Taking a Closer Look at an Insured’s Coverage When Faced with a Chapter 558 Notice
Construction Law Committee “Taking a Closer Look at an Insured’s Coverage When Faced with a Chapter 558 Notice” by Natalie C. Bourff, Esq., and Natalie M. Yello, Esq. // In December 2017, the Florida Supreme Court tackled the complicated coverage issues that arise in pre-suit construction defect claims. In the past, many practitioners understood the insurer’s duty to defend only arises after litigation commences. In Altman Contractor’s, Inc v. Crum & Forster Specialty Insurance Company, after analyzing the specific language in the contractor’s policy, the court extended the insurer’s duty to defend to pre-suit Chapter 558 claims, which is explained in more detail below.1 Although the Altman decision was based entirely on the specific language in the plaintiff’s policy, construction attorneys should still take a second look at the provisions in their clients’ insurance policies to determine whether the insurer’s duty to defend is triggered upon receipt of a Chapter 558 Notice of Claim.
The Florida Construction Defect Statute: A Brief Background
The Florida Construction Defect Statute, Chapter 558, Florida Statutes, provides for a mandatory pre-suit procedure for resolving construction defect claims before initiation of a lawsuit.2 The statutory procedure requires an owner to notify the contractor, subcontractor, supplier, or design professional of any construction defects and provide an opportunity to cure at least 60 days before filing any action, or at least 120 days before filing an action involving an association representing more than 20 parcels.3 The contractor, subcontractor, supplier, or design professional must respond in writing within 45 days of service of the notice of claim, or within 75 days after service of the notice of claim involving an association representing more than 20 parcels, and either deny each claim, offer money to compensate for the defect, or offer to repair the work.4 The procedure provides a mechanism to resolve construction defect claims before instituting litigation. However, practitioners are often tasked with unraveling the complex insurance coverage issues presented by a Chapter 558 Notice of Claim. In Altman, the Florida Supreme Court found that a Chapter 558 Notice of Claim was a “suit” under a policy provision, defining “suit” as “[a]ny other alternative dispute resolution proceeding.”5
Background of Altman
Altman Contractors, Inc. (“Altman”) served as general contractor for Sapphire Condominium (“Sapphire”), a high-rise condominium located in Broward County, Florida.6 Altman was insured by Crum & Forster Specialty Insurance Company (“C&F”) through seven consecutive one-year general liability policies.7 Between April 2012 and November 2012, Altman received multiple Chapter 558 Notices of Claim for more than 800 construction defects at Sapphire.8 Altman promptly sent the Notices of Claim to C&F demanding a defense.9 Altman’s general liability policy provided:
We will have the right and duty to defend the insured against any “suit” seeking those damages.
The policy defines “suit” as:
“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:
- An arbitration proceeding in which such damages are claimed and to which the insured must submit or does submit with our consent; or
- Any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent.10
C&F declined to defend Altman as it claimed no “suit” had been filed and therefore the duty to defend had not been triggered.11 Altman hired counsel to defend the claims and ultimately settled with Sapphire without C&F’s involvement.12 However, Altman brought a declaratory action in the District Court for the Southern District of Florida against C&F, seeking a declaration that C&F owed Altman a duty to defend and indemnify against the Chapter 558 claims.13
District Court and Eleventh Circuit Findings
The Southern District of Florida determined nothing in the Chapter 558 process satisfied the “civil proceeding” requirement set forth in Altman’s policy and determined the Chapter 558 Notice of Claim was not a “suit” as defined by the policy.14 Altman appealed, and the Eleventh Circuit Court of Appeals certified the following question of law to the Florida Supreme Court:
Is the notice and repair process set forth in chapter 558, Florida Statutes, a “suit” within the meaning of the commercial general liability policy issued by [insurer] to Altman?15
The Florida Supreme Court
The Florida Supreme Court answered the certified question in the affirmative, reasoning the Chapter 558 pre-suit procedure is a form of an “alternative dispute resolution proceeding,” and therefore, does constitute a “suit” as defined by the policy.16 Because Altman’s policy defined “suit” as a “civil proceeding,” the Florida Supreme Court reasoned that the Chapter 558 procedure must qualify as a “civil proceeding” to trigger coverage under the policy.17 The Court looked to precedent and Black’s Law Dictionary for guidance on the definition of a “civil proceeding.”18 A “civil proceeding,” as defined by Black’s Law Dictionary, is “[a] judicial hearing, session, or lawsuit in which the purpose is to decide or delineate private rights and remedies… .”19 The court then found that the Chapter 558 process could not be considered a “civil proceeding” because the process is not mandatory or adjudicative.20 Instead, the recipient of a Chapter 558 Notice of Claim could choose not to respond, thereby forcing the claimant to file a lawsuit.21 The Chapter 558 process does not take place in front of any adjudicatory body or produce legally binding results and therefore is more akin to a voluntary dispute resolution mechanism.22 For these reasons, the court determined the Chapter 558 process is not a “civil proceeding” within the policy definition of “suit.”23
However, Altman’s policy broadened the definition of “suit” to include “any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent.”24 To determine whether the Chapter 558 process fits within this definition, the Florida Supreme Court looked to the plain meaning of “alternative dispute resolution” and Chapter 558’s legislative history.25 The Legislature explicitly described Chapter 558 as “an effective alternative dispute resolution mechanism.”26 Accordingly, the Florida Supreme Court concluded that the Chapter 558 process is an “alternative dispute resolution proceeding” within the plain meeting of the policy term.27 It is under this definition that the Florida Supreme Court held that the Chapter 558 process constitutes a “suit” within the meaning of Altman’s general liability policy – even though it does not constitute a “civil proceeding.”28
While the language of some policies may implicate a broadened duty to defend when the insured is put on notice of a Chapter 558 claim, the insurer still must consent to the insured’s participation in the Chapter 558 process. The Florida Supreme Court in Altman did not address whether C&F consented to Altman’s participation in the Chapter 558 process that would give rise to C&F’s duty to defend, and may leave practitioners with more questions than the case itself answered. Individual circumstances regarding consent may give rise to issues of fact which parties may end up back in court trying to resolve. In addition to complying with the strict statutory requirements provided by the Florida Construction Defect Statute, construction attorneys should also advise clients to timely obtain the insurer’s consent to participate in the Chapter 558 process – the failure to do so may forfeit the insured’s defense.
Practitioners should be advised that Altman was largely decided based on the interpretation of the specific language in Altman’s policy – different policy language may not qualify as a “suit,” thus never implicating an insurer’s duty to defend. In the future, the ruling in Altman may result in insurers increasing their insurance premiums. Insurers may also change standard policy language to limit coverage with the intent to specifically reduce its duty to defend Chapter 558 claims. Altman’s policy defined a “suit” to include any “other alternative dispute resolution proceeding.” This definition of “suit” heavily influenced the court’s ultimate determination. Accordingly, in the future, insurers may narrow this type of language or possibly eliminate it altogether.
Altman presents important issues that practitioners must consider when reviewing and advising clients on their insurance policies and coverage. While Altman is limited to its facts and the language in the specific policy at issue, practitioners should still be cognizant of the ramifications of the decision and the effect it has on developing a strategy for responding to and defending Chapter 558 claims.
Natalie C. Bourff, Esq., is an associate in the litigation group at GrayRobinson. Ms. Bourff focuses her practice on construction litigation and has experience with construction defect lawsuits, insurance claim matters, and complex professional negligence litigation. She has been a member of the OCBA since 2017.
Natalie M. Yello, Esq., is an associate in the litigation group at GrayRobinson. Ms. Yello works within the construction litigation group and defends various design professionals, including architects and engineers, as well as owners and contractors. Ms. Yello also works with the employment group at GrayRobinson and defends both private and public employers in various employment disputes. She has been a member of the OCBA since 2017.
1Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co. 232 So.3d 273, 275 (Fla.
2Fla. Stat. Chapter 558.
3Id. at § 558.004(1)(a).
4Id. at §558.04(5).
5Altman, 232 So.3d at 275.
13Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co., 124 F. Supp. 3d
1272 (S.D. Fla. 2015).
15Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co., 832 F. 3d 1318
(11th Cir. 2016).
16Altman, 232 So.3d at 274.
17Id. at 277.
18Id. at 278.
28Id. at 279.
The Briefs, March 2019. Vol. 87 No. 3.