The recent decision in Nationwide Mut. Fire Ins. Co. v. Advanced Cooling and Heating, Inc., 38 Fla. L. Weekly D2256a (Fla. 4th DCA 2013), gives us the opportunity to revisit a hotly contested issue in the construction industry: what triggers an insurer’s duty to defend under a post-1986 standard form commercial general liability insurance policy? The short answer is that an insurer’s duty to defend arises when the allegations in the complaint (and only the complaint) fairly and potentially raise a claim against an insured that is covered by the policy. See State Farm Fire & Cas. Co. v. Higgins, 788 So. 2d 992, 995 (Fla. 4th DCA 2001) (citations omitted). While courts construe insurance contracts according to their plain meaning, any ambiguities are construed in favor of coverage of the insured. U.S. Fire Ins. Co. v. J.S.U.B., Inc., 979 So. 2d 871, 877 (Fla. 2007) (citation omitted). As long as the facts are clearly pled, the inquiry seems rather simple.
In Advanced Cooling, the 4th DCA applied this deceptively simple rule to the following facts: A CGL-insured contractor was called to a customer’s home to repair an air conditioning unit. The contractor agreed to replace a compressor under warranty for $438. Upon completion, the customer paid for the work, but discovered the next day that the air conditioner still didn’t work and stopped payment. The contractor sued and the customer countersued, “alleging breach of contract for failure to properly inspect the air conditioning system which resulted in an unnecessary repair, and failure to complete the repair in a workmanlike manner.” The contractor placed its insurer on notice that it had a duty to defend, but the insurer denied coverage. The contractor successfully defended the countersuit at its own cost, then sued for a declaratory judgment as to whether its insurer had a duty to defend. The trial court held that the insurer did have a duty to defend, but this week the 4th DCA reversed.
The 4th DCA found that the “property damage” covered by the insurance policy refers only to damage to property other than the property being repaired. The 4th DCA relied upon the Supreme Court of Florida’s decision in Auto-Owners Ins. Co. v. Pozzi Window Co., 984 So.2d 1241 (Fla. 2008): “In essence, the mere inclusion of a defective component, such as a defective window or the defective installation of a window, does not constitute property damage unless that defective component results in physical injury to some other tangible property.” Id. at 1248.
If only that were the essence of the Pozzi Window decision, the Advanced Cooling decision would be a slam dunk. But the 4th DCA omitted two crucial sentences that followed its quote from Ponzi Window:
Accordingly, if the claim in this case is for the repair or replacement of windows that were defective both prior to installation and as installed, then it is merely a claim to replace a ‘defective component’ in the project [and therefore no coverage]. Conversely, if the claim is for the repair or replacement of windows that were not initially defective but were damaged by the defective installation, then there is physical injury to tangible property [and therefore coverage].
Pozzi Window, 984 So.2d at 1248-49. This is the essence of the Pozzi Window decision.
Returning to the facts of Advanced Cooling, the 4th DCA found that the customer’s workmanship claim alleged that the contractor installed the compressor in an unworkmanlike manner, “resulting in a leak in the air conditioning system causing a physical injury to tangible property – the compressor.” Therefore, under the rational of Pozzi Window, the insurer had no duty to defend. But if the compressor were not initially defective, the facts are not clear and the 4th DCA may have misinterpreted the essence of the Pozzi Window decision.
While the Florida rule on CGL coverage seems simple, its application can be tricky. Advanced Cooling shows that this area of the law will remain a trap for the unwary until the nuances of Florida construction insurance coverage case law becomes more developed.