Does the Chapter 558 Process Constitute a “Suit” Under Commercial General Liability Policies?

In many construction disputes, insurance and coverage issues can play an important role in the overall strategy of a case. More specifically, parties that are covered under commercial general liability (“CGL”) policies must consider whether their carriers will pick up the defense of any claims against the insured, including defense costs, selection of attorney(s), and more. Typically, this duty to defend is triggered by a “suit” against the insured, as defined in the subject CGL policy. Does a “suit,” however, commence at the initiation of the notice and repair process set forth in chapter 558, Florida Statutes, or when a lawsuit is actually filed against the insured? After much debate, the Florida Supreme Court answered this question in the seminal case, Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co., 232 So. 3d 273 (Fla. 2017).

Altman Contractors, Inc. (“Altman”), the general contractor for the construction of a condominium, was insured by Crum & Forster Specialty Insurance Company (“Crum”) on a CGL policy. Id. at 274. Crum had a duty to defend Altman in any “suit,” as defined by the policy, arising from the project. Id. Between April 2012 through November 2012, Altman received multiple Chapter 558 construction defect notices from the owner. Included in the 558 Notices were alleged construction defects to the project. Id. at 275.

Altman then notified Crum of the owner’s claims and demanded that Crum defend and indemnify Altman against the owner’s claims. Id. Crum, however, refused to defend and indemnify Altman arguing that the 558 Notices were not a “suit” as defined in the applicable CGL policies. Id. Crum eventually hired counsel to defend Altman under a reservation of rights position, but the claims ended up settling before a lawsuit was filed. Id.  After Crum refused to reimburse Altman for fees and expenses incurred since the date of tender, Altman filed suit against Crum for breach of contract and declaratory judgment for Crum’s failure to defend and indemnify Altman under the applicable CGL policy. Id. at 276.

The Eleventh Circuit Court of Appeals certified the question at issue to the Florida Supreme Court and the Supreme Court first looked to the CGL policy language. Id. at 277. The policy defined the term “suit” to mean:

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: a. An arbitration proceeding in which such damages are claimed and to which the insured must submit or does submit without consent; or b. Any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent.

The Court focused on subparagraph (b) regarding the alternative dispute resolution language. Id. More specifically, the Court held that the Chapter 558 process does fall within the definition set forth in subparagraph (b) because a 558 notice is a required presuit process encouraging the claimant and insured to settle claims for construction defects without resorting to litigation. Id. at 278. Furthermore, even the legislature characterized the Chapter 558 process as an “alternative dispute resolution mechanism.” Id. Thus, the Court decided that the 558 process, under that particular CGL language, constituted a “suit” that triggers the insurer’s duty to defend the insured.

The effect of the Court’s holding, however, may be limited in nature. Insurance carriers may simply change their policy language to exclude the Chapter 558 process from the definition of what constitutes a “suit” under the policy language. Because the Court heavily relied upon the language of the CGL policy itself, this reaction by insurance carriers may prove to be effective. Regardless, lawyers and contractors should be mindful of the Altman opinion going forward and carefully review their CGL policy language as to what constitutes a “suit.”

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