The United States District Court for the Northern District of Florida recently issued an order in Morette Company v. Southern-Owners Insurance Company,  where the Court addressed whether an insurer, Southern-Owners Insurance Company (“Southern-Owners”), had duties to defend and indemnify various parties against state court claims for property damage due to allegedly defective work performed by two of its insured subcontractors, Etheridge Construction, Inc. (“Etheridge”) and Wallace Sprinkler & Supply, Inc. (“Wallace”). Morette Company began in August 2008, when Little Sabine, Inc. (“Sabine”), the developer and owner of Margaritaville, hired Morette Company, Inc. (“Morette”) as general contractor for the Margaritaville project. Morette subcontracted work to Etheridge and Wallace. The terms of the respective subcontracts required each subcontractor to defend and indemnify Morette for all damages claims “occasioned by” the subcontractor’s work and to reimburse Morette for all expenses incurred, including reasonable attorney’s fees, as a result of such claims.
After Margaritaville’s construction was complete, Sabine retained an architect to inspect the finished project and prepare a report identifying any alleged defects as a result of improper design and construction. The architect identified several alleged defects. Sabine then filed suit against Morette in state court, and Morette argued the allegedly defective work was performed by Etheridge and Wallace. Morette then sent correspondences to Etheridge, Wallace, and Southern-Owners, invoking its rights as an additional insured under the CGL policies and demanding defense and indemnification for Sabine’s claims. Southern-Owners declined to provide coverage to Morette. At the state court level, Sabine and Morette settled, but Morette reserved its right to seek defense and indemnity from Southern-Owners.
As a procedural matter, Southern-Owners’ operative complaint sought a declaration that it had no duty to defend or indemnify Sabine, Morette, or various other entities against the claims alleged in the state court lawsuit. Morette filed a separate action, and argued it was entitled to summary judgment because the allegations in the state court lawsuit triggered Southern-Owners’ duty to defend and indemnify, which Southern-Owners had refused to do. Southern-Owners’ position was that it had no duty to defend or indemnify Morette because the state court lawsuit did not allege “property damage” as defined in the CGL policies, and alternatively, the CGL policies’ various exclusions operate to preclude coverage.
- Duty to Defend
The question of whether Southern-Owners owed a defense to Morette or the other remaining defendants turned on whether the allegations in the state court lawsuit brought that action within the scope of the CGL policies’ coverage.
Under Florida law, “the general rule is that an insurance company’s duty to defend an insured is determined solely from the allegations in the complaint against the insured, not by the actual facts of the cause of action against the insured, the insured’s version of the facts or the insured’s defenses.” If any factual allegations “fairly and potentially” fall within the policy’s coverage, the insurer has a duty to defend the action. Thus, even where the underlying action “alleges facts partially within and partially outside the scope of coverage, the insurer is obligated to defend the entire suit.”
Florida courts have consistently held that a claim for the cost of repairing or replacing the insured’s defective construction work does not qualify as a claim for “property damage,” whereas a claim for the costs of repairing independent damage caused by the insured’s defective work is a claim for “property damage.”
The Court was then asked to address whether the state court lawsuit involved “property damages” as defined in the CGL policies, andconcluded that the state court lawsuit alleged “property damage” that “fairly and potentially” fell within the coverage of Etheridge and Wallace’s CGL policies. The Court noted it was undisputed that Morette repeatedly requested Southern-Owners provide it, as an additional insured, a defense against the claims alleged in the state court lawsuit. The Court also found that none of the policy exclusions invoked by Southern-Owners applied. Accordingly, the Court found that Southern-Owners owed a duty to defend Morette against the entire state court lawsuit. Therefore, Morette was entitled to summary judgment on this issue.
- Duty to Indemnify
The Court’s next task was to evaluatewhether or not Southern-Owners had a legal obligation to indemnify Morette under the CGL policies. An insurer’s duty to indemnify is triggered when the insured becomes legally obligated to pay damages covered by the policy; that is, when there has been a final resolution of the underlying claims, whether by settlement or entry of a final judgment.
If the insured cannot demonstrate that it suffered a covered loss under the policy, the insurer has no duty to indemnify. Thus, “whereas the duty to defend is measured by the allegations of the underlying lawsuit, the duty to indemnify is measured by the facts as they unfold at trial or are inherent in the settlement agreement.”
In Morette, the state court lawsuit settled in or around February 2016. The undisputed record evidence indicated that Southern-Owners, on behalf of Etheridge and Wallace, paid approximately $60,000 to settle the state court claims. There was no evidence, or even an argument made, that Morette paid, or became legally obligated to pay, any portion of the settlement amount. As Morette had not suffered a covered loss under the CGL policies, there was nothing for Southern Owners to indemnify. The Court thus found that Southern-Owners had no duty to indemnify Morette and that Southern-Owners was entitled to summary judgment on this issue.
In sum, it is important for both sides to conduct their proper due diligence regarding the applicable law in their respective jurisdiction in the event of coverage disputes. Given the broad coverage afforded under many liability policies, issues involving an insurer’s duties of defense and indemnityoften arise in multiple areas of construction litigation. Therefore, it is critical that potential litigants and insurers protect their rights from the outset of litigation, and if necessary, take steps to protect their rights and know their proper defenses under relevant insurance policies.
If you have any questions about an insurer’s duty to defend or indemnify, or the decision in Morette, please do not hesitate to contact Ryan Charlson, Esq., at 954-343-3919 or firstname.lastname@example.org.
 Morette Co. v. Southern-Owners Ins. Co., No. 3:16-cv-00110, 2017 U.S. Dist. LEXIS 219818 (N.D. Fla. Sept. 19, 2017).
 See Jones v. Fla. Ins. Guar. Ass’n, Inc., 908 So. 2d 435, 443 (Fla. 2005); Lime Tree Vill. Cmty. Club Ass’n, Inc. v. State Farm Gen. Ins. Co., 980 F.2d 1402, 1405 (11th Cir. 1993).
 Amerisure Ins. Co. v. Gold Coast Marine Distribs., Inc., 771 So.2d 579, 580-81 (Fla. 4th DCA 2000); see also Jones, 908 So. 2d at 442-43.
 See Jones, 908 So. 2d at 443.
 Trizec Props., Inc. Biltmore Constr. Co., Inc., 767 F.2d 810, 811-12 (11th Cir. 1985); see also Pentecost v. Lawyers Title Ins. Corp., 704 So. 2d 1103 (Fla. 1st DCA 1997).
 See Auto-Owners Ins. Co. v. Pozzi Windows Co., 984 So. 2d 1241, 1248 (Fla. 2008).
 See Northland Cas. Co. v. HBE Corp., 160 F. Supp. 2d 1348, 1360 (M.D. Fla. 2001); see also J.B.D. Const., Inc. v. Mid-Continent Cas. Co., 571 F. App’x 918, 928 (11th Cir. 2014) (same).