Voluntary Payments Exclusion Prevents Coverage for Faulty Workmanship
This case involves an insurance coverage dispute arising from certain damage to a residential building caused by heavy rain. The case is Rolyn Companies v. R & J Sales of Texas, Inc., 2011 WL 320421 (C.A.11, Fla. ).
Following a 2005 hurricane, a building association hired Rolyn Companies, a general contractor specializing in disaster-recovery construction, to repair its buildings. Rolyn retained a roofing subcontractor, R & J Sales of Texas to repair the roofs. Due to the subcontractor's alleged faulty workmanship, water intrusion damaged the interior of one of the buildings. Rolyn voluntarily repaired the interiors of all of the units in the building at a cost of over $1,300,000.
Rolyn filed a lawsuit against two insurance companies (its own and that of the subcontractor) seeking a declaration that the insurance policies required the insurers to defend and indemnify Rolyn and to reimburse Rolyn for any expenses or damages incurred. The district granted summary judgment to the insurers upon determining that Rolyn was not covered under either policy. This appeal followed.
Rolyn raised four issues on appeal. First, Rolyn argued that the district court erred in finding that the voluntary payments exclusion applied, thus precluding any coverage. Second, Rolyn said that the court erred by concluding that exclusions related to asbestos and mold also precluded coverage. The third argument was that the court erred in determining that Rolyn was not an additional insured under the subcontractor's policy. And, the last argument was that the court erred in declaring that policy exclusions related to roofing operations also prevented any coverage.
The appeals court reviewed and addressed each policy in turn.
In Rolyn's policy, it was clearly stated that “no insured will, except at that insured's own cost, voluntarily make any payment, assume any obligation, or incur any expense without our consent”. The appeals court stated that state case law strongly upholds the point of this language that the insured is required to obtain the insurer's consent before settling or incurring any costs. Here, Rolyn did not obtain his insurer's consent before incurring costs with regard to the repairs on the building. Although Rolyn argued that it was legally obligated to address the damage caused by its subcontractor, the costs of repair were not incurred involuntarily because of circumstances beyond Rolyn's control. Moreover, there was no indication in the court records that Rolyn was required to respond immediately to fix the damages. The court said that accepting Rolyn's broad definition of legally obligated would effectively delete the voluntary payment provision from the insurance policy.
The appeals court also stated that Rolyn's actions fall into the category of failing to cooperate with the insurer and this had a material effect on potential litigation or future settlement. This substantially prejudiced the rights of the insurer in defense of the cause and this releases the insurer of its obligations toward Rolyn.
As for the subcontractor's policy, there was an exclusion that stated “the insurance does not apply to property damage to any building caused by your failure to properly cover any unfinished roof during the course of roofing operations against the influx of wind, rain, sleet, hail, or snow”. Rolyn did not dispute that at the time of the rain storm, the roof was not yet completed with tapered roof insulation, a termination bar, or counterflashings. Thus, there is no genuine issue of fact that the roof was unfinished when a heavy rain caused the damage. The roof was not properly covered so as to prevent rain incursion and so, the exclusion applies.
The appeals court upheld the ruling of the district court. The court did not address the remaining arguments put forth by Rolyn.
Editor's Note: After damage to a customer's property, the insured may feel a legal and moral duty to repair that damage. However, the liability insurance contract between the insured and the insurer clearly states that a duty of the insured after a loss is to not voluntarily make any payments, or assume any obligations, or incur any expenses without the consent of the insurer. If the insured does so, he breaches the contract, and the insurer has a right to void the agreement and free itself from any obligation to defend or indemnify the insured. The U.S. Court of Appeals for the Eleventh Circuit, in affirming the judgment against the insured in this case, found strong precedents to support this view.