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Federal Court of Appeals Determines Insurance Company Required to Provide Defense for Construction Defect Claims


Posted on April 09, 2015

Last week, this blog discussed a recent opinion issued by the Delaware Superior Court of New Castle County in Westfield Insurance Co. Inc. v. Miranda & Hardt Contracting and Building Services LLC, N14C-06-214, in which the Court determined that defective workmanship in the construction of a home does not constitute an “occurrence” that would be covered under the general liability insurance policy that was at issue.

Because the Delaware Court decided that poor construction did not qualify as an occurrence, it was not required to answer when coverage would have been triggered had the policy applied.  On Tuesday, the U.S. Court of Appeals for the Eleventh Circuit, tackled this issue in Hugh A. Carithers, et al. vs. Mid-Continent Casualty Co.(11th Cir. 2015), 14-11639, holding that insurance carrier Mid-Continent Casualty Co. (“Mid-Continent”) was obligated to defend its insured based on an ambiguity in Florida law regarding the trigger to be used in deciding whether property damage occurred during a policy period.

Insurance coverage is triggered when injury or damage is deemed to have taken place, thereby implicating a specific policy period.  Because construction defect claims often involve latent or ongoing damage occurring over a prolonged period of time, determining when property damage occurred, and therefore which insurance policy applies, is frequently a hotly-contested issue.

There are four legal theories which courts use to determine when coverage is triggered in the context of construction defect claims:

In Carithers, Mid-Continent contended that it had no duty to defend its insured, Cronk Dutch, from a defective construction claim because its policy expired in 2008, and the defects in the home were not discovered until 2010.  Mid-Continent argued that the Court should apply a “manifestation” trigger for policy coverage, while the homeowners contended that the trial court had correctly applied the “injury-in-fact” trigger.

On appeal, the 11th Circuit acknowledged that no Florida court had ever decided which trigger applied to determining when property damage occurred under such circumstances.  This determination lead the Court to reject Mid-Continent’s position, opining “Given the uncertainty in the law at the time, Mid-Continent did not know whether there would be coverage for the damages sought in the underlying action because Florida courts had not decided which trigger applies. Mid-Continent was required to resolve this uncertainty in favor of the insured and offer a defense to Cronk Duch.”  Ultimately, the Court held that “Property damage occurs when the damage happens, not when the damage is discovered or discoverable,” and noting that “difficulty that may arise, in cases such as this one, where the property damage is latent, and is discovered much later.”

Though the issue has never been finally settled in Ohio, several District Courts have applied the continuous trigger in the context of construction defect claims.  See, e.g. Ohio Cas. Ins. Co. v. Hanna (9th Dist. 2008), 2008 Ohio 3203; Plum v. W. Am. Ins. Co. (1st Dist. 2006), 2006 Ohio 452; Westfield Ins. Co. v. Milwaukee Ins. Co. (12th Dist. 2005), 2005 Ohio 4746.

In Hanna, Quality Home Construction Inc. (“Quality”) constructed the frame of a house out of plumb and out of square.  Quality was insured by Ohio Casualty while performing the work at issue and by Motorists Mutual Insurance Co. (“Motorists”) after.  The court found that the resulting damage was an “occurrence” because the defective frame system was caused by “an accident, including continuous…exposure to substantially the same general harmful conditions,” i.e., Quality’s defective work.  The Court further held that, because the defective frame system resulted in continuing damage to windows, doors, etc., it continued into the time period Motorists insured Quality, thereby triggering that policy as well.

The provisions and language of insurance policies, especially in the context of construction claims, can be incredibly complicated and difficult to follow.  Insurance companies often use such confusion to deny coverage to those who might be entitled to it.  In such situations, dealing with insurance companies is something that can and should, be handled by experienced legal counsel.  For questions regarding the triggering of insurance coverage in the construction context of construction claims, or any other aspect of Ohio construction law, please contact Todd Harpst or Nick Horrigan, at Harpst Ross, Ltd. – Business Lawyers for the Construction Industry®, at (330) 983-9971 or tharpst@harpstross.com or nhorrigan@harpstross.com.

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