bad.”

Or I could quote the always-insightful lyrics of Meat Loaf:

I want you,

I need you,

But there ain’t no way I’m ever gonna love you.

Now don’t be sad,

‘Cause two out of three ain’t bad.

(Two Out Of Three Ain’t Bad, Meat Loaf, 1977)