The Middle District of Florida recently held that an insurer did not have a duty to defend a contractor under a commercial general liability (CGL) policy that includes a “your work” exclusion where the Complaint proscribes merely the inference of personal property damages. Auto-Owners Insurance Co. v. Elite Homes, Inc., et al., No. 14-1182, M.D. Fla.; 2016 U.S. Dist. LEXIS 12910. The issue addressed was whether damages from water intrusion through defective windows were precluded under a “your work” exclusion. Unfortunately for the contractor, Elite Homes, on February 3, 2016, the Court ruled that the insurer, Auto-Owners Insurance Co., had no duty to defend the homeowner’s claims.

The facts of this case appear standard and familiar to any construction attorney. In 2007, the Croziers contracted with Elite Homes to build a single-family residence in Jacksonville. Following the completion of the house, the Croziers asserted that the windows leaked, and Elite tried, allegedly to no avail, to repair the problems. The Croziers subsequently sued Elite Homes for breach of contract and negligence.

Elite Homes tendered the claim to its CGL insurance carrier, Auto-Owners Insurance Co. Next, Auto-Owners sued the Croziers and Elite Homes, seeking a declaratory judgment that it owed Elite neither the duty to defend nor the duty to indemnify.

What happened next should heighten any contractor’s attention to their GCL policy. As to the the declaratory judgment claim, the Judge noted,

The language in the amended complaint which arguably constitutes the closest call—‘damage to interior portions of the home’—is, on its face, an allegation of damage to the home, which is (as described above) Elite Homes’ work. While the Court is not suggesting that Florida law requires an underlying complaint to allege what specific personal property sustained damage, Florida law makes it clear that ‘inferences are insufficient to trigger coverage.’ Accordingly, as the facts are alleged in the Croziers’ amended complaint, any determination that it alleges damage to personal property (in contrast to the structure of the home itself) would be a proscribed inference.

Auto-Owners Insurance Co. v. Elite Homes, Inc., et al., No. 14-1182, M.D. Fla.; 2016 U.S. Dist. LEXIS 12910. In short, the Judge held that the Crozier’s Complaint exclusively alleged damages relating to the structure of the home, including the frame, subsurface, sheathing, insulation, drywall, and interior finishes. Therefore, because there were no allegations of damage to personal property, the Amended Complaint did not reference work that is not encompassed by the “your work” exclusion beyond a bald inference. From this case, Courts are advised against indulging in impermissible inferences to suggest that damages on the face of the complaint include anything outside of the “your work” exclusion.

Contractors should also learn from Auto-Owners Insurance Co. v. Elite Homes, Inc. and ensure their CGL policy includes a subcontractor exception to the “your work” exclusion which states, “this exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.” The holding in this matter illustrates the costly error of obtaining a CGL policy that does not include the subcontractor exception. In fact, the Auto-Owners Insurance policy was essentially worthless to Elite Homes because it failed to include the subcontractor exception language. If this policy had the subcontractor exception, the insurer would have been obligated to defend the contractor in the owners’ lawsuit for the damages caused by the subcontractor that installed the windows. As the saying goes, the devil is in the details. This matter is a lesson that does not need to be learned the hard way by another Floridian contractor.