Florida Commercial Insurance Claims Lawyer Reviews Construction Defect Coverage Gap

Business owners engaged in the construction trades recognize that construction defect lawsuits are a regrettable but unavoidable development.  Under Florida law, Section 558 of Florida’s construction defect law imposes a dispute resolution process that involves complex issues and significant litigation expenses.  When project owners and/or POAs file a construction defect lawsuit against a general contractor pursuant to Section 558, this notice triggers an expensive and time intensive process of retaining experts, conducting inspections, and negotiations through correspondence.  Although the natural response is to request a tender of defense from insurance carriers, construction companies and contractors need to proceed based on the premises that their insurer might balk at covering this process.

The federal district court for the Southern District of Florida in Altman Contractors, Inc. v. Crum & Forster Specialty Insurance Company specifically addressed the duty of an insurer under a commercial liability policy to cover the cost of defense related to this Section 558 process.  When the insured contractor submitted a request for his insured to cover the cost of expert and legal expenses after receipt of notice of a construction defect allegation under this provision, the insurance carrier refused to cover the costs of defense.  According to the insurer, these expenses were not covered because they were not incurred as part of a formal dispute resolution process.

Prior to the Altman case, no other Florida court or federal court in our state had ruled on this issue.  The court considered whether the process constituted a covered litigation claim although it was in the form of a necessary pre-filing notice requirement.  The court specifically focused on language of the policy that indicated that coverage extended to a “suit,” which included a formal dispute resolution process, such as arbitration or a lawsuit.  The court reviewed decisions from other states which adopted a broad view that would encompass pre-suit statutory notice procedures similar to those under Section 558.  However, the court rejected this analysis by taking a more limited approach in finding the process to constitute a “cure” mechanism for insurers rather than a formal proceeding.

Since construction defect litigation can involve a massive array of parties and an extensive allocation of litigation resources, this decision can have a dramatic impact on the bottom line of businesses facing such claims.  However, there are a number of strategies that companies might take in mitigating the potential impact of this decision.  The first approach would be to negotiate for supplemental coverage that would specifically extend to Section 558 notice proceedings.  Alternatively, the contractor could include a waiver provision of the Section 558 process in any contract with a project owner. 

In the absence of these precautions to avoid this predicament, a policyholder should still press its insurer to cover this process.  Although the insurer might have a legitimate argument regarding coverage based on policy language, resolution of a claim during this early stage of the process can be less expensive than full blown litigation.  Thus, the insurer has a financial incentive to participate in this “cure” process to mitigate subsequent litigation costs.

If you have questions about an insurance claim, you are invited to contact our law firm to speak to an experienced Miami insurance claims attorney.  My law firm specializes in representing policyholders in claims disputes in Miami and throughout Florida. Click here to read about some of our case results.  The Law Firm of J.P. Gonzalez-Sirgo, P.A. offers free consultations and case evaluations. No Recovery, No Lawyer Fees. Call 305-461-1095 or Toll Free 1-866-71-CLAIM. 

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