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Monthly Archives: August 2016

17AUG 2016

Recently, in Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co., the United States Court of Appeals for the Eleventh Circuit addressed an issue of first impression.[1] In Altman, the Eleventh Circuit evaluated whether an insurer has a duty to defend and indemnify an insured who receives a Notice of Claim pursuant to Chapter 558, Florida Statutes (“Notice of Claim”).  The Southern District of Florida previously ruled that a Notice of Claim did not constitute a suit, and thus, does not trigger a duty to defend and indemnify.  The insured then appealed that ruling to the Eleventh Circuit, which ruled that the terms “suit” and “civil proceeding,” as found in the subject Commercial General Liability (CGL) insurance policies, may be ambiguous as used in the policies.[2]  Due to important public policy considerations, the Eleventh Circuit certified the following question to the Florida Supreme Court: “Is the notice and repair process set forth in Chapter 558 of the Florida Statutes a ‘suit’ within the meaning of the GCL policies issued by C&F to ACI?”[3]

In the underlying dispute, a condominium association served Altman Contractors, Inc. (“ACI”), a general contractor, with a Notice of Claim.[4]  ACI notified its insurer of the claim and demanded a defense and indemnification.[5]  ACI’s insurer denied that it had a duty to defend or indemnify ACI because the matter was not in suit.[6]  Without waiving this position, the insurer told ACI that it would exercise its discretion to participate in the preparation of ACI’s response to the Notice of Claim.[7]  ACI, however, objected to the insurer’s selection of counsel as it already had counsel and wanted its chosen law firm to continue on its behalf.[8]  ACI also demanded reimbursement for attorneys’ fees and costs already incurred from the time it placed the insurer on notice of the Notice of Claim.[9]  This demand was likewise denied.[10]  ACI then filed suit seeking a declaration that its insurer owed ACI defense and indemnity as to the Notice of Claim and for damages flowing from its insurer’s alleged breach.[11]

In the trial court, ACI moved for partial summary judgment as to whether the insurer had a duty to defend, asserting this duty was triggered when ACI demanded a defense to the Notice of Claim.[12]  The insurer 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 therefore there was no duty to defend or indemnify ACI.[13]

The Southern District ultimately determined that under the specific language of the policies at issue, the Notice of Claim did not trigger the insurer’s duty to defend, and therefore the insurer did not breach the terms of the policies as a matter of law.[14]

ACI appealed the decision to the Eleventh Circuit, arguing that “because the Chapter 558 process is a condition precedent to bringing a lawsuit and impacts any subsequent lawsuit,” it should be considered a “suit” under GCL policies.[15]  In the alternative, ACI argued that a Notice of Claim, even if not a “civil proceeding” as defined in GCL policies, nevertheless constitutes an “alternative dispute resolution proceeding,” and was therefore still a “suit” under the GCL policies.[16]

The insurer replied that the definition of “suit” in its policies requires a proceeding that determines the insured’s legal liability to pay damages and argued that the pre-suit process mandated by Chapter 558, Florida Statutes, is not such a proceeding.[17]

The Eleventh Circuit believed that “there are reasonable arguments presented by both sides as to whether the Chapter 558 process constitutes a ‘suit’ or ‘civil proceeding’ within the meaning of the CGL policies issued by C&F [the insurer].”[18]  The court, “confronted with a question intersecting state insurance law and a state statute for which there is no guidance from the Florida courts,” and given that “the outcomes of this case may have significant practical and policy implications for Florida,” determined that certification to the Florida Supreme Court was appropriate.[19]  It certified the following question: “Is the notice and repair process set forth in Chapter 558 of the Florida Statutes a “suit” within the meaning of the CGL policies issued by C&F to ACI?”[20]

[1] No. 15-12816 (11th Cir. Aug. 2, 2016).

[2] Id. at 14.

[3] Id. at 18.

[4] Id. at 5.

[5] Id.

[6] Id.

[7] Id. at 5-6.

[8] Id. at 6.

[9] Id.

[10] Id.

[11] Id.

[12] Id. at 10-11.

[13] Id. at 8-9.

[14] Id. at 12-13.

[15] Id. at 10-11.

[16] Id. at 11.

[17] Id.

[18] Id. at 14-15.

[19] Id. at 16.

[20] Id. at 18.

03AUG 2016

The First District Court of Appeal recently addressed the standard to apply in calculating prejudgment interest.  In Arizona Chemical Company, LLC. v. Mohawk Industries, Inc., 41 Fla. L. Weekly D1662 (Fla. 1st DCA July 18, 2016), the First District found that the trial court erred in awarding prejudgment interest for periods earlier than the dates the Plaintiff “suffered the pecuniary losses for which the jury awarded damages.”

Arizona Chemical supplied Mohawk Industries with a resin designed for use as a component of carpet that Mohawk began manufacturing in 2000.  Five years into this contractual relationship, Arizona Chemical changed its resin formula without informing Mohawk of the change.  A few years later, in 2008, Mohawk began receiving an unusually high number of warranty claims, and eventually discontinued using Arizona Chemical’s resin.  Upon discovering the defect, Mohawk sold some of the remaining carpet at a discount and discarded some.

After prevailing under theories of breach of contract and breach of warranty, the trial court accepted Mohawk’s argument that it was entitled to interest on all past damages from the date of Arizona Chemical’s breach, “meaning the date Arizona delivered defective resin.”  When that date could not be determined, the court used the date that Mohawk applied the resin to each roll of carpet that was later found to be defective.

Arizona Chemical argued that prejudgment interest does not begin to accrue until: (1) the defendant had notice of plaintiff’s claim, and (2) the plaintiff sustained the actual pecuniary loss for which it was awarded damages.  The First District ruled as follows:

Arizona is partially correct: there is no bright-line rule establishing that prejudgment interest begins to accrue only after the date the plaintiff has notice of a claim, but Florida law does link the date prejudgment interest begins to accrue to the date the plaintiff suffered the pecuniary loss for which the plaintiff is being compensated.

The First District cited Argonaut Ins. Co. v. May Plumbing Co., 474 So. 2d 212, 214-15 (Fla. 1985), to explain that prejudgment awards in Florida are governed by the “loss theory.”  Under the loss theory set forth in Argonaut, the purpose of awarding prejudgment interest is to make the plaintiff whole.  “[A]n award of prejudgment interest is not an opportunity for the plaintiff to obtain a windfall or for the court to penalize the defendant.” Arizona Chemical, 41 Fla. L. Weekly D1662.  The First District reiterated the rule from Argonaut that “when a verdict liquidates damages on a plaintiff’s out-of-pocket, pecuniary losses, plaintiff is entitled, as a matter of law, to prejudgment interest at the statutory rate from the date of that loss.” Argonaut, 474 So. 2d at 215.

While recognizing that using the date of breach is appropriate when damages occur simultaneously, the First District explicitly rejected the argument that prejudgment interest automatically accrues from the date of breach rather than the date the plaintiff sustains a pecuniary loss.  The Court concluded:

In sum, our review of all recent controlling precedent leads us to the conclusion that the beginning date for the accrual of prejudgment interest depends on the timing of the pecuniary loss for which damages have been awarded, not the type of action the plaintiff has brought. Whether the case sounds in tort or contract, when prejudgment interest is proper, it is to be awarded from the date of the plaintiff’s actual loss, be that loss a diminution in the value of the plaintiff’s property, a payment the plaintiff has made to a third party, or some other form of pecuniary loss for which prejudgment interest is authorized.

Arizona Chemical, 41 Fla. L. Weekly D1662.  Applying that rule to the case before it, the First District held, “Mohawk was not entitled to recover prejudgment interest from the date the defective resin was delivered or applied to the carpet. Rather, Mohawk was entitled to recover prejudgment interest from the date it realized each loss in dollars.” Id.

In reaching the decision, the First District noted two Fourth District opinions that seemingly reach a different conclusion.  Most noteworthy is Pine Ridge at Haverhill Condo. Ass’n, Inc. v. Hovnanian of Palm Beach II, Inc., 629 So. 2d 151 (Fla. 4th DCA 1993).  In that brief opinion, the Fourth District ruled that a jury award for construction defects, including the failure to install adequate lighting and windows resulting in water intrusion, “had the effect of fixing the damages at no later than the turnover date of the condominium . . . .” Id.  As a result, “prejudgment interest should have been awarded on those claims from that date.” Id.  Relying on Pine Ridge at Haverhill, it is typical for owners to claim prejudgment interest dating back to the alleged breach or the date of turnover of a condominium, rather than the date that pecuniary losses are incurred.

The First District Court’s decision in Arizona Chemical, along with cases like CH2M Hill Southeast, Inc. v. Pinellas County, 698 So. 2d 1238 (Fla. 2d DCA 1997), should assist in defending claims for improper prejudgment interest in construction defect cases.  Conceptually, the key to distinguishing Pine Ridge at Haverhill is to note the court’s ruling that the jury verdict “had the effect of fixing the damages” as of a date certain.  It is the “fixing of damages” to a particular date that matters. To avoid improper prejudgment interest awards, the defense must make efforts to establish that a plaintiff had not suffered any economic loss at the time of the alleged breach.  It is critical to develop and present evidence to show that any pecuniary loss, whether that loss is a diminution in value or a payment to a third party, occurred at a time later than the breach or the date of turnover of a project.