The 558 Pre-Suit Process is a “Suit” Triggering an Insurer’s Duty to Defend
R. Scott Clayton, Esq.
Contractors, insurers, and attorneys, albeit hoping for different results, have been anticipating the Florida Supreme Court’s response to a critical question presented to it by the Eleventh Circuit Court of Appeals in Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co. Specifically, on August 2, 2016, the Eleventh Circuit certified the following question to the Florida Supreme Court:
Is the notice and repair process set forth in chapter 558, Florida Statutes, a “suit” within the meaning of the commercial general liability policy?
The answer to this question impacts both contractors and insurers because it determines whether an insurer that issues a commercial general liability policy is obligated to defend its insured during the pre-suit 558 process. Historically, legal fees and costs associated with the 558 process were borne by the contractor, and the insurer’s duty to defend was not triggered until a lawsuit was filed. The Florida Supreme Court issued its response to the Eleventh Circuit Court of Appeal’s question on Friday December 14, 2017. In short, the answered in the affirmative and held that the service of a Notice of Claim pursuant to §558.004, Florida Statutes, is a “suit,” which triggers an insurer’s duty to defend. Significantly, a “suit” is what triggers the insurer’s duty to defend its insured under a commercial general liability policy. In light of the Florida Supreme Court’s holding, upon receipt of a Notice of Claim, a contractor can forward the claim to its insurer and seek to have defense counsel assigned pursuant to the policy. This is obviously good news for a contractor, as it minimizes out-of-pocket expenses associated with the 558 process and shifts those expenses to the insurance company.
However, as with most things in law, the Florida Supreme Court’s decision is not absolute, and its holding is limited to the language of the CGL policy at issue in that case. . Thus, if the language in another CGL policy defines “suit” in any significant way, the insurer’s duty to defend may not be triggered. At a minimum, the insured can utilize any differing language in the policy in distinguishing the holding of Altman to attempt to avoid the obligation of providing the contractor a defense during the pre-suit 558 process. Furthermore, there are other variables to keep in mind, some of which were addressed by the Florida Supreme Court and which will be discussed here as well. For example, the issue of the insurer’s consent to alternative dispute resolution, a caveat contained in the policy, was not addressed. In addition, the impact of an insurer’s determination of coverage was not addressed in the majority opinion but was the focus of some dissenting opinions.
The following is a brief overview of the 558 process, as well as the Court’s opinion. At the conclusion of this post, I will identify some issues raised by the opinion and potential future issues that could arise.
The Chapter 558 Process
In order for a claimant to file an action, he must first serve a written notice of claim on the contractor, subcontractor, supplier, or design professional, as applicable. §558.004(1), Fla. Stat. Upon receipt of a notice of claim, the recipient must serve a written response to the claimant within a statutorily-prescribed time period providing either of the following:
- To remedy the alleged construction defect at no cost to the claimant;
- To compromise and settle the claim by monetary payment;
- To compromise and settle the claim by a combination of repairs and monetary payment;
- A statement disputing the claim; or
- A statement that any monetary payment will be determined by the recipient’s insurer.
- 558.004(5), Fla. Stat.
Once the claimant receives a timely settlement offer, the claimant must accept or reject the offer in writing. §558.004(7). If the claimant does not receive an offer, agrees to only a partial settlement, or if the recipient disputes the claim, the claimant may file suit.
Brief Synopsis of Altman v. Crum & Forster
Altman Contractors was the GC of a high-rise condominium in Ft. Lauderdale, Sapphire Condominium. Altman maintained a CGL policy with Crum & Forster for seven consecutive one-year terms. The policy provided in pertinent part:
We will pay those sums that 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 those damages. However, we will have no duty to defend the insured against any “suit” seeking damages for “bodily injury” or “property damage” to which this insurance does not apply. We may, at our discretion, investigate any “occurrence” and settle any claim or “suit” that may result.
The policy defined the term “suit” 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:
- An arbitration proceeding in which such damages are claimed and to which the insured must submit or does submit with our consent; or
- Any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent.
Sapphire served Altman with several 558 notices between April and November 2012, which set forth over 800 alleged construction defects. In January 2013, Altman notified Crum & Forster of Sapphire’s claims and demanded defense and indemnification under the policy. Crum & Forster refused to defend Altman, arguing that the notices of claim did not invoke their duty to defend under the policy because the notices did not constitute a “suit.” Altman then retained its own counsel to defend the notices of claim.
Sapphire served a supplemental notice of claim in May 2013. In August 2013, Crum & Forster hired counsel to defend Altman under a reservation of rights. Altman objected to Crum & Forster’s selection of counsel, demanded that its original counsel be paid to continue its defense, and requested reimbursement from Crum & Forster for legal fees and expenses incurred since notifying Crum & Forster of Sapphire’s notices of claim. Altman ultimately settled Sapphire’s claims without a lawsuit being filed and without Crum & Forster’s involvement.
Altman filed a declaratory judgment action seeking a declaration that Crum & Forster owed a duty to defend and indemnify under the policy. Altman and Crum & Forster filed competing motions for summary judgment on the issue of the insurer’s obligation to defend its insured during the 558 pre-suit process. The federal district court ruled in favor of Crum & Forster, finding that the 558 pre-suit process did not constitute a “civil proceeding” under the policy. Altman appealed to the Eleventh Circuit Court of Appeals, and the Eleventh Circuit certified the legal issue to the Florida Supreme Court.
After analyzing the legal definitions of “civil proceeding,” the Florida Supreme Court concluded that the chapter 558 process did not qualify as a “civil proceeding.” However, the Court found that the policy broadened the definition of “suit” to include “any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent.” Given this expanded definition of “suit,” the Court concluded that the 558 process constituted a “suit,” in accordance with the definition set forth in the policy. The Court noted that the Legislature explicitly described chapter 558 as “an effective alternative dispute resolution mechanism.” §558.004(1). The Court, however, did not address whether C&F consented to Altman’s participation in the 558 process because it was “outside the scope of the certified question and an issue of fact disputed by the parties.”
The notice and repair process set forth in chapter 558, Florida Statutes, constitutes a “suit” as defined in the Crum & Forster policy. The 558 process is an “alternative dispute resolution proceeding” to which the insurer’s consent is required to invoke the insurer’s duty to defend the insured. Thus, the insurer was obligated to pay for the defense of the contractor during the 558 pre-suit notice period.
Collateral Issues Raised
In future blog posts, I will address some of the variables referenced by the Florida Supreme Court, including, (1) The insurer’s ability to deny and the potential effect of an insurer’s denial of consent to engage in the 558 process as an alternative dispute resolution proceeding; (2) An insurer’s ability to deny defense and indemnification based upon lack of notice or untimely notice; (3) A contractor’s ability to select its own counsel and/or reject counsel assigned by an insurer; and (4) The determination of whether the alleged damages are covered under the policy and the effect that determination has on the insurer’s duty to defend during the 558 process.
If you have any questions about any of the issues raised in this post, please do not hesitate to contact our office.
- Scott Clayton is an attorney at Linkhorst & Hockin, P.A. and can be reached at firstname.lastname@example.org