I previously discussed a Florida federal district court opinion where the court held that an insurer does NOT owe a duty to defend its insured-contractor during Florida Statutes Chapter 558 notice of construction defects process. The district court held that the process did NOT fit into the definition of “suit” in CGL policies and the “suit” triggers the insurer’s duty to defend.
The purpose of Florida Statutes Chapter 558 is to provide a pre-suit process where parties are notified of construction defects and have the opportunity to inspect the defects, perform destructive testing, and offer to repair or pay for the defects. The objective is to find a way to promote the pre-suit resolution of construction defects or, at a minimum, narrow the defects if a lawsuit needs to be filed. However, if an insurer is not obligated to defend its insured-contractor in the process, the insured-contractor’s motivation to actively participate in the process wanes. Why? Because the efforts to inspect and resolve the defects pre-suit could be cumbersome and expensive based on the nature of the defects. If the liability insurer is not involved in the process or participate in hiring the experts to inspect and test the defects, the insured may feel better off getting sued for the defects to trigger its insurer’s duty to defend.
The Florida federal district court’s opinion was appealed by the insured-contractor to the Eleventh Circuit Court of Appeals in Altman Contractors, Inc. v. Forster Specialty Ins. Co., 2016 WL 4087782 (11th Cir. 2016). Instead of answering this issue, the Eleventh Circuit certified the following question to the Florida Supreme Court to answer: ‘”Is the notice and repair process set forth in Chapter 558 of the Florida Statutes a ‘suit’ within the meaning of the CGL policies…?” Altman Contractors, Inc., 2016 WL at *7.
Where does this leave this issue? Currently, we are in state of limbo as to whether an insurer has a duty to defend its insured-contractor from a notice of construction defects letter issued to the insured-contractor pursuant to Chapter 558. The Florida Supreme Court will answer this issue. With that said, there are insurers that will engage itself in the Chapter 558 process to defend its insured since it knows that if a lawsuit is filed its duty to defend will be triggered. It makes sense to start the defense early to best assess risk and see if the matter can get resolved pre-suit which could be more cost effective than having a lawsuit drag on for years.
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