Opinion ID: 794236
Heading Depth: 2
Heading Rank: 1

Heading: Auto-Owners' Coverage Appeal

Text: 18 On appeal, Auto-Owners argues that its Policies do not provide products-completed operations hazard (PCOH) coverage for repair or replacement of defective work. Auto-Owners argues that under Florida law, comprehensive general liability (CGL) policies, such as the Policies 2 here, cover bodily injury and property damage resulting from defective work, but not the repair or replacement of the work itself. 19 The district court rejected this argument, concluding that the Policies unambiguously provided PCOH coverage for repair or replacement of defective work by a subcontractor. We first describe the relevant policy language and then outline the Florida law.
20 The Policies provide coverage for sums that the insured Coral is legally obligated to pay as damages because of bodily injury and property damage caused by an occurrence that takes place in the coverage territory and during the policy period. Specifically, the Policies state as follows: 21 1. Insuring Agreement. 22 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 any suit seeking those damages. We may at our discretion investigate any occurrence and settle any claim or suit that may result .... 23 . . . 24 b. This insurance applies to bodily injury and property damage only if: 25 (1) The bodily injury or property damage is caused by an occurrence that takes place in the coverage territory; and 26 (2) The bodily injury or property damage occurs during the policy period. 27 The Policies also specifically provide for PCOH coverage limited to $1 million. The Policies define Products-completed operations hazard as including all property damage arising out of `your product' or `your work,' as follows: 28 11. a. Products-completed operations hazard includes all bodily injury and property damage occurring away from premises you own or rent and arising out of your product or your work except: 29
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31 b. Your work will be deemed completed at the earliest of the following times: 32 (1) When all of the work called for in your contract has been completed. 33 (2) When all of the work to be done at the site has been completed if your contract calls for work at more than one site. 34 (3) When that part of the work done at a job site has been put to its intended use by any person or organization other than another contractor or subcontractor working on the same project. 35 Work that may need service, maintenance, correction, repair or replacement, but which is otherwise complete, will be treated as completed. 36 c. This hazard does not include bodily injury or property damage arising out of: 37 (1) The transportation of property, unless the injury or damage arises out of a condition in or on a vehicle created by the loading or unloading of it; 38 (2) The existence of tools, uninstalled equipment or abandoned or unused materials; 39 (3) Products or operations for which the classification in this Coverage Part or in our manual of rules includes products or completed operations. 40 Pozzi claims that the defective windows here were completed work — in Perez's home, in which he resided — and that the damages arose out of that work and thus would fall within the PCOH coverage definition. 41 The Policies further define your work to mean [w]ork or operations performed by you or on your behalf,  (emphasis added) as follows: 15. Your work means: 42
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44 Your work includes: 45 a. Warranties or representations made at any time with respect to the fitness, quality, durability, performance or use of your work; and 46 b. The providing of or failure to provide warnings or instructions. 47 (Emphasis added.) Pozzi thus claims that the work performed by Coral's subcontractor Scott is also covered under the Policies. 48 The Policies also define property damage to mean: 49 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; or 50 b. Loss of use of tangible property that is not physically injured. All such loss shall be deemed to occur at the time of the occurrence that caused it. 51 Thus, the main question is whether the PCOH coverage provided to Coral and Irby includes Coral and Irby's liability for the repair or replacement of defective work performed by Coral's subcontractor.
52 The Policies also contain two relevant exclusions, as follows: 2. Exclusions This insurance does not apply to: 53 . . . 54 j. Property damage to: 55 . . . 56 (6) That particular part of any property that must be restored, repaired or replaced because your work was incorrectly performed on it. 57 . . . 58 Paragraph (6) of this exclusion does not apply to property damage included in the products-completed operations hazard. 59 . . . 60 1. Property damage to your work arising out of it or any part of it and including in the products-completed operations hazard. 61 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 subcontractor. 62 First, exclusion (j)(6) provides that the insurance does not apply to property damage to [t]hat particular part of any property that must be restored, repaired or replaced because `your work' was incorrectly performed on it. However, the Policies further provide that this exclusion does not apply to `property damage' included in the `products-completed operations hazard.' Thus, if the costs of repair or replacement are covered under the PCOH coverage, this exclusion does not affect coverage. 63 Second, exclusion ( l ) excludes `[p]roperty damage' to `your work' arising out of any part of it and including in the `products-completed operations hazard.' However, the Policies further provide that 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 subcontractor. Here, the damaged or defective work was performed on the insured Coral's behalf by the subcontractor Scott. Thus, this exclusion also is inapplicable. 64 Because none of the exclusions applies, the main question in this appeal remains, as stated earlier, whether the Policies' PCOH coverage includes Coral and Irby's liability for the cost of the repair or replacement of defective work performed by Coral's subcontractor. 65
66 Viewing the language of the Policies in isolation, the district court's conclusion that coverage exists arguably would seem to be proper. The Policies clearly cover PCOH property damage caused by occurrences in the coverage territory during the coverage period. Defective construction is an occurrence under Florida law, see State Farm Fire & Cas. Co. v. CTC Dev. Corp., 720 So.2d 1072, 1076 (Fla.1998), and it is undisputed that the defective work here occurred in the coverage territory and during the coverage period. Thus, according to Pozzi, the costs of repair or replacement are covered under the PCOH provision because it is a sum the insureds Coral and Irby were legally obligated to pay as damages because of property damage (damaged, incorrectly installed windows) arising out of the subcontractor Scott's work. 67 However, the Florida Supreme Court in LaMarche v. Shelby Mutual Insurance Co., 390 So.2d 325, 326 (Fla.1980), concluded that CGL policies do not cover the costs of repair and replacement of defective work, but only cover any damage or injury resulting from the defective work. In LaMarche, the LaMarches entered into a building contract for the construction of their home. The general contractor's work proved to be deficient, and the LaMarches sought payment from the contractor's CGL insurance company for the replacement and repair of the defective work. The Florida Supreme Court concluded that the policy covered personal injury or property damage as a result of faulty work, but that no coverage existed for the replacement and repair costs: To interpret the policy as providing coverage for construction deficiencies, as asserted by the petitioners and a minority of states, would enable a contractor to receive initial payment for the work from the homeowner, then receive subsequent payment from his insurance company to repair and correct deficiencies in his own work. We find this interpretation was not the intent of the contractor and the insurance company when they entered into the subject contract of insurance, and the language of the policy clearly excludes this type of coverage. Rather than coverage and payment for building flaws or deficiencies, the policy instead covers damage caused by those flaws. 68 LaMarche, 390 So.2d at 326. The Florida Supreme Court then adopted the following reasoning of the Supreme Court of New Jersey in Weedo v. Stone-E-Brick, Inc., 81 N.J. 233, 405 A.2d 788 (1979): 69 An illustration of this fundamental point may serve to mark the boundaries between business risks and occurrences giving rise to insurable liability. When a craftsman applies stucco to an exterior wall of a home in a faulty manner and discoloration, peeling and chipping result, the poorly-performed work will perforce have to be replaced or repaired by the tradesman or by a surety. On the other hand, should the stucco peel and fall from the wall, and thereby cause injury to the homeowner or his neighbor standing below or to a passing automobile, an occurrence of harm arises which is the proper subject of risk-sharing as provided by the type of policy before us in this case. 70 LaMarche, 390 So.2d at 326-27 (quoting Weedo, 405 A.2d at 791-92) (quotation marks omitted). 71 The particular policy language and exclusions at issue in LaMarche were different from those at issue here. However, the broad language and reasoning of LaMarche does not seem to be dependent on the precise terms of the policy. Rather, LaMarche indicates that CGL policies (as opposed to warranty policies, for instance) generally do not cover the costs of repair or replacement of defective work. 72 While the Florida Supreme Court has not reviewed the policy language here, the majority of Florida intermediate appellate courts have applied LaMarche broadly and concluded that CGL policies do not cover repair or replacement costs. See, e.g., Auto-Owners Ins. Co. v. Marvin Dev. Corp., 805 So.2d 888, 892-93 (Fla.Dist.Ct. App.2001) (We also note that the Auto-Owners' insurance policies were not warranty policies providing coverage for construction defeciencies or defective workmanship. Comprehensive liability policies generally do not provide coverage to a contractor for deficiencies in its own work.); Auto Owners Ins. Co. v. Tripp Constr., Inc., 737 So.2d 600, 601 (Fla.Dist. Ct.App.1999) (CGL policies protect against only personal injury or property damage resulting from defective work, not for the repair of the work itself); Aetna Cas. & Sur. Co. of Am. v. Deluxe Sys., Inc., of Fla., 711 So.2d 1293, 1296 (Fla.Dist.Ct. App.1998) (quoting LaMarche, 390 So.2d at 326, for the proposition that the `purpose of ... comprehensive liability insurance coverage is to provide protection for personal injury or for property damage caused by the completed product, but not for the replacement and repair of that product'); Lassiter Constr. Co. v. Am. States Ins. Co., 699 So.2d 768, 769 n. 1 (Fla.Dist.Ct.App.1997) (same); Home Owners Warranty Corp. v. Hanover Ins. Co., 683 So.2d 527, 529 (Fla.Dist.Ct.App. 1996) (concluding, based on LaMarche, that the CGL policy, which was similar to the Policies here, did not provide coverage for repair or replacement of defective work, and rejecting argument that exclusion identical to exclusion ( l ) created such coverage); Tucker Constr. Co. v. Michigan Mut. Ins. Co., 423 So.2d 525, 528 (Fla.Dist. Ct.App.1982) (same); see also Auto Owners Ins. Co. v. Travelers Cas. & Sur. Co., 227 F.Supp.2d 1248, 1262 (M.D.Fla.2002) (applying Florida law to similar policy and concluding that, while the policy language was different from those in LaMarche, Florida courts examining the same CGL policies . . . in this case continue to hold that CGL policies do not cover the costs to repair and/or replace defective construction performed by subcontractors). 73 Most of the post- LaMarche cases are distinguishable in that the courts rested their decisions, at least in part, on specific policy language or factual circumstances that do not exist here. See Marvin Dev. Co., 805 So.2d at 891-92 (policy excluded PCOH coverage); Deluxe Sys., 711 So.2d at 1296-97 (claims fell within two different exclusions); Lassiter, 699 So.2d at 770 (no coverage for repair or replacement of subcontractor's faulty work because claim fell within exclusion for work on real property by the insured or any other contractors or subcontractors working directly or indirectly on [the insured's] behalf); Tucker, 423 So.2d at 528-29 (claims fell within exclusion for property damage to work performed by the named insured). However, in each case cited above, the courts nevertheless went beyond the language of the particular policies in issue and reaffirmed the LaMarche holding that repair or replacement costs for defective work are not the type of costs covered by CGL policies generally. Further, at least one of those cases, the district court's decision in Travelers, 227 F.Supp.2d at 1263, involves policy language identical to the Policies here and similar factual circumstances.
74 Although the majority of Florida interim appellate courts have concluded CGL policies do not cover repair or replacement of the defective construction itself, in J.S.U.B., Inc. v. United States Fire Insurance Co., 906 So.2d 303 (Fla.Dist.Ct.App. 2005), the Florida Court of Appeal, Second District, came to the opposite conclusion. In J.S.U.B., the claims at issue related to damage resulting from the subcontractor's faulty work in constructing houses, and the insurer argued that the damages were outside the scope of the CGL policies. The court acknowledged LaMarche and its progeny, but concluded that both the standard CGL provisions and the controlling law had changed since LaMarche. 3 75 The Florida court first noted that the policies contained broad insuring language covering property damage caused by an occurrence, defined as an accident, including continuous or repeated exposure to substantially the same general harmful conditions. J.S.U.B., 906 So.2d at 308. Accident was undefined in the policies. Id At the time LaMarche was decided, Florida law defined accident, for insurance coverage purposes, to exclude the natural and probable consequences of the insured's deliberate actions. Id. (citing Hardware Mut. Cas. Co. v. Gerrits, 65 So.2d 69 (Fla.1953)). But in State Farm Fire & Casualty Co. v. CTC Development Corp., 720 So.2d 1072, 1076 (Fla.1998), the Florida Supreme Court broadened the scope of insurance coverage, concluding that an occurrence included not only an accidental event but also `the unexpected injury or damage resulting from the insured's intentional acts. Thus, if the resulting damages are unintended, the resulting damage is accidental even though the original acts were intentional.' J.S.U.B., 906 So.2d at 308 (quoting CTC, 720 So.2d at 1075) (other quotation marks and citation omitted). In CTC, the Florida Supreme Court concluded that a contractor's construction of a home in violation of setback requirements, where the contractor was under the mistaken belief that it had obtained a variance, was an occurrence under the policy. CTC, 720 So.2d at 1076. Based on this expanded definition of coverage events, the J.S.U.B. court concluded that LaMarche and its progeny no longer compelled the conclusion that CGL policies do not provide coverage for claims for repair or replacement of the subcontractor's faulty work. J.S.U.B., 906 So.2d at 309. 76 The Florida court in J.S.U.B. also looked to the policies' exclusions to determine that coverage existed. The court acknowledged that, under Florida law, an exclusion cannot create coverage. However, the Florida court also recognized that `[r]eading the coverage provision of the policy together with the exclusionary clause could support a conclusion that coverage is provided in the ... policy for occurrences where the insured did not intend or expect to cause harm to the third party.' Id. at 310 (quoting CTC, 720 So.2d at 1075). 77 In J.S.U.B., the Florida court also addressed the same exclusions relevant here and found that they supported coverage of claims for repair or replacement of a subcontractor's faulty work. Specifically, the Florida court reasoned as follows: 78 ... Subparagraph 6 excludes coverage for restoration, repair, or replacement that is required because of work that was incorrectly performed. However, an exception to the exclusion is for property damage included in the products-completed operations hazard. If we were to read the policies as suggested by the Insurer, without considering the import of the exclusions, it is arguable that this exclusion and exception to the exclusion would have no meaning or effect in this policy .... 79 Similarly, the Damage To Your Work exclusion contains an exception for work performed by a subcontractor on the Builder's behalf. The Insurer does not contend that the exclusion applies: instead, it simply reiterates its view that the policy simply provides no coverage for the Builder's claims. If the policies provide coverage, the exception to this exclusion would apply because the damage that occurred was the result of the subcontractors' use of poor soil and improper soil compaction and testing. Accordingly, based on our conclusion that the policies provide coverage, this exclusion does not apply because the exception to the exclusion applies. 80 Id. Thus, the Florida court concluded that LaMarche was inapplicable, that the policies provided coverage, and that none of the exclusions applied. Id. at 310-11. However, the Florida Supreme Court on April 5, 2006, accepted jurisdiction of the J.S.U.B. case and ordered briefing.
81 The facts relevant to this appeal are basically undisputed and the parties agree that Florida law controls. Thus, the appeal turns on the purely legal question of the interpretation of the standard terms in CGL policies, such as the Policies in issue. 82 Where there is doubt in the interpretation of state law, a federal court may certify the question to the state supreme court to avoid making unnecessary Erie guesses and to offer the state court the opportunity to interpret or change existing law. Tobin v. Michigan Mut. Ins. Co., 398 F.3d 1267, 1274 (11th Cir.2005). As discussed above, there is dissension among Florida intermediate appellate courts, as well as federal district courts, about the continued vitality of LaMarche and its applicability to standard CGL policies such as the Policies. Accordingly, because this appeal depends on resolution of a question of Florida law that will affect many other cases, we certify the issue to the Florida Supreme Court. 83
84 CERTIFICATION FROM THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT TO THE SUPREME COURT OF FLORIDA, PURSUANT TO ARTICLE V, SECTION 3(B)(6) OF THE FLORIDA CONSTITUTION. 85 TO THE SUPREME COURT OF FLORIDA AND ITS HONORABLE JUSTICES: 86 We certify the following question to the Supreme Court of Florida for determination under Florida law: 87 DOES A STANDARD FORM COMPREHENSIVE GENERAL LIABILITY POLICY WITH PRODUCT COMPLETED OPERATIONS HAZARD COVERAGE, SUCH AS THE POLICIES DESCRIBED HERE, ISSUED TO A GENERAL CONTRACTOR, COVER THE GENERAL CONTRACTOR'S LIABILITY TO A THIRD PARTY FOR THE COSTS OF REPAIR OR REPLACEMENT OF DEFECTIVE WORK BY ITS SUBCONTRACTOR? 88 The phrasing used in this certified question should not restrict the Supreme Court's consideration of the problem posed by this case. This latitude extends to the Supreme Court's restatement of the issue or issues and the manner in which the answers is given. Tobin, 398 F.3d at 1275 (quotation marks and citations omitted). To assist the Supreme Court's consideration of the case, the entire record, along with the briefs of the parties, shall be transmitted to the Supreme Court of Florida.