As construction claims continue to multiply in Florida’s prolific housing development scene, a question has continued to arise: Is a liability carrier obligated to defend an insured contractor where there has been no lawsuit or alternative resolution proceeding filed against the contractor? Your first thought may rationally be “no” because how can there be a duty to defend the insured where the insured has not been sued, either in court or arbitration? In the realm of construction defect claims in Florida, however, this has not proven to be as straightforward as it sounds.
The Chapter 558 Notice of Claim
Under Florida law, there exists a pre-suit process mandated by statute that must take place before a construction defect action can proceed. Pursuant to § 558.004, Florida Statutes, a claimant must serve a written notice of the construction defect claim (the “Notice”), including specific components, on the contractor, subcontractor, supplier or design professional, within a specific timeframe prior to filing any action. The person served with the Notice is entitled to inspect the property alleged to have the construction defect, perform testing and offer to remedy the alleged defect or compromise.
The Duty to Defend
Under a standard commercial general liability policy, the insurer has the duty to defend the insured against any “suit” seeking damages because of “bodily injury” or “property damage.” “Suit” is defined in the policy as “a civil proceeding” in which certain damages alleged. “Suit” specifically includes certain arbitration proceedings and “[a]ny other alternative dispute resolution proceeding in which the insured submits with our consent”.
The pinnacle case in Florida discussing the Chapter 558 pre-suit process in the context of a “suit” under a liability policy is Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co., 232 So. 3d 273, 276 (Fla. 2017). Altman found that the Chapter 558 process is an “alternative dispute resolution proceeding to which the insurer’s consent is required to invoke the insurer’s duty to defend the insured.” However, policyholder attorneys argue with increasing frequency that an insurer’s argument of its non-consent to the insured’s participation in the Chapter 558 process is a defense that is waived if not timely reserved in accordance with the Florida Claims Administration Statute.
The Florida Claims Administration Statute
Pursuant to Florida Statute § 627.426 (the “Claims Administration Statute”), a liability insurer waives certain defenses to coverage unless, it provides written notice of its reservation of rights to assert the coverage defense to the named insured within a specific time period and by specific means. The Statute requires the insurer to take additional steps thereafter in order not to waive its coverage defense(s).
“Coverage defenses” include a narrow scope of defenses to coverage wherein the insured has failed to comply with a condition or duty required by the policy and thereby forfeits coverage. Fojon v. Ascendant Commer. Ins. Co., 393 So. 3d 806, 811–12 (Fla. 3d DCA 2024). A Circuit Court judge in Orange County, Florida, recently noted when the argument of waiver of the non-consent defense was raised that he was unaware of any legal authority supporting the proposition that an insurer can waive the defense pursuant to § 627.426, or that the statute is even applicable to the Chapter 558 process.
Conclusion
Florida courts have yet to conclusively determine whether the insured’s participation in the Chapter 558 process requires the insurer’s consent in order to constitute a “suit” under the terms of a general liability policy and thereby trigger the insurer’s duty to defend the insured. By extension, the issue of whether the defense of non-consent can be waived by the insurer pursuant to the Claims Administration Statute remains undecided.
However, these issues are being brought to the attention of Florida courts with more frequency, often in the context of general contractors or developers for condominium, townhome or single-family home projects seeking coverage as an additional insured under their subcontractors’ policies at the preliminary Notice phase, while they still have an opportunity to inspect, test and resolve the claim prior to any formal legal action being filed against them that could result in liability.
We encourage insurers who write liability coverage for contractors in Florida to keep apprised of these issues, which weigh heavily on the scope of insurers’ duty to defend in construction defect claims throughout the state. The defense costs implicated would inure to the benefit of the named insured contractor/subcontractor as well as potentially to any additional insured developer, contractor, property owner or landlord.
Insurers can also proactively assert their non-consent to the insured’s participation in the Chapter 558 pre-suit process in accordance with the timeframe and procedure prescribed by the Claims Administration Statute to avoid any potential argument down the line, whether or not valid, that the defense has been waived.
