Appeals court seeks second opinion from Supreme Court on construction defect claims

By Kerry Goff | Oct 12, 2016

TALLAHASSEE -- In a recent Florida federal district court case, the court addressed whether insurance companies issuing insurance policies in Florida must provide a defense to their insureds from construction defect claims.

The court ruled in favor of the insurance company in Altman Contractors Inc. v. Crum & Forster Specialty Ins. Co., deciding that a notice of claim is not a suit under Section 558, thus the insurance company is not required to defend the contractor, including paying for fees. That ruling then went to the Eleventh Circuit Court of Appeals where, on Aug. 2, they explained that the Supreme Court should offer insight into the appeal and its relationship to Chapter 558.

“In 2003, the Florida Legislature enacted Chapter 558 of the Florida statutes, establishing a notice and repair process to resolve construction disputes between property owners and contractors, subcontractors, suppliers or design professionals,” the official court document said. “The Florida Legislature said it passed Chapter 558 because it was ‘beneficial to have an alternative method to resolve construction disputes that would reduce the need for litigation, as well as protect the rights of property owners.’”

According to a Sept. 6 article in Lexology, the Florida Supreme Court’s decision will have important implications for the construction industry.

“If the pre-litigation process in Chapter 558 is a ‘suit,' insurance companies with policies containing similar language will be required to pay experts' fees and attorneys' fees incurred because of a Chapter 558 notice of claim as part of the duty to defend,” the article said. “This could curtail an increase in condominium defect lawsuits because early insurance carrier participation during the Chapter 558 process, including payment of the investigation costs, may resolve defect disputes before costly and time-consuming litigation ensues.”

Furthermore, the Lexology article argued that an opposing ruling could have the opposite effect.

“Developers and contractors could abandon pre-suit proceedings to avoid incurring extraordinary out-of-pocket costs by opting out of the Chapter 558 process in their contracts with owners,” the article said. “As new condominiums rise in Florida, only time will tell if a surge in new construction defect lawsuits is on the way.”

Many expect the growing volume of condominium construction to lead to an increase in the number of construction defect cases and these cases typically involve design, material and/or construction deficiencies. These deficiencies are usually caused by the developers’ inability to keep up with demand, the article explained.

“However, unlike in the past, many developers have implemented better construction practices, and improved quality control by hiring their own third-party inspectors and keeping more detailed and accurate records of the construction,” the article said. “Building codes have also become more stringent and code inspections have improved.”

Where the debate lies, according to the appeals court, is within intersecting state insurance law and a state statute for which there is no guidance from the Florida courts. Because of this, the outcome of this particular case could have significant policy implications for Florida, mainly with insurance costs.

The appeals court has requested that the debate be addressed by the Florida Supreme Court to decide the case’s outcome.

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