Altman Contractors, Inc. v. Crum & Forster Specialty Insurance Company. Balancing the Interests Surrounding Potential Insurance Coverage for Ch. 558 Notices of Claim.

• Author: Henderson, Reese J., Jr.
• Position: Florida - Cover story

The legislature enacted F.S. Ch. 558 in 2003 to provide "an alternative method to resolve construction disputes" between owners and contractors. (1) The Ch. 558 process starts when a "claimant" serves a "written notice of claim" on the contractor describing the nature of any alleged defects, the location of each defect, and any resulting damages. (2) In December 2017, in the case of Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co., 232 So. 3d 273 (Fla. 2017), the Florida Supreme Court addressed for the first time whether a "written notice of claim" constitutes a "suit" within the meaning of a commercial general liability (CGL) insurance policy issued to a general contractor. This article examines the Altman decision and how it addressed the interplay between the notice and opportunity-to-repair process embodied in Ch. 558 and the duty to provide a defense to "suits" as defined in standard CGL policies that are widely sold to general contractors and others in the construction industry. This article summarizes the parties' positions and the Supreme Court's ruling, and then examines the court's decision and considers the potential effects of the Altman decision on how insurance carriers and their insureds will deal with construction defect (CD) claims presuit in the future.

Overview of Ch. 558 Notice and Opportunity to Repair Process

The Florida Legislature's stated goal in enacting Ch. 558 was to provide an "alternative method" to resolve construction disputes that would "reduce the need for litigation as well as protect the rights of property owners." (3) Ch. 558 was designed to provide written notice to the contractor, subcontractor, supplier, or design professional of an alleged defect in design or construction and "an opportunity to resolve the claim without resort to further legal process." (4) The process starts with the "claimant," defined exclusively as an owner or owner's association, (5) serving a "written notice of claim" on the contractor, subcontractor, supplier, or design professional. (6) Under the version of Ch. 558 in effect at the time of the events in Altman, the notice of claim was required to "describe the claim in reasonable detail sufficient to determine the general nature of each alleged construction defect and a description of the damage or loss resulting from the defect, if known." (7)

Service of the notice of claim starts the clock on a period of time of either 60 or 120 days in length during which the claimant is obligated to await the contractor's response to the notice of claim. (8) If the contractor does not respond within 45 days after service of the notice of claim (or within 75 days in the case of an association representing more than 20 parcels), the claimant may then immediately file suit against the contractor for the defects described in the notice of claim. (9) If the contractor responds and makes any kind of offer--whether repairs or payment of monetary compensation (or both)--the claimant must accept or reject the offer before the claimant files suit. (10) Service of the notice of claim tolls the applicable statute of limitations for a period of 90 days (or 120 days as applicable) after service of the notice of claim unless the claimant accepts the contractor's offer, in which case the statute of limitations is tolled until 30 days after the end of the period for the contractor's performance of repairs or payment under the offer. (11)

If the contractor elects to respond to the written notice of claim and offers to settle with monetary compensation, repairs, or both, the offer "will not obligate the [contractor's] insurer." (12) Alternatively, the contractor may, as part of its offer, provide a copy of the written notice of claim to its insurer with an offer of payment of whatever monetary compensation the contractor's insurer determines to offer, if any. (13) However, providing a copy of the notice of claim to the insurer expressly "shall not constitute a claim for insurance purposes." (14)

The Facts of Altman

Between April and November 2012, the Sapphire Fort Lauderdale Condominium Association, Inc. (Sapphire) served Altman Contractors, Inc. (Altman) with multiple Ch. 558 notices of claim which collectively claimed over 800 construction defects in the condominium. On January 14, 2013, Altman notified Crum & Forster of Sapphire's claims and demanded that Crum & Forster defend and indemnify Altman as to Sapphire's claims under the terms of seven insurance policies issued by Crum & Forster to Altman over the affected years. Crum & Forster declined Altman's demand on the basis that the notices did not constitute a "suit" under the policies. Faced with Crum & Forster's refusal, Altman retained its own counsel to defend the notices of claim.

Subsequently, on August 5, 2013, Crum & Forster, while maintaining its position that the notices of claim did not invoke its duty to defend Altman, nevertheless hired counsel to defend Sapphire's claims. Crum & Forster did so under a reservation of rights, with the explanation that it was retaining counsel in anticipation that Sapphire may file a lawsuit. Altman objected to Crum & Forster's selection of counsel and demanded that Crum & Forster pay its original counsel to continue with the defense. Altman further requested reimbursement from Crum & Forster for the fees and expenses it incurred after it forwarded Sapphire's notices of claim. Crum & Forster denied Altman's requests.

Altman ultimately settled all of Sapphire's construction defect claims without any lawsuit being filed and without Crum & Forster's participation. Altman then filed a declaratory judgment action in the U.S. District Court for the Southern District of Florida and sought a declaration that Crum & Forster owed a duty to defend and indemnify Altman under its CGL policies, as well as reimbursement for its fees and costs incurred in defense of Sapphire's claims. The district court resolved the case on summary judgment in favor of Crum & Forster on the basis that the association's notices of claim did not constitute a "suit" under the policies. Altman appealed to the U.S. Court of Appeals for the 11th Circuit. The 11th Circuit heard oral argument, and then certified the following question to the Florida Supreme Court: "Is the notice and repair process set forth in Ch. 558, Florida Statutes, a 'suit' within the meaning of the commercial general liability policy issued by [Crum & Forster] to [Altman]"? (15)

Altman's Policies with Crum & Forster

Crum & Forster issued a total of seven CGL policies for Altman with effective dates from February 1, 2005, through February 1, 2012. The relevant provisions of the policies were all identical (16) and included the insuring agreement ([section]I, paragraph 1.a), the duties in the event of occurrence, offense, claim or suit ([section]IV, paragraph 2.a), and the definition of a "suit" ([section]V, paragraph 18).

The insuring agreement provides, in relevant part, as follows: "We will pay those sums which the insured becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage' to which this insurance applies. We will have the right and duty to defend the insured against any 'suit' seeking these damages."

Regarding duties of the insured in the event of a claim or "suit," the policy form provides:

2. If a claim is made or "suit" is brought against any insured, you must:

   (1) Immediately record the specifics of the claim or "suit" and the date received; and

   (2) Notify us as soon as practicable. You must see to it that we receive written notice of the claim or "suit" as soon as practicable.

3. You and any other insured must:

   (1) Immediately send us copies of any demands, notices, summonses or legal papers received in connection with the claim or "suit";

4. No insured will, except at that insured's own cost, voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without our consent.

   Finally, while the term "claim" is not defined in the policy, "suit" is defined as follows:

   "Suit" means a civil proceeding in which damages because of "bodily injury," "property damage" or "personal and advertising injury" to which this insurance applies are alleged. "Suit" includes:

1. An arbitration proceeding in which such damages are claimed and to which the insured must submit or does submit with our consent; or

2. Any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent.

   As it happens, the court's decision in Altman turns almost exclusively on its construction of the above definition of the term "suit." But the...