December 14, 2017, Decided

No. SC16-1420

ALTMAN CONTRACTORS, INC., Appellant,

vs.

CRUM & FORSTER SPECIALTY INSURANCE COMPANY, Appellee.

Notice: NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING MOTION AND, IF FILED, DETERMINED.

Opinion by: POLSTON

Opinion

POLSTON, J.

Altman Contractors, Inc., the general contractor for the construction of a condominium, was insured by Crum & Forster Specialty Insurance Company ("C&F") on a general liability policy. C&F had a duty to defend Altman in any "suit," as defined by the policy, arising from the project.

Altman claims that this duty to defend was invoked when the property owner served it with several notices under chapter 558, Florida Statutes, a statutory process for resolving construction defect claims that is a condition precedent to filing a lawsuit. There are no issues presented to us that would bring into question whether there is underlying coverage under the policy for at least some of the claims.

We review the following question of law certified by the United States Court of Appeals for the Eleventh Circuit (rephrased only to match references within this opinion):

Is the notice and repair process set forth in chapter 558, Florida Statutes, a "suit" within the meaning of the commercial general liability policy issued by C&F to Altman?

AltmanContractors, Inc. v. Crum & ForsterSpecialtyIns. Co., 832 F.3d 1318, 1326 (11th Cir. 2016). We answer this question in the affirmative because the chapter 558 presuit process is an "alternative dispute resolution proceeding" as included in the policy's definition of "suit." However, we do not address whether, in this case, C&F consented to Altman's participation in the chapter 558 process, thereby giving rise to its duty to defend, because it is outside the scope of the certified question and an issue of fact disputed by the parties.

BACKGROUND

Altman was the general contractor for the construction of a high-rise residential condominium in Broward County, Florida, Sapphire Condominium ("Sapphire"). Altman was insured by C&F for the Sapphire project through seven consecutive one-year commercial general liability (CGL) insurance policies, all of which were materially the same ("the policy"). These policies were in effect from February 1, 2005, through February 1, 2012.

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.

(Emphasis added.) 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:

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

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

The policy did not provide further definitions for "civil proceeding" or "alternative dispute resolution proceeding" as used within this definition of "suit."

Between April 2012 and November 2012, Sapphire served Altman with several chapter 558 notices of claim, which cumulatively claimed over 800 construction defects in the Sapphire project. On or about January 14, 2013, Altman notified C&F of Sapphire's claims and demanded, pursuant to the policy, that C&F defend and indemnify Altman as to Sapphire's claims. C&F denied that Sapphire's notices of claim invoked its duty to defend because the notices did not constitute a "suit." When C&F refused to defend Altman, it retained counsel to defend the notices of claim.

On May 28, 2013, Sapphire served Altman with a supplement to the November 2012 notice, claiming thirteen additional deficiencies in the Sapphire project. Sapphire demanded that Altman "take all measures necessary to correct the identified construction and/or design defects."

On August 5, 2013, C&F, maintaining its position that Sapphire's notices of claim did not invoke its duty to defend Altman under the policy, hired counsel to defend the claims. According to C&F, it retained counsel for Altman under a reservation of rights in anticipation of possible litigation. Altman objected to C&F's selection of counsel, demanded that its original counsel be paid to continue defending, and requested reimbursement from C&F for the fees and expenses incurred since notifying C&F of Sapphire's notices of claim. C&F denied Altman's requests. Ultimately, Altman settled all of Sapphire's claimed construction defects without any lawsuit being filed and without C&F's involvement.

Altman filed a declaratory judgment action in the United States District Court for the Southern District of Florida seeking a declaration that C&F owed a duty to defend and to indemnify it under the policy. Altman moved for partial summary judgment "solely on the issue of whether [C&F's] duty to defend its insured, [Altman], was triggered when [Altman] demanded a defense to the" notices of claim. AltmanContractors, Inc. v. Crum & ForsterSpecialtyIns. Co., 124 F. Supp. 3d 1272, 1275 (S.D. Fla. 2015). C&F also moved for summary judgment. Id.

The federal district court concluded that nothing in chapter 558 precludes coverage during the chapter 558 presuit process "if the policy otherwise would provide for coverage." Id. at 1278. Looking to the terms of the policy, the federal district court found "no ambiguity in the policy provisions at issue" and concluded that "[n]othing about the Chapter 558 process satisfies th[e] definition" of "civil proceeding." Id. at 1279. Thus, the federal district court denied Altman's motion for partial summary judgment and granted summary judgment for C&F. Id. at 1282-83.

Altman appealed to the United States Circuit Court of Appeals for the Eleventh Circuit, and the Eleventh Circuit certified the legal issue before us. 832 F.3d at 1326.

ANALYSIS

Whether C&F has a duty to defend Altman during the chapter 558 process is determined by whether the process is a "suit" as defined by the policy. "[I]nsurance policy interpretation . . . is a question of law, subject to de novo review." Penzer v. Transp. Ins. Co., 29 So. 3d 1000, 1005 (Fla. 2010). We construe insurance contracts according to their plain language. Fayad v. Clarendon Nat'l Ins. Co., 899 So. 2d 1082, 1086 (Fla. 2005). And the parties do not dispute that Florida law controls.

A. Chapter 558 Process

Chapter 558, titled "Construction Defects," sets forth procedural requirements before a claimant may file an action for a construction defect. See § 558.003, Fla. Stat. (2012). Specifically, a claimant must "serve written notice of claim on the contractor, subcontractor, supplier, or design professional, as applicable" before the claimant may file an action for a construction defect. § 558.004(1), Fla. Stat. (2012).

When Altman received Sapphire's first notice of claim, section 558.001, Florida Statutes (2012), provided the following legislative findings and declaration:

The Legislature finds that it is beneficial to have an alternative method to resolve construction disputes that would reduce the need for litigation as well as protect the rights of property owners. An effective alternative dispute resolution mechanism in certain construction defect matters should involve the claimant filing a notice of claim with the contractor, subcontractor, supplier, or design professional that the claimant asserts is responsible for the defect, and should provide the contractor, subcontractor, supplier, or design professional with an opportunity to resolve the claim without resort to further legal process.

(Emphasis added.)

Upon receipt of a chapter 558 notice of claim, the recipient "must serve a written response to the claimant" within the statutorily specified time-period, providing either an offer "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. (2012). Once the claimant "receives a timely settlement offer," the claimant "must accept or reject the offer" in writing. § 558.004(7), Fla. Stat. (2012).

"[T]he claimant may, without further notice, proceed with an action" against the recipient if the parties either agree to "a partial settlement or compromise of the claim," the recipient "disputes the claim and will neither remedy the defect nor compromise and settle the claim," or the claimant does not receive a response "within the time provided." § 558.004(6), Fla. Stat. (2012). If the offeror satisfies the parties' agreement within a reasonable period of time, "the claimant is barred from proceeding with an action for the claim described in the notice of claim or as otherwise provided in the accepted settlement offer." § 558.004(8), Fla. Stat. (2012). "[A]ny offer or failure to offer . . . to remedy an alleged construction defect or to compromise and settle the claim by monetary payment does not constitute an admission of liability with respect to the defect and is not admissible" in a subsequent lawsuit. § 558.004(9), Fla. Stat. (2012). "If a claimant initiates an action without first accepting or rejecting the offer, the court shall stay the action upon timely motion until the claimant complies with this subsection." § 558.004(7), Fla. Stat. (2012). "In the event of . . . litigation," the trial court may order sanctions for failing to provide requested discovery during the chapter 558 process. § 558.004(15), Fla. Stat. (2012).

B. "Suit" within the Policy's Definition

As stated above, the policy defines "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:

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

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

Initially, the policy defines "suit" as "a civil proceeding in which damages because of 'bodily injury,' 'property damage' or 'personal and advertising injury' to which this insurance applies are alleged." (Emphasis added.) Therefore, to qualify as a "suit" within this initial portion of the definition, the chapter 558 process must constitute a "civil proceeding."

In Raymond James Financial Services, Inc. v. Phillips, 126 So. 3d 186, 190 (Fla. 2013) (quoting Black's Law Dictionary 1324 (9th ed. 2009)), this Court employed a definition of "proceeding" as "[a]ny procedural means for seeking redress from a tribunal or agency." The Court also noted that a "proceeding" is "a particular step or series of steps in the enforcement, adjudication, or administration of rights, remedies, laws, or regulations." Id. n.4 (quoting Merriam-Webster's Dictionary of Law 387 (1996)). The term "civil proceeding" was added in the Tenth Edition of Black's Law Dictionary and is defined as "[a] judicial hearing, session, or lawsuit in which the purpose is to decide or delineate private rights and remedies, as in a dispute between litigants in a matter relating to torts, contracts, property, or family law." Black's Law Dictionary, 300 (10th ed. 2014).

In light of these definitions, the chapter 558 notice and repair process cannot be considered a civil proceeding under the policy terms because the recipient's participation in the chapter 558 settlement process is not mandatory or adjudicative. See § 558.004(5)-(6), Fla. Stat. (2012). Upon receipt of the required notice of claim, the recipient may choose to not respond and, thereby, force the claimant to file a lawsuit to recover for the identified construction defect. Id.

In other words, chapter 558 does not place any obligation on the insured to participate in the chapter 558 process. The chapter 558 framework has never been anything other than a voluntary dispute resolution mechanism on the part of the insured, despite its requirement that the claimant serve the insured with a notice before initiating a lawsuit. Further, the chapter 558 process does not take place in a court of law or employ any type of adjudicatory body. Nor does the chapter 558 process produce legally binding results. Rather, chapter 558 sets forth a presuit process whereby the claim may be resolved solely by the parties through a negotiated settlement or voluntary repairs without ever filing a lawsuit. Therefore, the chapter 558 process is not a "civil proceeding" within the policy definition of "suit." 

However, in subparagraph (b), the policy broadens the definition of "suit" to "include[]," "[a]ny other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent." Looking to the plain meaning of the policy's terms, "alternative dispute resolution" means "[a] procedure for settling a dispute by means other than litigation." Black's Law Dictionary 91 (9th ed. 2009).

Chapter 558 falls within this definition as a statutorily required presuit process aimed to encourage the claimant and insured to settle claims for construction defects without resorting to litigation. See §§ 558.001, 558.004. Indeed, the Legislature explicitly described chapter 558 as "[a]n effective alternative dispute resolution mechanism," intended to be beneficial for reducing construction defect litigation. § 558.001 (emphasis added); see also Specialty Eng'g Consultants, Inc. v. Hovstone Props. Fla., LLC, 968 So. 2d 680, 681 (Fla. 4th DCA 2007) (recognizing that "the Florida Legislature created an alternative method to resolve construction disputes involving multiple parcels" (emphasis added)). Therefore, we conclude that the chapter 558 process is an "alternative dispute resolution proceeding" within the plain meaning of this policy term, the same as mediation would be.

The next part of the policy's definition of "suit" under subparagraph (b) requires that "such damages" be claimed in the "alternative dispute resolution proceeding." Chapter 558 explicitly provides for claimants seeking damages. In fact, section 558.002(3) defines a "claimant" as one asserting a "claim for damages." Likewise, the notice of claim "must 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." § 558.004(1). Further, section 558.004(5) includes "monetary payment" as a potential resolution of a chapter 558 claim. Thus, chapter 558 provides for damages, as required by the policy's definition of "suit" under subparagraph (b).

Finally, the policy's definition of "suit" under subparagraph (b) requires C&F's consent to Altman's submission to the "alternative dispute resolution proceeding" in order to invoke C&F's duty to defend Altman under the policy. However, we do not address whether, in this case, C&F consented to Altman's participation in the chapter 558 process because it is outside the scope of the certified question and an issue of fact disputed by the parties.

CONCLUSION

Therefore, we answer the certified question in the affirmative and hold that the notice and repair process set forth in chapter 558 constitutes a "suit" within the meaning of the commercial general liability policy issued by C&F to Altman. Although the chapter 558 process does not constitute a "civil proceeding," it is included in the policy's definition of "suit" as an "alternative dispute resolution proceeding" to which the insurer's consent is required to invoke the insurer's duty to defend the insured. Accordingly, we remand this case to the United States Court of Appeals for the Eleventh Circuit for further proceedings.

It is so ordered.