Any construction professional working in Florida likely is familiar with the state’s notice and opportunity to repair statute (“chapter 558”) that creates a process for trying to resolve construction defect claims without litigation. As the first step in this mandatory process, a property owner must serve a chapter 558 notice on the construction professional, which notice describes the alleged defects and damages. Many construction professionals submit chapter 558 notices to their general liability insurers and request a defense. But it has always been an open question whether the chapter 558 process is a “suit” triggering an insurer’s duty to defend—until now. In Altman Contractors, Inc. v. Crum & Forster Specialty Insurance Company, the Florida Supreme Court decided that the chapter 558 process is a “suit” but left open the possibility that the process is only a “suit” when an insurer says it is. In a per curiam opinion in the original federal case, the U.S. Court of Appeals for the Eleventh Circuit relied on the Florida Supreme Court’s opinion to vacate the district court decision holding that the chapter 558 process is not a “suit” and remanded the case for further proceedings.
The language of the standard commercial general liability coverage form provides that the insurer has a duty to defend the policyholder against any “suit” seeking damages because of “bodily injury” or “property damage.” A “suit” is defined as “a civil proceeding” and “includes” “[a]n arbitration proceeding” or “[a]ny other alternative dispute resolution proceeding … to which the insured submits with [the insurer’s] consent.” Under a fair reading of this language, all “suits” are “civil proceedings,” and “civil proceedings” include, among other things, “arbitration proceedings” and “other alternative dispute resolution proceedings.” The California Court of Appeals relied on this reading of the policy language to hold that California’s notice and opportunity to repair statute is “a civil proceeding” and therefore a “suit.”
A majority of the Florida Supreme Court, however, determined that “civil proceedings,” “arbitration proceedings” and “other alternative dispute resolution proceedings” are three distinct things. Under this framework, the majority held that, “[a]lthough the chapter 558 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 insurer.” The Colorado Court of Appeals reached a similar conclusion regarding Colorado’s notice and opportunity to repair statute. (The Colorado Court of Appeals also held that an insurer does not need to provide express consent; consent could be implied or waived.)
The Altman decision means that insurers can no longer take the position in Florida that they owe no duty to defend because the chapter 558 process is not a “suit.” Unfortunately, as Justice Pariente observed in her partial concurrence/dissent, the majority’s holding may also “leave […] the insured at the mercy of the insurer, who has complete power to decide if and when to participate in the mandatory chapter 558 process.” (Justice Pariente correctly determined that the chapter 558 process is also “a civil proceeding” that does not require the insurer’s consent.) If insurers can simply withhold consent, it defeats the entire purpose of the chapter 558 process. Instead of participating in the process and resolving construction defect claims without litigation, construction professionals would be incentivized to simply wait for a lawsuit that triggers the insurer’s duty to defend.
Chapter 558 is, in fact, a mandatory process, and an insurer cannot unreasonably withhold consent for a construction professional policyholder to participate in the process. Therefore, we suggest that policyholders include the following information, if applicable, when they tender chapter 558 notices to their insurers under existing policy language:
- The Florida Supreme Court has determined that the chapter 558 process constitutes a “suit” as defined in the standard form commercial general liability coverage form.
- Under chapter 558, a construction professional “must serve” a written response to the property owner within 45 days; if no response is provided, the property owner may immediately file a lawsuit.
- If the chapter 558 notice includes a request for information, the construction professional must respond within 30 days or “shall be” subject to sanctions for a discovery violation in any subsequent litigation.
- Because the construction professional must respond to the chapter 558 notice to avoid the prospect of immediate litigation and the possibility of future discovery sanctions, the construction professional will assume that the insurer consents to participation in the chapter 558 process unless the insurer advises otherwise, in writing, within a short timeframe (for example, 14 days).
When renewing or purchasing new coverage, construction professional policyholders may also request specific language in their policies (through endorsement) that the chapter 558 process (and any other notice and opportunity to repair statute) is considered a “suit”—regardless of consent.
Hopefully, insurers will recognize that it is in their best interests to consent to, and participate in, the chapter 558 process. If not, insurers will quickly face a wave of litigation regarding consent, which is more often a fact-intensive question that will not be quickly resolved.