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No insurance coverage for defective installation




By Patricia Porter Kryder

Homeowners hired a general contractor to build a house. After discovering a number of defects in their home, the homeowners filed a lawsuit against the builder in state court in Florida. The builder’s insurance company refused to defend the action. As a result, the homeowner and the builder entered into a consent judgment for approximately $90,000 in favor of the homeowner.

The judgment assigned to the homeowner was the right to collect the judgment amount from the builder’s insurance company. The homeowner then filed an action against the insurance company in state court to collect the settlement from the insurance company. The insurance company moved the case to federal court.

The insurance company had issued four insurance policies to cover the builder, each with a term of one year. The policies were substantially similar. 

The district court found the balcony of the home was defectively constructed, which caused damage to the garage. The court recognized that under Florida law, the defectively constructed balcony was not covered by the policy. However, the court reasoned that in order to repair the garage, which the parties agreed constituted property damage, the balcony had to be rebuilt.

The insurance company appealed. The insurance company contended that the homeowner could not recover for any defective work, even when repairing that work is a necessary cost of repairing work for which there is coverage. The court of appeals agreed with the lower court and affirmed the award for damages relating to the cost of repairing the balcony. Under Florida law, the homeowner had a right to “the costs of repairing damage caused by the defective work…” Since the district court determined that repairing the balcony was part of the cost of repairing the garage which was the defective work, the homeowners were entitled to these damages.

In addition, the court of appeals agreed with the district court, and the builder’s position, that the insurance company must defend an action where the facts alleged against the insured would give rise to coverage, even if those facts are not proven at trial. The court reasoned that given the uncertainty in the law, the insurance company did not know whether there would be coverage for the damage sought in the underlying action because Florida courts had not decided which trigger applies. The insurance company was required to resolve this uncertainty in favor of the insured and offer a defense to its insured contractor. The court held that an insurer was obligated to defend a claim even if it is uncertain whether coverage exists under the policy.

The homeowner was not quite so fortunate with regard to the issue of the bricks, tiles, and mud bases. Although the district court had awarded damages for the bricks, tiles, and mud bases, the court of appeals disagreed with the appropriate trigger for determining when property damage occurs.

The court reasoned that property damage occurs when the damage happens, not when the damage is discovered or discoverable. When property damage is latent and is discovered later, the injury in fact is the trigger. 

The negligent application of exterior brick coating caused the property damage to the bricks itself. Then the issue became whether the actual brick installation and the application of the brick coating were done by a single subcontractor. If so, then the damage to the bricks was part of the subcontractor’s work, and this defective work caused no damage apart from the defective work itself. However, if the bricks were installed by one subcontractor and a different contractor applied the brick coating, then the damage to the bricks caused by the negligent application of the brick coating was not part of the subcontractor’s defective work and would have constituted property damage.

In reversing the district court’s decision, the court of appeals ruled that there is no coverage for a defective installation where there is no damage beyond the defective work of a single subcontractor. Therefore, the issue turned on whether the installation of the mud bases and tiles were performed by the same subcontractor. The court held that since the mud bases and tiles were done by the single subcontractor, the damage to the tiles was part of the sub-contractor’s work, and the defective work caused no damage apart from the other defective work itself.



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