Construction Defects and Insurance Coverage: When is the Duty to Defend Triggered?

In Florida, an insurance company may have a duty to defend and/or indemnify its insured. The insurance company’s duty to defend its insured (as in defending the insured in a lawsuit) is broader than its duty to indemnify (as in paying for damages caused by the insured). The duty to defend is separate and apart from the duty to indemnify.

An insurance company’s duty to defend is triggered solely by the allegations in the complaint, even if those allegations are incorrect or meritless. Jones v. Fla. Ins. Guar. Ass’n, Inc., 908 So. 2d 435, 443 (Fla. 2005). This body of law holds true even where a complaint alleges facts which fall partially within and partially outside coverage of the applicable insurance policy. Trizec Props., Inc. v. Biltmore Const. Co., 767 F.2d 810, 811-12 (11th Cir. 1985). In that scenario, the insurance company is obligated to defend its insured for the entire case. Any doubts as to whether the allegations in the complaint trigger a duty to defend must be resolved in favor of the insured and against the insurance company. Lawyers Title Ins. Corp. v. JDC (America) Corp., 52 F.3d 1575, 1580-81 (11th Cir. 1995).

Despite the broad nature of an insurance company’s duty to defend, when a complaint demonstrates the applicability of a policy exclusion, there is no duty to defend. Keen v. Fla. Sheriffs’ Self-Insurance Fund, 962 So. 2d 1021, 1024 (Fla. 4th DCA 2007). One such common policy exclusion is referred to as the “your work” exclusion. Contractors and owners must pay particular attention to the language of the applicable insurance policy to understand what is and is not covered. Their counsel must also understand what is covered by the policy and what must be alleged in the complaint to trigger an insurance company’s duty to defend. It is not enough to allege buzz words, without underlying facts, to trigger the duty to defend.

Earlier this year, the Eleventh Circuit was confronted with a commercial general liability policy containing the “your work” exclusion, and an insurance company’s duty to defend its insured. The underlying lawsuit was brought by homeowners against the insured general contractor. While the contractor’s insurance company initially defended its insured contractor under a reservation of rights, it ultimately filed a declaratory judgment action, arguing it had no duty to defend its insured in the homeowner’s lawsuit. Auto-Owners Insurance Company v. Elite Homes, Inc.

In Auto-Owners Insurance Company v. Elite Homes, Inc., the insurance company sought summary judgment on its duty to defend its insured general contractor. The applicable insurance policy contained the “your work” exclusion, which excluded from coverage damage to work performed by the insured contractor. 2017 WL 280711 at *1. The exclusion did not, however, apply to property other than the home.

The homeowners’ complaint against the insured contractor alleged “extensive damage to other property includ[ing] the frame subsurface, sheathing, insulation, drywall, and interior finishes,” as well as “damage to other property including, but not limited to, exterior wood framing, wood substrate, vapor barriers, insulation, drywall, and interior finishes.” 2017 WL 280711 at *2. The court concluded these allegations did not give rise to the insured’s duty to defend. While the complaint contained conclusory buzz words regarding damage to other property, there were no allegations that damages were related to anything but work to the home itself, which was not covered by the policy.

The language of the applicable insurance policy is key when determining covered damages and the duty to defend and indemnify. Vague and conclusory language in a complaint will likely not trigger the duty to defend. Contractors, owners and attorneys must carefully review the applicable insurance policy to understand what is and is not covered under the insurance policy.