Insurance coverage for property damage is standard on most construction projects, from the General Contractor down to lowered-tiered subcontractors. All too often, damage caused from construction defects is hidden and not readily observable until long after a project has been completed. A common occurrence in Florida is slow, progressive water damage which is not discovered until it “manifests”, usually when a building has deteriorated to the point where structural elements such as wood framing have become compromised and exterior finishes such as stucco have fallen off.
Typical commercial general liability (“CGL”) insurance policies cover property damage caused by construction defects so long as the defects or damage occur during the relevant policy period(s). However, a hotly contested issue among CGL carriers and their insureds is when insurance coverage for these damages is triggered. In other words, when did the damage “occur”, and was it was during the policy period? There are myriad insurance coverage cases in Florida that have considered this issue. Whether the policy affords coverage turns on which “trigger” of coverage the courts apply. There are four generally accepted triggers: 1) exposure (when the defective work was performed); 2) actual injury or injury-in-fact (when the property damage caused by the defective work occurred); 3) manifestation (when the damage manifests or is discovered); and 4) continuous trigger (any damage which occurs from exposure through manifestation). While state courts have generally applied the actual injury or injury-in-fact trigger and determined that damage occurring during the relevant policy period is covered, some federal trial courts applying Florida law have instead used the manifestation theory and determined that only the policy in effect when the damage was discovered provides coverage. This distinction is critical. Some contractors–while insured during a project (and for a specified period of time after under “completed operations” coverage)–may no longer have coverage years later when a hidden defect is discovered.
Recently, one such carrier, Amerisure Insurance Company, recently lost a coverage dispute with its insured, a general contractor, when the trial court rejected Amerisure’s request to apply the manifestation theory. Instead, the court applied the actual injury or injury-in-fact trigger, finding that the property damage was covered under Amerisure’s policy, even though it was discovered outside of the policy period. Amerisure has expressed a desire to make this a test case on appeal to the 1st DCA to resolve this issue under Florida law. The outcome will have a significant impact on insurance coverage for contractors.
Stay tuned…
Author(s): Gary L. Brown
