Does the CGL Cover “Preventative Medicine?”
By: Mark A. Boyle, Esquire
Boyle, Gentile & Leonard, P.A.
Does the Commercial General Liability (“CGL”) cover the cost to mitigate against future property damage? In other words, does the CGL cover “preventative medicine?” The answer in Florida appears to be yes.
An issue that regularly appears in construction defect litigation is the question of whether or not a commercial general liability insurer is required to pay for repairs to areas of the project which have not yet sustained physical damage, but are likely or virtually certain to sustain such damage in the future. Florida had no specific answer to whether such claims were covered in the past, until, the recent decision of Pavarini Construction Co. v. ACE American Insurance Company, case no.: 1:14-cv-20524-JLK (Amended Order dated 10-30-15). In Pavarini, ACE was the commercial general liability insurer for Pavarini Construction Co. Pavarini was seeking coverage for a series of defective construction conditions. ACE was an excess CGL insurer, whose following form policy necessarily imported the standard CGL property damage definition found in the underlying policy issued by AIG. In relevant part, the property damage definition in the CGL policy provides:
Property damage means:
a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or
b. Loss of use of tangible property that is not physically injured. All such loss shall be deemed to occur at the time of the occurrence that caused it.
In addressing this issue, the Pavarini court noted the relatively recent Florida Supreme Court decision in J.S.U.B. recognizing that defective construction conditions could constitute both a covered “occurrence” and “property damage” within the meaning of a CGL policy. ACE took the position that the mere existence of defective conditions did not trigger coverage and thus, they had very limited obligations. Citing the recent 11th Circuit Court of Appeals decision in Carithers v. Mid-Continent Casualty Co., 782 F. 3d 1240 (11th Cir. 2015), the Pavarini Court noted:
There, a balcony that had been defectively installed by a subcontractor was causing runoff and resulting water damage to an adjacent garage. See Id. Although the balcony itself did not constitute independent “property damage” under the terms of the policy, its replacement was necessary in order to effectively repair the garage. See Id. At 1251. “In other words, to repair the garage, it was necessary to completely replace the defectively constructed balcony.” Memorandum and Order, Carithers v. Mid-Continent Cas. Co., No. 12-008890 (M.D. Fla. Mar. 11, 2014), DE 126 at 8. Similarly here, in order to adequately repair the non-defective project components, the building had to be stabilized. Even if the predominant objective of the repair effort was to fix the instability caused by the defective subcontractor work, it is undisputed that the same effort was required to put an end to ongoing damage to otherwise non-defective property, e.g. damage to stucco, penthouse enclosure, and critical concrete structural elements. See DE 128 at 2-3; DE 131 at 52-63. Thus, the ACE policy provides for complete indemnification.
In addition to these holdings, the Court noted the following in a footnote.
Citing J.S.U.B, Defendant argues somewhat incidentally that mitigation of damages is not covered. Nowhere in J.S.U.B. is mitigation of damages mentioned. On the contrary, J.S.U.B. stands for the proposition that claims for repairing structural damage caused by the defective work of subcontractors may be covered. As a natural corollary, coverage may exist for costs to repair defective work in order to prevent further structural damage and covered loss. See, e.g. Carithers v. Mid-Continent Cas. Co., 782 F. 3d 1240, 1251 (11th Cir. 2015). [Emphasis Added]
The Court’s holding is consistent with numerous decisions across the country, finding that damage mitigation, once the property damage threshold has been established as an initial matter, are covered. See, e.g., AIU Ins. Co. v. Super. Ct., 799 P.2d 1253, 1272 (Cal. 1990) (coverage for “remedial and mitigative actions”); Globe Indem. Co. v. State, 118 Cal. Rptr. 75, 79 (Ct. App. 1974) (explaining that it would “seem strangely incongruous” to the insured “that his policy would cover him for damages to tangible property destroyed through his negligence in allowing a fire to escape but not for the sums incurred in mitigating such damages by suppressing the fire”); Am. Econ. Ins. Co. v. Commons, 552 P.2d 612, 613-14 (Or. Ct. App. 1976) (adopting rationale of Globe Indem.); Aronson Assocs., Inc. v. Pa. Nat’l Mut. Cas. Ins. Co., 14 Pa. D. & C.3d 1, 7 (C.P. 1977), aff’d 422 A.2d 689 (Pa. Super. 1979) (per curiam) (“preventive measures can be recovered where they are required to protect against a third person being harmed.”).
Indeed, “[t]o find otherwise would require the insured to intentionally allow property damage or bodily harm to occur for the damages to be covered.” Big-D Constr. Corp. v. Take it for Granite Too, 917 F. Supp. 2d 1096, 1109 (D. Nev. 2013). As explained by one court: It is folly to argue that if a policy owner does nothing and thereby permits the piling up of mountainous claims at the eventual expense of the insurance carrier, he will be held harmless of all liability, but if he makes a reasonable expenditure and prevents a catastrophe he must do so at his own cost and expense.
Leebov v. U.S. Fid. & Guar. Co., 165 A. 2d 82, 84 (Pa. 1960).
So, for now, in Florida, mitigation damages are here to stay.