US Fire Ins. Co. v. JSUB, INC.

Supreme Court of Florida
979 So. 2d 871 (2007)

ELI5:

Rule of Law:

Under a post-1986 standard commercial general liability (CGL) policy, defective work by a subcontractor that results in damage to the general contractor's completed project constitutes an "occurrence" causing "property damage." Such claims are covered unless a specific policy exclusion applies.

Facts:

J.S.U.B., Inc., a general contractor, entered into contracts to build several homes in Florida.
J.S.U.B. hired subcontractors to perform certain work, including soil preparation, compaction, and testing.
After the homes were completed and delivered to the homeowners, structural damage appeared in the foundations, drywall, and other interior portions.
It was undisputed that the damage was caused by the subcontractors' use of poor soil and improper soil compaction and testing.
The homeowners demanded that J.S.U.B. repair the damages to their homes.
During the construction period, J.S.U.B. was insured under a CGL policy issued by United States Fire Insurance Company (U.S. Fire).

Procedural Posture:

J.S.U.B. filed a declaratory judgment action in the circuit court (trial court) to determine if its CGL policy with U.S. Fire provided coverage for the structural damages.
The circuit court entered judgment in favor of U.S. Fire, finding that the policies did not provide coverage for faulty workmanship.
J.S.U.B., as appellant, appealed the decision to the Florida Second District Court of Appeal.
The Second District Court of Appeal reversed the trial court's decision, holding that the policy's language provided coverage and no exclusions applied.
U.S. Fire, as petitioner, sought review from the Supreme Court of Florida, citing an express and direct conflict with a decision from another appellate district.

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Issue:

Does a standard post-1986 commercial general liability (CGL) policy, issued to a general contractor, provide coverage for damage to the contractor's completed project caused by a subcontractor's defective work?

Opinions:

Majority - Pariente, J.

Yes. A standard post-1986 CGL policy provides coverage for damage to a contractor's completed project caused by a subcontractor's defective work. The court reasoned that an "occurrence" is defined as an "accident," which encompasses damage that is neither expected nor intended from the standpoint of the insured. Defective work performed by a subcontractor, which the general contractor does not expect or intend, qualifies as an accident and thus an "occurrence." The court distinguished its prior decision in LaMarche v. Shelby Mutual Insurance Co., explaining that LaMarche was based on pre-1986 policy language that contained broad exclusions without the modern subcontractor exception. The post-1986 policy at issue includes a specific exception to the "your work" exclusion for work performed by a subcontractor. The court reasoned that this exception would be rendered meaningless if faulty subcontractor work could never be an "occurrence" in the first place. Finally, the resulting structural damage to the homes constitutes "physical injury to tangible property" and therefore qualifies as covered "property damage."

Concurring in result only - Lewis, C.J.

Yes. While agreeing with the outcome, this opinion concludes that coverage exists because the post-1986 CGL policy is sufficiently ambiguous and must be construed in favor of the insured. The opinion cautions that CGL policies were historically designed for tort liability to third parties, not contractual liability for economic loss. However, the insurance industry itself created the current confusion and expanded coverage by altering the standard policy in 1986 to include the subcontractor exception to the "your work" exclusion. By doing so, the industry effectively transformed the CGL policy's function in this context, and courts must interpret the policies as they are now written, not based on historical models that the policy language no longer reflects.

Analysis:

This decision significantly clarifies Florida law on CGL coverage for construction defects, aligning the state with a modern trend of jurisdictions that find coverage for damages caused by subcontractor negligence. By holding that a subcontractor's faulty work can be an "occurrence," the court rejected the older "business risk" doctrine that categorically denied such coverage. This ruling shifts the financial risk for latent defects caused by subcontractors from general contractors to their liability insurers under modern CGL forms. The decision emphasizes that coverage analysis must focus on the actual policy language, especially the subcontractor exception to the "your work" exclusion, rather than on broad, outdated principles derived from cases interpreting pre-1986 policies.

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