- Chapter 558 Notice and the Duty to Defend
- August 14, 2015 | Author: Lindsay G. McCormick
- Law Firm: Marshall Dennehey Warner Coleman & Goggin, P.C. - Tampa Office
- The rules of insurance contract interpretation continue to be primary considerations for construction defect claims.
- A 558 Notice does not constitute a “suit” for Florida insurance terms.
- Depending on policy language, the duty to defend may not arise at the 558 Notice stage.
For those of us who immerse ourselves in the world of construction law, we know that liability and coverage is far too intertwined for anyone to completely practice in only one realm. Many times, the issues of liability and coverage overlap and require expertise and knowledge of both areas to adequately represent the client and the insurer. This important intersection of efforts and issues starts at a very early stage. Under Florida law, prior to any construction defect claim being asserted in litigation, the owner must serve the contractors with a Chapter 558 compliant notice. This notice has specific requirements under Florida Statute § 558.004. These include notice of the alleged defects with detail sufficient to allow the recipient to determine the general nature of the claim and a description of the alleged resulting damage or loss. The 558 Notice is a pre-requisite to an owner’s suit and provides parameters for pre-suit inspections and the opportunity to potentially cure the issues without litigation. We often see that a 558 Notice is properly sent, but the insured fails to pass this document along. Therefore, we regularly counsel that it is in the insured’s best interest to immediately provide any and all 558 Notices and accompanying documents to its insurance carrier in order to keep the carrier apprised of the issues. However, this raises the question of what obligations the insurance carrier has at the 558 stage.
Recently, the Southern District of Florida endeavored to provide clarity on the obligations of an insurance carrier after a 558 Notice has been received. In Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co., 2015 U.S. Dist. LEXIS 72466 (S.D. Fla. June 4, 2015), Altman Contractors served as the general contractor of a condominium tower being built in Broward County, Florida and had an insurance policy with Crum & Forster that was applicable to the project. Subsequent to completion, the condominium tower discovered alleged defects and served Altman with a Notice of Claim and Supplemental Notices of Claim under Florida Statute 558. In response to the 558 Notices, Altman sent a demand letter to Crum & Forster providing notice of the condominium tower’s claims and demanding that Crum & Forster defend and indemnify Altman. Crum & Forster denied the demand on the basis that the matter was not yet in suit and, therefore, did not trigger the duty to defend. Altman subsequently filed a declaratory judgment action against Crum & Forster that sought a determination that the insurer owed Altman a duty to defend and indemnity relative to the 558 Notice.
In considering opposing motions for summary judgment, the U.S. District Court for the Southern District of Florida focused on the rules for insurance contract interpretation and the specific policy language at issue. The court found no ambiguity within the applicable policy terms and relied on the plain language of the terms at issue. Specifically, the Crum & Forster policy included an obligation to pay damages to which the policy applied and to defend against any “suit” seeking those damages. The term “suit” was further defined in the policy as meaning a “civil proceeding.” Therefore, the court focused on the plain meaning of the term “civil proceeding.” In looking at various sources, both in place at the time of the ruling and in place at the time of the applicable policies, the court determined that a “civil proceeding” must include some sort of forum or the involvement of a decision maker, such as litigation or arbitration. As such, it was determined that the 558 Mechanism, including the actions surrounding a 558 Notice of Claim, does not constitute a “suit,” and the court held that Crum & Forster had no obligation to defend or indemnify Altman with respect to the 558 Notice under the terms of the applicable policies.
The implication of this ruling is that, so long as the policy language at issue has similar terms, a 558 Notice does not trigger the insurance carrier’s obligation to defend and indemnify an insured. However, under the terms of many policies, this does not relieve the carrier of the obligation to investigate the claims being made. Therefore, despite the ruling in Altman, it is still in the best interest of the carrier and the insured for the carrier to retain counsel, even during the early stages of a 558 Notice. This allows for an effective investigation, which the carrier is obligated to perform under many policies. Further, the involvement of counsel allows for early legal analysis and potential resolution without the necessity of prolonged litigation. The 558 Notice, and its associated actions, remain an important aspect of construction defect claims and litigation, which, with proper representation, can lead to a much more efficient and effective handling of claims.