Florida “property damage” caused by an “occurrence” and “your work” exclusion

In J.B.D. Construction, Inc. v. Mid-Continent Casualty Co., * Fed.Appx. *, 2014 WL 3377690 (11th Cir. 2014), claimant property owner Sun City contracted with insured general contractor J.B.D. for the construction of a fitness center.  The fitness center was to be physically connected to an existing Sun City building.  J.B.D. utilized subcontractors for some of the work.  Shortly after completion, leaks developed in the fitness center’s roof, windows and doors which J.B.D. attempted to fix.  After Sun City refused to make the final contract payment, J.B.D. sued Sun City for contract amounts owed.  Sun City counterclaimed for the construction defects, alleged damage to the fitness center and other property.  J.B.D. tendered defense of the counterclaim to its CGL insurer Mid-Continent.  After Mid-Continent failed to agree to defend, J.B.D. settled with Sun City, paying Sun City $182K.  Following several demands from J.B.D. for reimbursement of defense costs and the settlement amount, Mid-Continent tendered the defense costs minus a deductible.  J.B.D. then sued Mid-Continent for breach of duties to defend and indemnify.   On cross motions for summary judgment, the federal district trial court entered judgment for Mid-Continent, finding no duties to defend or indemnify.  On appeal, the Eleventh Circuit reversed on the duty to defend while affirming on the duty to indemnify.  Applying Florida law, the court first held that the defective work, including the defective installation of the fitness center’s windows, doors, and roof, did not constitute “property damage.”  Thus, the costs to repair or replace the defective work did not constitute damages because of “property damage.”  The court next held that, while damage to other portions of the fitness center would constitute “property damage” caused by an “occurrence,” all such “property damage” fell within the “your work” exclusion.  Although some of the “property damage” arose from work performed by J.B.D.’s subcontractors, the Mid-Continent policy was endorsed to remove the subcontractor work exception to the “your work” exclusion.  As a result, the only potential coverage would be for damage to property other than the fitness center, such as the adjacent structure to which the fitness center was attached or the contents of the fitness center.  The court held that, because the Sun City counterclaim alleged damage to both the fitness center and “other property,” it alleged the potential for damage to non-fitness center property thus triggering a duty to defend.   Mid-Continent apparently conceded this at oral argument.  However, because there was nothing in the record indicating that any portion of the $182K settlement amount was in fact for the repair of physical damage to non-fitness center property, Mid-Continent did not have a duty to indemnify.  Buried in a footnote, the court rejected J.B.D.’s “loss mitigation” argument—that because the repair of the defective work prevented future damage to non-fitness center property, the repair costs should be covered.  The court states:

To accept J.B.D.’s argument would defeat the distinction between covered and uncovered “property damage” that is well-settled under Florida law. Because the cost to repair defective work, which is expressly not covered, will almost always also mitigate potential damage to other property, which is covered, an uncovered claim for costs to repair defective work would instantly be transformed into a covered claim for “mitigation costs.” Absent some unique circumstances, none of which we can find here, we refuse to adopt this rule.

The Eleventh Circuit remanded the case back to the district court for a determination of J.B.D.’s damages resulting from Mid-Continent’s breach of its duty to defend.  The court states that such damages could include “consequential damages”  but does not specify what that could include.