It was a busy year in 2019 for construction-defect litigation in Florida, due to both the ever-increasing volume of construction-defect claims proceeding to litigation; and several legislative changes and court rulings that have benefitted contractors, liability insurers, and project owners alike. Following are some highlights from key rulings throughout the year.
Statute of Repose and Chapter 558
A notice of construction defect under Chapter 558, Florida Statutes, is a precursor to a lawsuit, and is intended to provide a contractor with an opportunity to resolve the defect (through re-inspection, additional testing, settlement, or a combination thereof) without protracted litigation. In recent years, Chapter 558 has come under scrutiny from both the highest courts in Florida and the Florida legislature. In 2018, the Florida Supreme Court held in Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co. that a Chapter 558 notice constitutes a “suit” under a CGL policy, relevant to when an insurer’s duty to defend an insured is triggered, because such notice initiates an alternative dispute resolution proceeding within the policy definition of “suit.”
In 2018, the Fourth District Court of Appeals held, in Gindel v. Centex, that a Chapter 558 notice constitutes “commencement” of a construction-defect “action,” even if an actual lawsuit is not commenced within the 10-year statute-of-repose period. Under Section 95.11(5)(c), Florida Statutes, a claimant is barred from suit if litigation is initiated more than 10 years after the latest of four events: the date of actual possession by the owner; the date of issuance of a certificate of occupancy; the date of abandonment of construction if not completed; or the date of completion or contract termination between the professional engineer, registered architect, or licensed contractor or his employer, whichever is latest. The district court’s ruling, in effect, facilitates an increased volume of construction-defect suits that would be otherwise barred, a development that undoubtedly increases exposure to liability insurers.
This year, the Florida legislature amended Chapter 558 to include Section 558.004(1)(d), which states that a notice of construction-defect claim does not toll the statute-of-repose period. Hopefully, these developments will bring much needed clarity to the issue of when a duty-to-defend construction claim may be triggered. Given the concerns raised in recent bad faith decisions in Florida, claims professionals should carefully evaluate all new Chapter 558 notices for the duty to defend a “suit” and determine whether or not the circumstances warrant an initial review by coverage counsel for a duty to defend the insured.
This year, in D.R. Horton, Inc. v. Heron’s Landing Condominium Association of Jacksonville, Inc., the First District Court of Appeal ruled on an issue prevalent in many construction-defect claims involving mixed-use residential properties and subdivisions. The residential community in question involved 240 units in 20 buildings. The remediation plan of the plaintiff’s expert called for replacement of 220,000 square feet of stucco in order to replace windows, though intrusive testing was conducted on only approximately 200 feet of the structures.
The plaintiff’s expert testified that his recommendations and opinion were based more on his general experience with other construction projects than the actual data testing data on the project at issue. The trial court determined that the expert’s methodology was scientifically reliable and generally accepted in the scientific community, and therefore admissible. The jury, persuaded undoubtedly by the expert’s testimony, found that the developer was negligent in its construction and awarded the plaintiff $9.6 million in damages. On appeal, the First District Court of Appeal affirmed the trial court’s ruling on admissibility of plaintiff’s expert opinion.
Given the growing efforts of homeowners to create class actions out of construction-defect claims in multi-use residential communities and subdivisions, this legal development out of northern Florida lowers the standard required to both commence construction-defect suits as well as to prevail in them. These developments also lead to increased insurability risk for contractor insureds, as well as an exponential risk increase to their liability insurers—not only to their own policyholders, but also to general contractors seeking additional-insured status and the accompanying defend and indemnity. Insurer underwriters should consider these implications in their continued efforts to guard against adverse selection. Claims professionals, too, should think about the implications in their efforts to properly evaluate and resolve construction-defect claims effectively.
Duty of Contribution
States are not uniform on the issue of whether an insurer is entitled to contribution from another insurer that may have had time on risk for a mutual insured. Until recently, Florida courts have held that an insurer’s obligation to defend and indemnify is separate and distinct from that of any other insurer, since an insurer’s contractual duties to its insured are “personal” in nature. This year, however, the Florida legislature enacted Section 624.1055, Florida Statutes, which provides liability insurers a statutory right to seek contribution for defense costs incurred on an insured’s behalf from other liability insurers that may also have these duties. The statute, which takes effect for claims initiated on or after Jan. 1, 2020, applies to both admitted and surplus-lines carriers, and comprises all manner of claims except motor vehicle and professional liability claims.
The enactment of Section 624.1055 is of great benefit to liability insurers for two primary reasons: First, it does not place all of the financial exposure on just one insurer and therefore may not have a long-term adverse effect on an insured’s premiums or insurability; and second, the statute codifies the longstanding—but often litigated—Florida court holdings that a liability insurer is not responsible for any claim-related costs incurred before it receives notice of the claim. From a public-policy perspective, this new law should facilitate more collaboration between liability insurers and bring about efficient claim resolution.