Special to Realty/Builder Connection
The Florida Supreme Court recently made a surprising about face on a Motion for Rehearing and Clarification and handed the Florida Home Builders Association an outright victory in the Pozzi insurance case.
The about face came after a December, 2007 ruling that gave FHBA a victory in the J.S.U.B. insurance decision, but a loss in the Pozzi battle. However, just two weeks ago, the high court clarified its previous decision in FHBA’s companion Pozzi case – giving a clear victory.
The United States Fire Insurance Company Case vs. J.S.U.B., Inc. victory upheld Products Completed Operations Hazards (PCOH) coverage under the plain terms of the post-1986 standard form CGL policy. The J.S.U.B. decision meant that defective work performed by a subcontractor that caused damage to the contractor’s completed project is covered under a post-1986 CGL policy.
J.S.U.B. involved an undisputed claim (initially denied by the insurance company) for the costs of repairs for structural damage to homes caused by the subcontractor’s defective soil preparation work.
On the same day the high court rendered its J.S.U.B. decision, it also made an adverse and somewhat confusing opinion in the Auto-Owners Insurance Company vs. Pozzi Window Company case. In its December, 2007 Pozzi opinion, the Florida Supreme Court seemed to create a legal fiction-type of distinction from its decision in J.S.U.B.
In the initial Pozzi decision, the defective installation of windows from a subcontractor caused leakage resulting in water intrusion damage to “other parts of the property”. While the damage would be covered under the CGL policy (i.e. J.S.U.B.), the court essentially found that the cost of repairing, removing and replacing the actual windows was not “property damage” as the term is defined under the post-1986 policies.
The improbable implication was that damage to the underlying product (the windows themselves), even if the window damage resulted from defective installation, would somehow inexplicably not be covered. Essentially, the court created an artificial distinction between a claim for the “costs of repairing or removing defective work” (which the court didn’t consider a claim for “property damage”), and a claim for the costs of repairing damage caused by the defective work (which is a claim for “property damage”).
In its latest Pozzi clarification, the Florida Supreme Court more carefully reviewed the record of the trial court, and found the underlying decision at the trial level had not determined factually whether the damage to the windows was the result of the windows being inherently defective or whether it was due to defective installation. The court remanded the case back to the trial court for that factual determination.
But, the high court did clarify once and for all that if the damage to the windows was caused by defective installation, then post-1986 CGL policies would also cover the cost of the windows and the replacement of the windows. Thus, only defective products themselves are not covered under CGL policies, but that was never a position taken by any of the plaintiffs or FHBA.
“We now have complete victory in both cases,” said Keith Hetrick, FHBA General Counsel. “Not only were we able to validate the underlying viability of PCOH coverage for most standard form post-1986 CGL policies – which includes damage to property flowing from the defective work performed by a subcontractor – but also that such damage includes the “underlying” property itself caused by defective installation.”
“This is a significant and surprising clarification because often the underlying product itself, which is damaged as a result of defective installation, can be a very significant part of the cost,” Hetrick added.
However, builders should have their insurance agents and/or attorneys examine their most recent standard form post-1986 policies, review the scope of coverage, and get in writing what exactly their coverage is regarding PCOH. That’s because some of the policies have since been recently changed to clarify that any such standard coverage for any defective subcontractor work is excluded.
Florida now fits squarely within the national and modern trend that the plain terms of most standard form post-1986 CGL policies provide coverage for all aspects of a subcontractor’s defective work.
FHBA has been involved in the J.S.U.B. and Pozzi cases since July, 2003. In both cases, FHBA and the National Association of Home Builders filed several joint amicus briefs in different appellate courts.