Opinion ID: 2682712
Heading Depth: 3
Heading Rank: 1

Heading: MCC Policy Coverage

Text: The primary issues on appeal are whether MCC had a duty to defend and/or a duty to indemnify J.B.D. under the MCC Policy in the underlying Sun City 4 It was undisputed that the defective installation qualified as an “occurrence” under the policy and that this “occurrence” took place during a time period covered by the MCC Policy. The district court also explicitly rejected MCC’s argument that their payment, and J.B.D.’s acceptance, of the $5,717.77 check constituted an “accord and satisfaction” thereby eliminating any liability with regard to the duty to defend claim. However, this issue was mooted by the district court’s holding that MCC did not owe J.B.D. a duty of defense in the first place. 10 Case: 13-10138 Date Filed: 07/11/2014 Page: 11 of 25 Litigation. To resolve these disputes, we must first determine the scope of coverage under the MCC Policy.
The MCC Policy provides coverage for “property damage” caused by an “occurrence.” The parties do not dispute that J.B.D.’s defective construction qualifies as an occurrence. “Property damage” means “[p]hysical injury to tangible property, including all resulting loss of use of that property.” The Florida Supreme Court has been clear that the cost of removing or repairing defective work does not qualify as a claim for “property damage.” See U.S. Fire Ins. Co. v. J.S.U.B., Inc, 979 So. 2d 871 (Fla. 2007); Auto Owners Ins. Co. v. Pozzi Window Co., 984 So. 2d 1241 (Fla. 2008). However, a claim for the costs of repairing damage to other property caused by defective work does qualify as a claim for “property damage.” See J.S.U.B., 979 So. 2d at 889 (“[T]here is a difference between a claim for the costs of repairing or removing defective work, which is not a claim for ‘property damage,’ and a claim for the costs of repairing damage caused by defective work, which is a claim for ‘property damage.’”). A recent decision by this Court, Amerisure Mutual Insurance Co. v. Auchter Co., 673 F.3d 1284 (11th Cir. 2012), further limited the definition of covered “property damage” in a standard CGL policy such as the one issued by MCC in this case. In Auchter, Amelia Island Company (“Amelia”) entered into a contract 11 Case: 13-10138 Date Filed: 07/11/2014 Page: 12 of 25 with Auchter Company (“Auchter”), a general contractor, for the construction of an inn and conference center on Amelia’s property. Id. at 1295. Auchter entered into a subcontract with Register Contracting Company (“Register”) to construct the inn’s roof. Id. Amelia purchased the individual tiles and then Register installed them. After the roof was completed, several tiles became dislodged and caused damage to other roof tiles. Id. at 1296. Amelia sued Auchter for the cost of repairing the defectively installed roof. Id. Amelia did not allege that the dislodged tiles had damaged any parts of the inn other than the roof itself. Id. Auchter subsequently tendered the claim to its insurer, Amerisure Mutual Insurance Company (“Amerisure”), and Amerisure brought a declaratory judgment to determine coverage under the CGL Policy it had issued to Auchter. Id. at 1297. This Court held that Amelia’s claim for the costs to repair the defective roof were not claims for “property damage” because the defective installation of the inn’s roof did not cause “physical injury to tangible property.” Id. at 1309. In reaching its conclusion, the Court emphasized that Amelia’s claim was to replace the defectively installed roof as a whole, not simply to replace or repair the various tiles or other project components that had been damaged by the dislodged tiles. Id. at 1307. The Court placed particular emphasis on the fact that, because of the interlocking nature of roof tiles, Auchter’s defective workmanship would require a refabrication of the entire roof and could not be repaired piecemeal. Id. at 1308. 12 Case: 13-10138 Date Filed: 07/11/2014 Page: 13 of 25 Thus, the relevant component for examining the scope of Auchter’s subcontractor’s defective work was not the individually installed roofing tiles, which the Court considered to be the raw materials from which the roof was made, but instead was the entire roof itself. Id. Accordingly, the Court held that Amelia’s claim was not for the costs to repair damage to other property, such as the other tiles, caused by Auchter’s subcontractor’s defective work, which would have been covered “property damage,” but was instead simply a claim for the cost of replacing the subcontractor’s entire defective roof, and therefore was not covered “property damage.” Id. at 1307 (citing J.S.U.B., 979 So. 2d at 890). MCC argues that the holding in Auchter dictates that any claims for the costs to repair damage to the fitness center or its components are not claims for “property damage.” Because J.B.D. agreed to construct the entire fitness center, and the project components are merely the raw materials used in construction, the cost to repair any damage to the fitness center caused by the subcontractor’s defective installation of the fitness center’s roof, doors, and windows are costs to repair J.B.D.’s defective construction. Therefore, MCC argues that the policy definition of “property damage” only includes claims for costs to repair damage to property other than the fitness center itself and would not cover claims for costs to repair damages to other components of the fitness center caused by J.B.D.’s or its subcontractor’s defective work as a matter of law. J.B.D. asserts that the reasoning 13 Case: 13-10138 Date Filed: 07/11/2014 Page: 14 of 25 in Auchter does not apply in this case. Instead, J.B.D. agrees that Florida law excludes coverage for the cost to repair or replace the defective construction itself, but contends that damage to other components of the fitness center caused by the defective construction qualifies as covered “property damage.” Because, as explained below, determining the scope of the policy definition of “property damage” would not change J.B.D.’s coverage under the MCC Policy, we decline to decide whether to extend the holding in Auchter to the facts of this case. Instead, we hold that the costs to repair defective construction are not covered “property damage,” see J.S.U.B., Inc, 979 So. 2d at 87; Pozzi Window Co., 984 So. 2d at 1241, and turns to the policy’s “your work” exclusion to hold that any claims against J.B.D. for the cost to repair damage to the fitness center arising from J.B.D.’s or its subcontractor’s defective work are not covered by the MCC Policy.
Exclusion (l), otherwise known as the “your work” exclusion, states that insurance does not apply to “property damage” to “your work” arising out of it or any part of it and included in the “products-completed operations hazard.” The MCC Policy defines “your work” to mean “work or operations performed by you or on your behalf; and . . . materials, parts, or equipment furnished in connection with such work or operations.” The Products-Completed Operations Hazard is 14 Case: 13-10138 Date Filed: 07/11/2014 Page: 15 of 25 defined to include “all ‘bodily injury’ and ‘property damage occurring away from premises you own or rent and arising out of ‘your product’ or ‘your work.’” The Products-Completed Operations Hazard includes a number of exceptions, none of which are relevant to this case. The parties do not dispute that the “your work” exclusion applies nor do they dispute that it is enforceable. Originally, the MCC Policy also included a subcontractor exception to the “your work” exclusion, which stated that the “your work” exclusion did “not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.” As originally written, therefore, the MCC Policy covered claims for damage to J.B.D.’s “work” arising from the faulty construction of J.B.D.’s subcontractors. However, this exception was eliminated by Endorsement CG 22 94 101 01. By eliminating the subcontractor’s exception, the MCC Policy no longer covered any claims for damage to J.B.D.’s “work” arising from work performed by J.B.D.’s subcontractors. Cf. J.S.U.B., 979 So. 2d at 887 (holding that an identical “your work” exclusion in a post-1986 CGL policy excluded coverage for damage caused by the contractor’s defective work and that the contractor would not have been covered by the policy absent the subcontractor exception). Because J.B.D. undertook the construction of the entire fitness center, we agree with the district court’s finding that J.B.D.’s “work,” for the purpose of 15 Case: 13-10138 Date Filed: 07/11/2014 Page: 16 of 25 applying the “your work” exclusion, included “construction of the health center building with related and appurtenant improvements to an existing structure.” Therefore, the “your work” exclusion, absent the subcontractor’s exception, bars coverage for damages to the completed fitness center or its components (J.B.D.’s “work”) arising from J.B.D. or its subcontractor’s defective construction. See e.g., Auchter, 673 F.3d at 1310 (explaining that the “your work” exclusion, absent a subcontractor’s exception, would eliminate a contractor’s coverage for damage to a completed project where a subcontractor’s faulty workmanship on one part of the project caused damage to another part of the project). Reading the “your work” exclusion in conjunction with the settled policy definition of “property damage,” we find that the MCC Policy does not cover claims against J.B.D. for the cost to repair or replace any damage to the completed fitness center or its components, either based on the repair or removal of the defective construction itself, or based on the repair of any damage arising out J.B.D.’s or its subcontractor’s defective construction. Having determined the scope of J.B.D.’s coverage under the MCC Policy, we now turn to whether MCC had a duty to defend J.B.D. and, if so, whether MCC breached that duty.