Thirty-five states, including Louisiana, have “right to cure” statutes requiring potential plaintiffs to follow specific procedures to give potential defendants an opportunity to resolve a construction defect dispute prior to the filing of a lawsuit. While some of these statutes expressly provide that claims pursued through the pre-suit procedures do not trigger insurance coverage, other statutes are less clear. This was the issue in Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co., where the Florida Supreme Court addressed the interplay between the notice requirements under Florida’s “right to cure” statute with those triggering coverage under a standard CGL insurance policy.
Under Chapter 588, Florida Statutes, the claimant must serve written notice of a claim on the contractor, subcontractor, supplier, or design professional describing the nature of the alleged construction defect. If the contractor disputes the claim and will neither remedy the defect nor settle the claim, or if the contractor fails to respond within the statutorily prescribed time period, the claimant may proceed with a civil action or arbitration proceeding, but only as to those defects noticed in accordance with Chapter 558.
Altman Contractors, Inc. (“Altman”) was the general contractor for the construction of a high-rise condominium in Florida (the “Sapphire Project”). Altman was insured by Crum & Forester Specialty Insurance Company (“Crum”), and the policy provided that Crum had a duty to defend Altman against any “suit” which the policy defined as a civil proceeding in which damages were sought for bodily injury, property damage or personal and advertising injury. Under the policy, suit included “[a]n arbitration proceeding . . . or any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits without consent.”
In 2012, the owner of the condominium served Altman, pursuant to Chapter 588, with notices of claim alleging several hundred defects in the Sapphire Project. Altman sought declaratory judgment that Crum owed a duty to defend and to indemnify Altman under its CGL policy. After the district court denied Altman’s motion for summary judgment and granted summary judgment for Crum, Altman appealed to the Eleventh Circuit, which certified the issue to the Florida Supreme Court.
The Florida Supreme Court held that the notice process established by Chapter 588 constitutes a suit within the meaning of the policy issued by Crum to Altman. The court found that while the chapter 588 process does not constitute a civil proceeding it is included in the policy’s definition of suit as an “alternative dispute resolution proceeding” to which the insurer’s consent is required to invoke the insurer’s duty to defend the insured.
As to whether the Chapter 588 process constituted a civil proceeding, the court cited a prior case in which the same court defined proceeding as “any procedural means for seeking redress from a tribunal or agency.” The court also looked to the Merriam Webster definition of proceeding (“a particular step or series of steps in the enforcement, adjudication, or administration of rights, remedies, laws, or regulations.”) as well as the Black’s Law Dictionary definition of civil proceeding (“a judicial hearing session, or lawsuit in which the purpose is to decide or delineate private rights and remedies, as in a dispute between litigants in a matter relating to torts, contracts, property, or family law”). The court held that, according to these definitions, the Chapter 588 process could not be considered a civil proceeding because the recipients participation in the Chapter 588 settlement process is not mandatory or adjudicative. As to whether the Chapter 588 process constitutes an alternative dispute resolution proceeding as included in the policy’s definition of suit, the court answered in the affirmative. Looking to Black’s Law Dictionary which defines alternative dispute resolution as “a procedure for settling a dispute by means other than litigation,” the court found that the process fit within the plain meaning of the policy term.
The Altman decision has significant implications for contractors and CGL carriers operating in the Sunshine State, and other states with right to cure statutes. Insurers operating in right to cure states should carefully review their policies to determine whether pre-suit notices fit within the definition(s) of instances triggering their duty to defend. On the other hand, a contractor who receives pre-suit notice may be forced to incur attorney’s or expert’s fees to defend against a pre-suit claim or to fund compensation pursuant to a pre-suit settlement. Thus, contractors should review their CGL policies to ensure they include coverage for statutory pre-suit claims processes. For contractors who have already received pre-suit notice and are unsure as to whether they are entitled to defense or indemnity by their CGL insurer, it may be wise to ignore the pre-suit notice and wait for a lawsuit to be filed. At the very least, a contractor should obtain consent from its CGL carrier before submitting to any pre-suit process.