“Suit” Up? : Florida’s Chapter 558 Notice
Does Not Trigger an Insurer’s Duty to Defend
By: Molly A. Chafe, Esq.
Boyle, Gentile & Leonard, P.A.
Many states have notice and repair statutes, which provide that a claimant is required to give notice of the alleged construction defects to a contractor and allow for an opportunity the contractor to respond and repair the defects. Florida has set forth a similar notice and repair statute. Specifically, Chapter 558 provides: “Claimants may not file an Action subject to this Chapter without first complying with the requirements of this Chapter.” 558.003, Fla. Stat. A party claiming construction defects must first serve the contractor with a written notice detailing all alleged construction defects and the resulting loss or damages to the claimant’s property. See § 558.004(1), Fla. Stat. This notice must be served at least 60 days before filing any action which varies on the size of land and association. See id.
Upon receipt of the notice, the contractor may notify all parties whom it believes may be responsible for the defects. See § 558.004(3), Fla. Stat. All parties notified of a claim are granted notice and opportunity to inspect the premises to assess the defects and the damage. See § 558.004(2) and (3), Fla. Stat. Upon such notice, the contractor is then required to provide the claimant with a written response: (a) offering to repair and/or make monetary payment; (b) disputing the claim; or (c) stating that the contractor’s insurer will make a determination as to the monetary payment. See § 558.004(4) and (5), Fla. Stat. If this process is unsuccessful in resolving the claim, then this is the only time that litigation can formally begin. See § 558.004(7), Fla. Stat.
In Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co., Case No. 13-80831-CIV, 2015 WL 3539755, (S.D. Fla. June 4, 2015), the United States District Court for the Southern District of Florida evaluated whether an insurer had a duty to defend and indemnify an insured who receives a notice of claim pursuant to Chapter 558. In the dispute, a condominium association served the general contractor, Altman Contractors, Inc. (“ACI”) with the notice of claim pursuant to Chapter 558. Id. at *1. As a result, ACI sent the notice of the claim to its insurer, Crum & Forster (“Crum”), and demanded a defense and indemnification. Id. Crum denied that it had a duty to defend or indemnify ACI because the matter was not a “suit”. Id. However, Crum advised ACI that it was exercising its discretion to participate in the response to the 558 Notice and hired defense counsel to participate in the response while asserting that it was not waiving its position. Id. ACI objected to Crum’s selected defense counsel and demanded that Crum continue with ACI’s chosen defense counsel who had been defending prior to Crum’s involvement. Id. ACI also requested that Crum reimburse it for the fees and expenses that it had incurred from the time it placed Crum on notice of the 558 Notice. Id. Crum refused both requests. Id. As a result, ACI brought a declaratory action against Crum seeking its rights under the policy. Id.
The parties then filed dueling motions for summary judgment. Id. at *2. ACI moved for partial summary judgment as to whether Crum had a duty to defend, asserting that its duty was triggered when ACI demanded a defense to the Notice of Claim. Id. Crum moved for summary judgment on all issues, arguing that the language of Chapter 558, specifically section 558.004(13), Florida Statutes, bars a notice of claim from constituting a claim for insurance purposes, and, thus, there was no duty to defend or indemnify ACI. Id. Specifically, Crum argued that the Chapter 558 process did not constitute a “suit” under the terms of the policy. Id.
The Southern District disagreed with Crum’s position that the language of Chapter 558 bars a notice of claim from constituting a claim for insurance purposes. Id. at *3. However, the Court ultimately determined that under the specific language of the standard form policies at issue, the Notice of Claim did not trigger the insurer’s duty to defend. Id. at *5. Specifically, the policies stated that Crum has “the right and duty to defend the insured against any ‘suit’ seeking damages because of ‘bodily injury’ or ‘property damage’.” Id. at *5. The policies defined “suit” as a “civil proceeding” in which specific damages are alleged. Id. The definition of “suit” includes an “arbitration proceeding” or any “other alternative dispute resolution proceeding.” Id.
Moreover, the Court concluded that a Notice of Claim under Chapter 558 does not constitute a “civil proceeding” and therefore is not a “suit” under the subject insurance policies. Id. Specifically, the Court looked Black’s Law Dictionary in defining “civil proceeding” and “proceeding”, and determined that nothing about the Chapter 558 process satisfied Black’s definition. Id. at *6. Additionally, the Court stated that the Florida Legislature described Chapter 558 as a “mechanism,” and not a “proceeding.” Id. at *8.
Accordingly, the Court determined that Crum had no obligation under the insurance policies to defend or indemnify ACI. Id. at *9.
This Court’s decisions concerning state statutes and standards for interpreting insurance policies have far-reaching consequences for Florida policyholders. Some have argued that the decision will have a chilling effect on the proper and effective use of Chapter 558’s alternative dispute resolution process as it would discourage both the insurance industry and policyholders from participating in the 558 process. However, policyholders should always review their own policies and timely notify your insurer of a notice of claim should it arise.
This case is currently on appeal to the Eleventh Circuit Court of Appeals. Boyle, Gentile & Leonard, P.A. is participating as amicus counsel on behalf of several contractor and builder groups.