Altman Contractors, Inc. v. Crum & Forster Specialty Insurance Company

[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 15-12816
________________________
D.C. Docket No. 9:13-cv-80831-KAM
ALTMAN CONTRACTORS, INC.,
a Florida corporation,
Plaintiff - Appellant,
versus
CRUM & FORSTER SPECIALTY INSURANCE COMPANY,
an Arizona company,
Defendant - Appellee.
________________________
Appeal from the United States District Court
for the Southern District of Florida
________________________
(August 2, 2016)
Before JORDAN and FAY, Circuit Judges, and FRIEDMAN,* District Judge.
*
The Honorable Paul L. Friedman, United States District Judge for the District of
Columbia, sitting by designation.
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JORDAN, Circuit Judge:
In 2003, the Florida Legislature enacted Chapter 558 of the Florida Statutes,
establishing a notice and repair process to resolve construction disputes between
property owners and contractors, subcontractors, suppliers, or design professionals.
The Florida Legislature said it passed Chapter 558 because it was “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.” Fla. Stat. §
558.001.
In this appeal, we must decide whether Chapter 558’s statutorily prescribed
notice and repair process constitutes a “suit” under a commercial general liability
(CGL) insurance policy, so as to trigger the insurer’s duty to defend. Remarkably,
in the 13 years since the enactment of Chapter 558 no Florida court (or federal
court sitting in diversity) has addressed this important issue in a reported decision.
After reviewing the briefs submitted by the parties and amici curiae, and
with the benefit of oral argument, we believe that we would greatly benefit from
the guidance of the Florida Supreme Court on the meaning of the policy language
at issue here and its relationship to Chapter 558. As a result, we certify a
dispositive question of law to the Florida Supreme Court.
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I
Generally, pursuant to Chapter 558’s notice and repair process, a property
owner (the claimant) must serve a written notice of a claim on the contractor,
subcontractor, supplier, or design professional (for ease of reference, the
contractor), describing the nature of the alleged construction defect. See Fla. Stat.
§ 558.004(1). Chapter 558 prescribes time periods for the contractor to inspect the
defect or engage in destructive testing to determine the nature and cause of the
defect; to serve a copy of the notice of claim on any additional parties the
contractor believes may be responsible for the defect; and to serve a written
response that offers to remedy the defect at no cost to the claimant, offers to
compromise and settle the claim, or disputes the claim. See §§ 558.004(2)–(5).
Chapter 558 provides that, upon request, the claimant and the contractor
shall exchange various materials pertaining to the alleged construction defect,
including design plans, specifications, photographs and video, expert reports, and
maintenance records. See § 558.004(15). The parties have 30 days to provide the
requested materials, and “[i]n the event of subsequent litigation, any party who
failed to provide the requested materials shall be subject to such sanctions as the
court may impose for a discovery violation.” Id.
If the contractor disputes the claim and will neither remedy the defect nor
compromise and settle the claim, or if the contractor fails to respond to the notice
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within the prescribed time period, the claimant may proceed with a civil action or
arbitration proceeding against the contractor. See §§ 558.004(6), 558.002. The
claimant may proceed to trial only as to alleged construction defects noticed in
accordance with Chapter 558. See § 558.004 (11).
II
The appellant, Altman Contractors, Inc., served as the general contractor for
the construction of a high-rise residential condominium in Broward County,
Florida. ACI purchased seven, consecutive, one-year CGL insurance policies from
the appellee, Crum & Forster Specialty Insurance Company. Those policies were
in effect from February 1, 2005, through February 1, 2012, and are the same in all
relevant respects.
The CGL policies state:
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.
D.E. 36-1 at 9 (emphasis added).1
1 According to the American Insurance Association and the Florida Insurance Council,
appearing as amici curiae, this policy language comes from standard commercial general
liability forms drafted by the Insurance Services Office, an industry organization that
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And the policies define 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.
Id. at 23.
In April of 2012, the condominium served ACI with a notice of claim
pursuant to Chapter 558, alleging the existence of various construction defects and
deficiencies that resulted in property damage. The condominium served several
supplemental notices of claims later in 2012 and in 2013. We refer to these claims
as the “Chapter 558 notices.”
In January of 2013, ACI sent a demand letter to C&F notifying the insurer of
the Chapter 558 notices and demanding that C&F defend and indemnify ACI.
C&F denied that it had a duty to defend ACI because the matter was “not in suit.”
On August 5, 2013, C&F advised ACI that it maintained its position that the matter
did not meet the policies’ definition of “suit,” but that it was nonetheless exercising
promulgates standard insurance policies that are used by insurers throughout the country. See
Br. of American Ins. Ass’n et al. at 2.
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its discretion to participate in ACI’s response to the Chapter 558 notices and, in
doing so, had hired counsel for ACI. C&F did not consult with ACI concerning its
choice of counsel. Nor did C&F reimburse ACI for the attorney’s fees and costs it
had incurred prior to C&F’s retention of counsel. On August 21, 2013, ACI filed
this lawsuit against C&F.
In Count I, ACI sought a declaration that C&F owed it a duty to indemnify
and a duty to defend and to cover the claims asserted against ACI by the
condominium in the Chapter 558 notices. In Count II, ACI asserted a breach of
contract claim based on C&F’s initial refusal to defend ACI in the Chapter 558
process.
The parties filed competing motions for summary judgment. As on appeal,
the determinative issue was whether the Chapter 558 process constitutes a “suit”
under the CGL policies’ language. The district court, applying Florida law, found
the policies’ language unambiguous and determined the Chapter 558 process was
not a “suit.” This appeal by ACI followed.
III
We review a district court’s grant or denial of a motion for summary
judgment de novo, and apply the same legal standards that governed the district
court. See Ave. CLO Fund, Ltd. v. Bank of Am., N.A., 723 F.3d 1287, 1293 (11th
Cir. 2013). Summary judgment is properly granted when the movant shows there
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is no genuine issue as to any material fact and the movant is entitled to judgment as
a matter of law. See id. at 1293–94; FED. R. CIV . P. 56(a).
Contract interpretation and statutory construction present questions of law
subject to plenary review. See Hegel v. First Liberty Ins. Corp., 778 F.3d 1214,
1219 (11th Cir. 2015). Federal jurisdiction in this case is based on diversity, and
the parties agree that Florida law controls. See State Farm Fire and Cas. Co. v.
Steinberg, 393 F.3d 1226, 1230 (11th Cir. 2004); State Farm Mut. Auto. Ins. Co. v.
Roach, 945 So. 2d 1160, 1163 (Fla. 2006).
Under Florida law, we look at an insurance policy “as a whole and give
every provision its full meaning and operative effect.” Hyman v. Nationwide Mut.
Fire Ins. Co., 304 F.3d 1179, 1186 (11th Cir. 2002). “Florida courts start with ‘the
plain language of the policy, as bargained for by the parties.’” Steinberg, 393 F.3d
at 1230 (quoting Auto-Owners Ins. Co. v. Anderson, 756 So. 2d 29, 34 (Fla.
2000)). “Policy terms are given their plain and ordinary meaning and read in light
of the skill and experience of ordinary people.” Penzer v. Transp. Ins. Co., 545
F.3d 1303, 1306 (11th Cir. 2008). If the relevant policy language is unambiguous,
it governs. See Steinberg, 393 F.3d at 1230. If, however, the relevant policy
language is susceptible to more than one reasonable interpretation—one providing
coverage and the other limiting coverage—the insurance policy is considered
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ambiguous and should be interpreted liberally in favor of the insured and strictly
against the drafter of the policy. See Anderson, 756 So. 2d at 34.
A
On appeal, C&F revives an argument it unsuccessfully raised before the
district court—that § 558.004(13) forecloses imposing a mandatory defense
obligation on insurers. Prior to the 2015 amendments, this subsection stated:
This section does not relieve the person who is served a notice of
claim under subsection (1) from complying with all contractual
provisions of any liability insurance policy as a condition precedent to
coverage for any claim under this section. However, notwithstanding
the foregoing or any contractual provision, the providing of a copy of
such notice to the person’s insurer, if applicable, shall not constitute a
claim for insurance purposes. Nothing in this section shall be
construed to impair technical notice provisions or requirements of the
liability policy or alter, amend, or change existing Florida law relating
to rights between insureds and insurers except as otherwise
specifically provided herein.
§ 558.004(13) (2012) (emphasis added). C&F, analogizing to Hawaii’s notice and
repair statute, relies on the italicized language to argue that “the legislature clearly
prohibited treating a [Chapter] 558 notice as a ‘claim for insurance purposes,’ thus
making it impossible for a [Chapter] 558 notice to create a duty to defend against a
[Chapter] 558 notice.” Br. for Appellee at 20. See also D.E. 37 at 12.
The district court rejected C&F’s attempt to compare § 558.004(13) to
Hawaii’s notice and repair statute. Hawaii’s statute provides:
A claimant, no later than ninety days before filing an action against a
contractor, shall serve the contractor with a written notice of claim.
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The notice of claim shall describe the claim in detail and include the
results of any testing done. The notice of claim shall not constitute a
claim under any applicable insurance policy and shall not give rise to
a duty of any insurer to provide a defense under any applicable
insurance policy unless and until the process set forth in section
672E-5 is completed. Nothing in this chapter shall in any way
interfere with or alter the rights and obligations of the parties under
any liability policy.”
Haw. Rev. Stat § 672 E-3(a) (emphasis added).
The district court noted that, unlike the Hawaii statute, “the Florida statute
does not say that the notice is not a claim. It says that the provision of the notice
is not a claim. Nor does the Florida statute contain the specific language
addressing the insurer’s duty to defend contained in the Hawaii statute.” D.E. 66 at
7. The district court concluded that the language of § 558.004(13) simply clarifies
that nothing in the statute was intended to supplant the notice requirements under
any applicable insurance policy. See id.
The district court believed its reading of the statutory provision was
consistent with the (at the time, proposed) 2015 amendment, which added
clarifying language to § 558.004(13). After the amendment, § 558.004(13) reads
(emphasis ours): “However, notwithstanding the foregoing or any contractual
provision, the providing of a copy of such notice to the person’s insurer, if
applicable, shall not constitute a claim for insurance purposes unless the terms of
the policy specify otherwise.” According to the district court, the 2015 amendment
clarified the intent of the Florida Legislature that Chapter 558 was to have no
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impact on the obligations of the insured to provide to the insurer whatever notice
was required by the underlying insurance policy.
Although the nature of the Chapter 558 process is undoubtedly relevant in
this appeal, the critical question before us—whether Chapter 558’s notice and
repair process constitutes a “suit” under the CGL policies—is, first and foremost, a
question about what the language in the policies means. We agree with the district
court that there is no statutory bar to defense and coverage of Chapter 558
proceedings, and therefore focus on the language in the insurance policies. That
language ultimately determines whether C&F has a duty to defend.
B
ACI contends that the Chapter 558 process meets the CGL policies’
definition of “suit” because it is a “civil proceeding.” As ACI puts it, the Chapter
558 process is “undisputedly civil in nature.” Br. for Appellant at 22.
Furthermore, ACI argues, because the Chapter 558 process is a condition precedent
to bringing a lawsuit and impacts any subsequent lawsuit, it is also a “proceeding,”
a term defined in legal dictionaries as “[a]n act or step that is part of a larger
action” and “the steps taken or measures adopted in the prosecution or defense of
an action,” id. (quoting Black’s Law Dictionary 1324 (9th ed. 2009)), or as “a
particular step or series of steps in the enforcement, adjudication, or administration
of rights, remedies, laws, or regulations,” id. at 26 (quoting Merriam-Webster’s
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Dictionary of Law 387 (1996)). ACI argues that these two dictionary definitions
are persuasive because the Florida Supreme Court relied on them in Raymond
James Financial Services, Inc. v. Phillips, 126 So. 3d 186, 191 (Fla. 2013), when it
interpreted the word “proceeding” in a statute of limitations statute and concluded
that “[w]hereas civil actions may be limited to court cases, a proceeding is clearly
broader in scope.”2
Alternatively, ACI argues that, even if the Chapter 558 process is not a “civil
proceeding,” it nonetheless constitutes an “alternative dispute resolution
proceeding,” and is therefore still a “suit” under the CGL policies. See Br. for
Appellant at 49. In support of this argument, ACI notes that the Florida
Legislature described the Chapter 558 process as an “alternative method to resolve
construction disputes,” and an “alternative dispute resolution mechanism.” Id. at
50 (quoting § 558.001). Under this theory, ACI maintains, there is a question of
fact as to whether or not C&F consented to ACI’s participation in the Chapter 558
process.
For its part, C&F argues that the definition of “suit” in its policies requires a
proceeding that determines the insured’s legal liability to pay damages. The
Chapter 558 process, it says, “provides no mechanism to seek, and no adjudicatory
procedure for, a determination of the insured’s legal obligation to pay damages[.]”
2 Neither the eighth edition of Black’s Law Dictionary, published in 2004, nor the ninth
edition of Black’s Law Dictionary, published in 2009, contains a definition of “civil proceeding.”
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Br. for Appellee at 9. “Such a proceeding can only occur after the [Chapter] 558
notice and opportunity to repair process ends.” Id. Therefore, C&F argues, it has
no duty to defend ACI during the Chapter 558 process.
In addition, C&F contends that ACI’s reliance on Raymond James is
misplaced. In that case, C&F says, the Florida Supreme Court relied on a
definition of “proceeding” in Black’s Law Dictionary different than the one ACI
proposes should be used. According to that definition, “proceeding” is “[a]ny
procedural means for seeking redress from a tribunal or agency.” Raymond James,
126 So. 3d at 190 (quoting Black’s Law Dictionary 34 (9th ed. 2009)). Because a
“tribunal” is “‘[a] court or other adjudicatory body,’” id. at 191 (quoting Black’s
Law Dictionary 1646 (9th ed. 2009)), and an arbitrator fell under the definition of
an adjudicator, the Florida Supreme Court held that “proceeding,” as used in the
statute, is “a broad term and includes arbitration.” Id.
C&F has one more argument. Even assuming that the Chapter 558 process
constitutes an “alternative dispute resolution proceeding in which such damages
are claimed”—something C&F does not concede—C&F disputes the contention
that ACI submitted to the Chapter 558 process with its consent.
C
The district court ruled in favor of C&F, concluding that the Chapter 558
process did not constitute a “suit” and that, as a result, C&F had no obligation to
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defend or indemnify ACI under the CGL policies. The district court relied on the
definition of “civil proceeding” from the 10th edition of Black’s Law Dictionary—
“[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.” D.E. 66 at 11 (quoting
Black’s Law Dictionary 300 (10th ed. 2014)). It explained that “[n]othing about
the Chapter 558 process satisfies this definition.” Id.
The district court also examined the definition of “proceeding” in the eighth
and ninth editions of Black’s Law Dictionary, but disagreed with ACI that these
definitions supported its position: “Far from an act or step that is part of a larger
action, Chapter 558 is intended to avoid the commencement of an action.” Id. at
13. In the view of the district court, “the thrust of the definitions in Black’s [Law
Dictionary is] that for something to be a ‘civil proceeding’, there must be some sort
of forum and some sort of decision maker involved.” Id. The district court found
this conclusion to be consistent with the Florida Supreme Court’s analysis in
Raymond James.
Based on this definition, the district court determined that the Chapter 558
notice and repair process was aptly described by the Florida Legislature in §
558.001 as a “mechanism” and not a “proceeding.” This mechanism was meant to
guide parties to enter into discussions about a possible resolution with one another,
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but it did not constitute a “‘proceeding’ of any kind,” id. at 15—including an
alternative dispute resolution proceeding—because it did not provide for the
parties to appear before anyone to assist with the process, or result in a decision or
delineation of private rights and remedies. Consequently, the district court held
that the Chapter 558 process, which the condominium triggered with its notices to
ACI, was not a “suit” under the CGL policies.
IV
The district court concluded that the terms “suit,” and more particularly,
“civil proceeding,” were not ambiguous, but we are not as sure. The policies
define “suit,” in part, as a “civil proceeding.” They do not contain a corresponding
definition for the term “civil proceeding,” but do provide that “suit” includes an
“arbitration proceeding” or “[a]ny other alternative dispute resolution proceeding”
“in which such damages are claimed” and to which ACI submits with C&F’s
consent. D.E. 36-1 at 23.
Although “the lack of a definition in a policy does not necessarily render [a]
term ambiguous and in need of interpretation by the courts,” we have “held that
differing interpretations of the same provision is evidence of ambiguity[.]” Hegel,
778 F.3d at 1220 (internal quotation marks and citations omitted). Here, there are
reasonable arguments presented by both sides as to whether the Chapter 558
process constitutes a “suit” or “civil proceeding” within the meaning of the CGL
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policies issued by C&F. The Florida Supreme Court has provided some guidance
regarding the meaning of “proceeding” in Raymond James. That case, however,
involved the interpretation of a statute and not the interpretation of an insurance
policy, which “must be read in light of the skill and experience of ordinary people,
and be given their everyday meaning as understood by the man on the street.”
Ergas v. Universal Prop. and Cas. Ins. Co., 114 So. 3d 286, 288 (Fla. 4th DCA
2013) (internal quotation marks and citation omitted).
As the parties and district court noted, there are several decisions from
courts outside of Florida that address an insurer’s duty to defend an insured
pursuant to certain CGL policies during a statutory notice and repair process. See
Clarendon Am. Ins. Co. v. Starnet Ins. Co., 113 Cal. Rptr. 3d 585, 592, 593 (Cal.
Ct. App. 2010) (holding that the “Calderon Process” in California was a “civil
proceeding” within the meaning of a CGL policy because it “is more than a
prelitigation alternative dispute resolution requirement,” as “[i]t is part and parcel
of construction or design defect litigation” and “cannot be divorced from a
subsequent complaint”), review granted, 117 Cal. Rptr. 3d 613 (Cal. 2010), review
dismissed, 121 Cal. Rptr. 3d 879 (Cal. 2011); Melssen v. Auto-Owners Ins. Co.,
285 P.3d 328, 334–35 (Colo. App. 2012) (holding that the Colorado Defect Action
Reform Act process constituted an alternative dispute resolution proceeding, and
thus was a “suit” within the definition of a CGL policy); Cincinnati Ins. Co. v.
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AMSCO Windows, 593 F. App’x 802, 809 (10th Cir. 2014) (holding that Nevada’s
“Chapter 40” prelitigation process was not a “civil proceeding” within the meaning
of a CGL policy because “while Chapter 40 purports to mandate participation by
contractors, subcontractors, and suppliers, noncompliance does not result in any
adverse judgment or obligation but rather imposes limited consequences in
subsequent litigation”). Although these cases involve similar policy language,
each of these decisions pertains to a unique state notice and repair statute that is
different from Florida’s Chapter 558.
“On many occasions this court has resolved difficult or uncertain questions
of state law without recourse to certification.” Escareno v. Noltina Crucible and
Refractory Corp., 139 F.3d 1456, 1461 (11th Cir. 1998). But here we are
confronted with a question intersecting state insurance law and a state statute for
which there is no guidance from the Florida courts. And, as we explain, the
outcome of this case may have significant practical and policy implications for
Florida.
ACI argues that, without the benefit of insurance carriers’ participation and
defense during the Chapter 558 process, many in the construction industry will
decline to meaningfully participate in the process and may even invite litigation to
obtain the carriers’ contribution, thus undermining the Florida Legislature’s intent.
See Br. for Appellant at 55. This view is shared by its amici curiae, the
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Construction Association of South Florida, the South Florida Associated General
Contractors, and the Leading Builders of America. They argue that if the term
“suit,” as used in C&F’s CGL policies, does not include the process set forth in
Chapter 558, then policyholders “will contest or not respond to [Chapter] 558
notices so that the claimant files a lawsuit—triggering the duty to defend.”
Amended Br. of Construction Ass’n of South Florida et al. at 10–11.
C&F, on the other hand, maintains that imposing a duty on insurers to
defend during the Chapter 558 process will fuel an insurance crisis in the state by
dramatically increasing the cost of insurance to those in the construction trade and
limiting its availability. See Br. for Appellee at 26–27. The American Insurance
Association and the Florida Insurance Council, in their amici curiae brief in
support of C&F, argue that it is not necessarily in an insured’s interest for a
Chapter 558 notice to trigger a defense obligation. They say that if the insurer
must appoint counsel to represent the insured at the Chapter 558 stage, the
claimant’s likely response will also be to retain a lawyer, and then “[o]nce the
claimant retains counsel, its legal fees . . . make it harder for the claimant to be
made whole and, therefore, for the case to settle,” thereby also frustrating the
Florida Legislature’s intent. Br. of American Ins. Ass’n et al. at 18.
Given these possible policy implications with respect to this question of first
impression, we think certification to the Florida Supreme Court is appropriate.
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V
We respectfully certify the following question of law to the Florida Supreme
Court:
Is the notice and repair process set forth in Chapter 558 of the Florida
Statutes a “suit” within the meaning of the CGL policies issued by
C&F to ACI?
Our phrasing of this question is not intended to restrict, in any way, the Florida
Supreme Court’s consideration or resolution of the issue. To assist the Florida
Supreme Court in considering this certified question, the record in this case, copies
of the parties’ briefs, and copies of the briefs of the amici curiae shall accompany
this certification.
QUESTION CERTIFIED.
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