United States Fire Insurance v. J.S.U.B., Inc.
2007 Fla. LEXIS 2394, 32 Fla. L. Weekly Supp. 811, 979 So. 2d 871 (2007)
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Rule of Law:
Under a post-1986 standard form commercial general liability (CGL) policy, defective work by a subcontractor that causes damage to a general contractor's completed project constitutes an "occurrence" causing "property damage" and is therefore covered unless a specific policy exclusion applies.
Facts:
- J.S.U.B., Inc., a general contractor, contracted to build several homes in Florida.
- J.S.U.B. hired subcontractors to perform various tasks, including soil preparation and testing for the foundations.
- The subcontractors used poor soil and performed improper soil compaction and testing.
- After J.S.U.B. completed the homes and delivered them to the homeowners, the faulty soil work caused the ground to settle.
- This settlement resulted in structural damage to the homes, including damage to the foundations, drywall, and other interior portions.
- During the construction period, J.S.U.B. was insured under a CGL policy issued by United States Fire Insurance Company (U.S. Fire).
- The homeowners demanded that J.S.U.B. repair the damages to their homes.
Procedural Posture:
- J.S.U.B. filed a claim with its insurer, U.S. Fire, for the cost of repairing structural damage to homes it had built.
- U.S. Fire denied coverage for the structural damage to the homes themselves, though it covered damage to homeowners' personal property.
- J.S.U.B. filed a declaratory judgment action against U.S. Fire in the Florida circuit court (trial court) to establish coverage.
- The circuit court entered judgment in favor of the insurer, U.S. Fire, finding no coverage for faulty workmanship.
- J.S.U.B. (appellant) appealed the judgment to the Second District Court of Appeal.
- The Second District Court of Appeal reversed the trial court's decision, ruling in favor of J.S.U.B. (appellee) and finding that the policy provided coverage.
- The Florida Supreme Court accepted jurisdiction to resolve an express and direct conflict between the Second District's decision in this case and the Fourth District's decision in Lassiter Construction Co. v. American States Insurance Co.
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Issue:
Does a post-1986 standard form commercial general liability (CGL) policy with products-completed operations hazard coverage provide coverage to a general contractor for damage to its completed project caused by a subcontractor's defective work?
Opinions:
Majority - Pariente, J.
Yes, a post-1986 standard form CGL policy provides coverage to a general contractor for damage to its completed project caused by a subcontractor's defective work. Faulty workmanship by a subcontractor that is neither expected nor intended from the standpoint of the general contractor is an accidental "occurrence" under the policy. The resulting physical injury to the completed project, such as cracks in the foundation and drywall, qualifies as "property damage." The court distinguished its prior decision in LaMarche, explaining that LaMarche interpreted a pre-1986 policy which contained broad exclusions for the insured's work without the modern policy's specific exception for work performed by a subcontractor. To hold that subcontractor-caused damage is not an "occurrence" would render the subcontractor exception to the "your work" exclusion meaningless, violating the principle of reading the policy as a whole. This interpretation does not convert the CGL policy into a performance bond, as the two instruments serve different functions and protect different parties.
Concurring - Lewis, C.J.
Yes, the policy provides coverage, but the reasoning should be based on the policy's ambiguity. While CGL policies were historically designed to cover tort liability to third parties, not contractual liability for defective work, the insurance industry itself has altered this landscape. By introducing the subcontractor exception to the "your-work" exclusion in the 1986 policy revisions, insurers created ambiguity and expanded the scope of coverage. This drafting practice forces courts to look to exclusions to understand the grant of coverage. Since ambiguities are construed against the insurer, coverage exists. If the insurance industry wishes to avoid covering such claims, it must draft its policies with greater clarity rather than relying on unstated historical purposes.
Analysis:
This decision significantly clarifies Florida insurance law by holding that modern CGL policies generally cover property damage arising from a subcontractor's faulty workmanship, even when the damage is to the general contractor's own completed project. This ruling aligns Florida with a growing majority of jurisdictions and shifts a significant portion of the financial risk for construction defects from general contractors to their liability insurers. The case establishes the precedent that policy interpretation must focus on the plain language of the entire contract, including exceptions to exclusions, rather than on historical, unwritten assumptions about the purpose of CGL insurance. Consequently, insurers who wish to exclude this type of risk must do so with explicit policy language.
