In deciding two companion cases, Florida has joined a growing list of states whose highest courts have ruled that a standard form commercial general liability (“CGL”) policy can provide coverage to a general contractor who faces legal liability when a subcontractor’s negligent work causes property damage to the completed project. United States Fire Ins. Co. v. JSUB, Inc., No. SC05-1295 (Dec. 20, 2007); Auto-Owners Ins. Co. v. Pozzi Window Co., No. SC06-779 (Dec. 20, 2007). The insurance industry has vigorously resisted acknowledging that standard CGL forms that include the products/completed operations hazard (“PCOH”) provide such coverage, relying either on older cases decided under old policy forms or on the theory that negligent, “defective” workmanship is not an accidental “occurrence” within the grant of coverage provided by a CGL form. Overruling several decades of cases holding to the contrary, the Supreme Court of Florida recognized that changes in 1986 to the CGL form provide PCOH protection to general contractors that insurers have refused to provide.
In JSUB, homeowners sued a general contractor for post-completion damage to the foundations, drywall, wallpaper and other portions of their homes. The damage was caused by a subcontractor’s use of poor soil and improper soil compaction and testing. The insurer paid for damage to the homeowners’ “personal property,” such as wallpaper, but refused to cover the cost of repairing structural damage to the project itself, such as the foundations and drywall. The interim appellate court had reversed summary judgment for the insurer, and the Supreme Court granted review because of a conflict with other Florida appellate decisions. In Pozzi, a homeowner sued for water intrusion damage to a multi-million dollar home caused by the negligent installation of custom windows. On appeal from the entry of summary judgment finding PCOH coverage and subsequent jury verdict awarding damages against the carrier, the United States Court of Appeals for the Eleventh Circuit certified a question to the Florida Supreme Court asking whether or not the PCOH coverage protected a general contractor against liability for repair or replacement of a subcontractor’s “defective work.”
The Supreme Court of Florida first disposed of the notion that CGL policies can never provide coverage for damage to a general contractor’s work caused by faulty workmanship. Although the insurance industry has traditionally argued that such a scenario does not constitute an “occurrence” of insured “property damage,” the Court reaffirmed the plain language of the policy and earlier decisions holding that faulty workmanship can constitute an occurrence so long as the faulty workmanship was neither intended nor expected from the standpoint of the insured. Thus, the Court determined that the issue of coverage was governed by the policy exclusions barring coverage for damage to or arising out of “your work.” The court noted that the exclusions were modified when, in 1986, the insurance industry added the “subcontractor exception” to the exclusion for claims alleging post-completion property damage to the general contractor’s “work.” The Court went on to note that there could be “property damage” within the meaning of the policy, because the definition of “property damage” does not differentiate between damage to the general contractor’s work and damage to other property. The Court also pointed out that there was no exclusion for damage arising from breach of contract, effectively removing a common reason some insurers rely on in denying coverage in so-called “construction-defect” cases.
In the companion Pozzi case, the Supreme Court of Florida ruled that under its decision in JSUB, there is no coverage for repair or replacement of “defective windows” installed by a subcontractor, as actions taken to remedy inclusion of construction defects are not “property damage” covered by a CGL form. The decision in Pozzi leaves some uncertainty in cases in which the negligent work of a subcontractor causes “property damage,” but the damage is confined to the subcontractor’s work itself. However, review of the two, companion opinions suggests that full coverage is available to a general contractor for all liability arising from actual property damage caused by the subcontractor’s work, including damage to the subcontractor’s work, but that remedying substandard workmanship that does not cause cognizable damage is not covered. Thus, insured general contractors must carefully review the facts of their own claims to see whether JSUB or Pozzi applies.