25 Fla. L. Weekly Fed. C1068a
I. Facts and Procedural History
After discovering a number of defects in their home, the Carithers filed suit against their homebuilder, Cronk Duch, in state court (“the underlying action”). Cronk Duch’s insurance company, Mid-Continent Casualty Company (“Mid-Continent”), refused to defend the action on behalf of Cronk Duch. The Carithers and Cronk Duch then entered into a consent judgment in the underlying action for approximately $90,000, in favor of the Carithers. The consent judgment also assigned to the Carithers Cronk Duch’s right to collect the judgment amount from Mid-Continent. The Carithers then filed this action against Mid-Continent in state court to collect from Mid-Continent on the settlement. Mid-Continent removed the case to the Middle District of Florida. The Carithers are the Plaintiffs in this action due to Cronk Duch’s assignment of its rights to them.
SECTION 1 — COVERAGES
COVERAGE A BODILY INJURY AND PROPERTY DAMAGE LIABILITY
1. Insuring Agreement
a. 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 . . . .
b. This insurance applies to “bodily injury” and “property damage” only if . . . .
(2) The “bodily injury” or “property damage” occurs during the policy period . . . .
This insurance does not apply to . . . .
j. Damage To Property
“Property damage” to . . . .
(5) That particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the “property damage” arises out of these operations; or
(6) That particular part of any property that must be restored, repaired or replaced because “your work” was incorrectly performed on it . . . .
Paragraph (6) of this exclusion does not apply to “property damage” included in the “products-completed operations hazard” . . . .
l. Damage To Your Work
“Property damage” to “your work” arising out of it or any part of it and included in the “products-completed operations hazard”.
This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a sub-contractor . . . .
SECTION V — DEFINITIONS . . . .
13. “Occurrence” means an accident, including continuous or repeated exposure to substantially the same general harmful conditions . . . .
17. “Property damage” means:
a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it . . . .
This insurance does not apply to:
1. “Bodily injury”, “property damage”, “personal or advertising injury” or “medical payments” arising out of, resulting from, caused by, contributed to, attributed to, or in any way related to any fungus, mildew, mold or resulting allergens . . . .
(Insurance Policy # 1, DE 69-4 at 16 — 29, 42).
a. Summary Judgment on the Duty to Defend
We determine whether Mid-Continent had a duty to defend Cronk Duch in the underlying action using only the allegations in the Carithers’s complaint in the underlying action. Jones v. Florida Ins. Guar. Ass’n, Inc., 908 So.2d 435, 442-43 (Fla. 2005) [30 Fla. L. Weekly S581a].
[The insurance company] contends that since the complaint alleges that the damage did not “manifest” itself until 1979, and because its coverage ceased on January 1, 1976, it has no duty to defend [the] lawsuit. It asserts that the occurrence of the damage can only trigger coverage where it is discovered or has “manifested” itself.
We believe that [the insurance company] owes [the insured] a duty to defend [the] lawsuit. The language of the policy itself belies [the insurance company’s] assertions. The potential for coverage is triggered when an “occurrence” results in “property damage.” There is no requirement that the damages “manifest” themselves during the policy period. Rather, it is the damage itself which must occur during the policy period for coverage to be effective.
Id. at 813.
One of Plaintiffs’ witnesses, Brett Douglas [Newkirk], testified that the wood rot in Plaintiffs’ garage developed because the water incursion allowed microscopic “critters” such as fungi to grow in the wood. (Tr. at 113.) Mid-Continent then argued that the Policy would exclude coverage for damage to the garage because the Policy contains a “Fungus, Mildew and Mold Exclusion.” (Policy at ML 12 17 (04 01).) But Mid-Continent has been aware since the inception of this matter that the damage to the garage was caused by wood rot, which is by definition “decomposition from the action of bacteria or fungi.” Definition of verb “rot,” www.merriamwebster.com/dictionary/rot (last visited March 3, 2014). Mid-Continent cannot now rely on an exclusion that it has never before mentioned in this litigation. See Fla. Stat. § 627.426(2)(a) (prohibiting insurer from denying coverage based on a coverage defense unless insurer gives written notice to insured within 30 days after insurer knew or should have known of the coverage defense).
d. Property Damage Determinations
The district court awarded damages for damages to the brick, the tiles, the mud base, and the balcony. Mid-Continent contends that the brick, the tile, the mud base, and the balcony were not properly considered property damage under the policy. For this reason, Mid-Continent contends that the district court erred in awarding damages for these items. The Carithers contend that the brick was properly considered property damage. The Carithers also contend that the tile was properly considered property damage. As for the balcony, they contend that, though not property damage itself, the replacement of the balcony was necessary to effect repairs to the garage. Similarly, they contend that the replacement of the mud base was necessary to effect repairs to the tile.
i. The Brick
The district court determined that the negligent application of exterior brick coating caused property damage to the brick itself. This issue turns on whether the brick installation and the application of the brick coating were done by a single sub-contractor. If it was done by a single sub-contractor, then the damage to the bricks was part of the sub-contractor’s work, and this defective work caused no damage apart from the defective work itself. However, if the bricks were installed by one sub-contractor, and a different sub-contractor applied the brick coating, then the damage to the bricks caused by the negligent application of the brick coating was not part of the sub-contractor’s defective work, and constituted property damage.
__________________ *Honorable C. Ashley Royal, United States District Judge for the Middle District of Georgia, sitting by designation.
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