Tred R. Eyerly | Insurance Law Hawaii | May 4, 2015
The Eleventh Circuit affirmed the district court’s finding of a duty to defend, but reversed, in part, the insurer’s duty to indemnify. Carithers v. Mid-Continent Cas. Co., 2015 U.S. App. LEXIS 5540 (11th Cir. April 7, 2015).
After discovering a number of defects in their home, the Carithers sued their homebuilder, Cronk Duch Miller & Associates. Cronk Duch’s insurer, Mid-Continent Casualty Company, refused to defend.The parties entered into a consent judgment for $90,000 in favor of the Carithers. Cronk Duch then assigned to the Carithers the right to collect the judgment from Mid-Continent.
The Carithers then sued Mid-Continent. Florida law applied. Mid-Continent has issued four policies to Cronk Duch from March 2005 to October 2008. The parties filed cross-motions for summary judgment on the duty to defend issue. The underlying complaint alleged that the defects could not have been discovered until 2010, after the last policy period. The district court rejected Mid-Continent’s argument that property damage occurred when it was discovered or when it reasonably could have been discovered. Therefore, summary judgment on the duty to defend was granted to the Carithers.
The coverage issue went to trial. The court found that the damage occurred during 2005, triggering the earliest Mid-Continent policy. The court held that property damage did not include the defective work of a sub-contractor, but did include damage to other property caused by the defective work of a sub-contractor. Mid-Continent was liable for all of the damages awarded in the underlying case. Among other findings, the court determined: (1) that the incorrect application of exterior brick coating caused property damage to the brick; (2) that the use of inadequate adhesive and an inadequate base in the installation of the tile caused property damage to the tile; and (3) that the incorrect construction of a balcony, which allowed water to seep into the ceilings and walls of the garage leading to wood rot, caused property damage to the garage.
The Eleventh Circuit affirmed the decision on the duty to defend. Florida courts had not decided whether the manifestation or injury in fact trigger applied to determine when property damage occurred. Given the uncertainty in the law, Mid-Continent did not know whether there would be coverage for the damages sought in the underlying case. Mid-Continent was required to resolve this uncertainty in favor of the insured and defend Cronk Duch.
Determining whether there was coverage for the damages awarded required the court to decide which trigger applied. Examining the policy language, the court determined that property damage occurred when the damage happened, not when the damage was discovered or discoverable. Therefore, the district court did not err in applying the injury in fact trigger.
Mid-Continent argued that the condition of the brick, the tile, the mud base, and the balcony did not constitute property damage under the policy. Decisions from the Florida Supreme Court held that faulty workmanship that damaged the otherwise nondefective completed project caused “physical injury to tangible property” within the plain meaning of the policy. However, there was a difference between a claim for the costs of repairing or removing defective work, which was not a claim for “property damage,” and a claim for the costs of repairing damage caused by the defective work, which was a claim for “property damage.”
Regarding the brick, if it was done by a single sub-contractor, then the damage to the bricks was part of the sub-contractor’s work, and the defective work caused no damage apart from the defective work itself. However, if the bricks were installed by one subcontractor, and a different sub-contractor applied the brick coating, then the damage to the bricks caused by the negligent application of the brick coating was not part of the sub-contractor’s defective work and constituted property damage. The Carithers presented no evidence to establish that the brick installation and the application of the brick coating were performed by different sub-contractors. Therefore, they failed to meet their burden of proof, and the district court’s award of damage for property damage to the bricks was reversed.
The district court also determined that the use of inadequate adhesive and inadequate base in the installation of the tile caused property damage to the tile. The damage award included the cost of replacing both the tile and the mud base itself. There was no evidence that the tile and mud base were installed by different sub-contractors. Again, the Carithers failed to meet their burden of proof. If the mud base and the tile were done by a single sub-contractor, then the damage to the tile was part of the sub-contractor’s work and this defective work caused no damage apart from the defective work itself. Therefore, the district court’s award of damages for the tile and mud base was reversed.
Finally, the district court found that the balcony was defectively constructed, which caused damage to the garage. This finding was upheld. The district court determined that repairing the balcony was part of the cost of repairing the garage, which was defective work. Therefore, the Carithers were entitled to these damages.
Consequently, the district court’s award of damages for the brick, the tiles, and the mud base was reversed. The judgment was affirmed in all other respects.