Opinion ID: 3047664
Heading Depth: 1
Heading Rank: 2

Heading: A.2, infra.

Text: 6 against Auchter was not for “property damage” as required to trigger coverage under the policies. If the district court granted Amerisure’s requested relief, Amerisure would have no duty to indemnify or defend Auchter in its dispute with Amelia. While the declaratory judgment action was pending, the arbitration between Amelia and Auchter took place. The arbitrator7 conducted a two-day hearing at which counsel for Amelia and Auchter made appearances.8 The arbitrator found Auchter liable to Amelia for $2,167,313.67 in damages for the defective installation of the roof, which constituted a breach of Auchter’s contract with Amelia. Specifically, the arbitrator found that the requirement of compliance with the 110 mile an hour wind velocity was a condition of the contract and that the failure itself combined with other evidence such as missing screws and excessively loose tiles constitute [proof] by a preponderance of [the] evidence that the roof was not installed in accordance with contract requirements. Appellees’ Br. app. 3, at 4 (citing Cmty. Television Servs., Inc. v. Dresser Indus., Inc., 586 F.2d 637 (8th Cir. 1978)). 7 The arbitration clause in the construction contract provided for arbitration before a panel of three arbitrators. Amelia and Auchter, however, stipulated that the arbitration would be heard instead by a single arbitrator. 8 Amerisure was not a party to the arbitration. Amerisure sent a representative to the arbitration proceedings but the representative did not participate in the arbitration. 7 The amount of damages was supported, in part, by evidence that the entire roof had to be replaced. For one, the roof design did not permit inspection and replacement of defectively installed tiles on an individual basis. Individual replacement was impossible because “in order to determine whether all tiles have been properly nailed or screwed down, it would be required to remove the tiles in the next tier, in essence requiring removal of the entire roof.” Id. at 5. Moreover, tiles identical to those used on the Inn’s roof were unavailable. Amelia then demanded payment of the award. Auchter, however, made no payment.9 On August 7, 2009, Amelia converted the arbitrator’s award to a final judgment against Auchter in state court. This judgment includes the full amount awarded by the arbitrator plus interest and fees. Thus, Amelia has a state court judgment in hand that it is prepared to execute, but has not yet executed against any party. 2. We return briefly to the insurance policies at issue in Amerisure’s declaratory judgment action. Amerisure insured Auchter between May 1, 2002, and January 1, 2006, through a series of CGL and UL policies. In all, Amerisure 9 The record before us indicates that at some point before the arbitration finished, Auchter ceased doing business. 8 issued three CGL policies and three UL policies with coverage effective during this period. For the present case, however, only two policies are relevant: the CGL and UL policies in effect in August 2002—the approximate time the Inn’s roof began to fail.10 Nevertheless, all the CGLs are standard form Insurance Services Office (“ISO”) policies.11 The operative policy language is thus identical for each of Amerisure’s CGLs issued for coverage between 2002 and 2006. The CGL policy provides, in relevant part, “[Amerisure] will pay those sums that the insured becomes legally obligated to pay as damages because of . . . ‘property damage’ to which this insurance applies. . . . This insurance applies to . . . ‘property damage’ only if . . . the ‘property damage’ is caused by an ‘occurrence[.]’” The CGL defines “property damage” as “[p]hysical injury to tangible property, including all resulting loss of use of that property. . . . or . . . [l]oss of use of tangible property that is not physically injured.” An “occurrence” is “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” 10 Those policies are CGL policy CPP 1156636090002, effective May 1, 2002, to May 1, 2003, and UL policy CUF-1319343, effective May 1, 2002, to May 1, 2003. 11 As the Florida Supreme Court has explained, the ISO is “an industry organization that promulgates various standard insurance policies that are utilized by insurers throughout the country, including the standard CGL policy at issue in this case.” U.S. Fire Ins. Co. v. J.S.U.B., Inc., 979 So. 2d 871, 879 n.6 (Fla. 2007) (citing Hartford Fire Ins. Co. v. California, 509 U.S. 764, 772, 113 S. Ct. 2891, 2896, 125 L. Ed. 2d 612 (1993)). 9 After this general grant of coverage, the GCL excludes certain losses: j. “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 those 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. “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 subcontractor. Exclusion (l) is known as the “your work” exclusion. See, e.g., U.S. Fire Ins. Co. v. J.S.U.B., Inc., 979 So. 2d 871, 879 (Fla. 2007). The exception to the “your work” exclusion is known as the subcontractor exception. See id. 10 The Amerisure CGL policy issued to Auchter also included PCOH coverage. PCOH is defined under the policy as follows: [PCOH] [i]ncludes all . . . “property damage” occurring away from premises you own or rent and arising out of “your product” or “your work” except: (1) Products that are still in your physical possession; or (2) Work that has not yet been completed or abandoned. However, “your work” will be deemed completed at the earliest of the following times: (a) When all of the work called for in your contract has been completed. (b) When all of the work to be done at the job site has been completed if your contract calls for work at more than one job site. (c) 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. Work that may need service, maintenance, correction, repair or replacement, but which is otherwise complete, will be treated as completed. The UL provides coverage under the following provision: “[Amerisure] will pay on behalf of the insured those sums that the insured becomes legally obligated to pay as damages which exceed the limit of ‘underlying liability insurance’ . . . 11 because of . . . ‘property damage’ . . . caused by an ‘occurrence’ to which this insurance applies.” The CGL is the “underlying liability insurance” for the UL. The UL covers the same “property damage” as the CGL. Coverage under the UL, therefore, depends on the existence of coverage under the CGL. In effect, without “property damage” as covered by the CGL, there is no coverage under the UL. 3. The insurance coverage discussed in the previous subsection lays the foundation for the arguments in the declaratory judgment action. Amerisure moved for summary judgment, seeking a declaration of no coverage for the arbitrator’s award—enforceable through the state court judgment—under Amerisure’s policies, on the ground that none of the arbitration damages awarded to Amelia constitute “property damage.” Amelia filed a cross-motion for summary judgment seeking a declaration of coverage under Amerisure’s policies.12 Although named as a defendant, Auchter, which the record indicates has ceased doing business, hired no counsel and took no part in the suit. Both Amerisure and Amelia conceded that the crux of the dispute was whether the roof had suffered “property damage.” In support of its position, 12 Although Amelia filed a Chapter 11 bankruptcy petition while the cross-motions for summary judgment were still pending, Amelia waived the automatic-stay benefits of 11 U.S.C. § 362(a) for purposes of litigating this dispute. 12 Amerisure argued that Amelia’s claim was essentially one to recover the roof it had paid for but not received; any damage was limited to the roof itself. In response, Amelia argued that the plain meaning of “property damage” under the CGL imposes no requirement that “other” property be damaged to trigger coverage. Even if such a requirement existed, Amelia argued, the cracked and lost roofing tiles themselves would constitute damaged property and would be covered because no CGL exclusion applied. Amelia proposed distinguishing between construction defects like the one in this case—where a defective installation caused some physical degradation of the project component and thus constituted “property damage”—and other breaches of contract that had not physically manifested themselves in a detrimental way. The parties did not dispute that the subcontractor’s installation of the roofing tiles was defective or that the defective installation constituted an “occurrence” under the CGL. It was also undisputed that the tiles themselves were nondefective. On February 4, 2010, the district court entered its order granting Amerisure’s motion for summary judgment, ruling that the damage to the roof was not “property damage,” and that Amerisure thus had no continuing duty to defend or to indemnify Auchter regarding the arbitrator’s award. The district court denied 13 Amelia’s motion and directed the clerk of the district court to enter a declaratory judgment for Amerisure, which was entered on February 5, 2010. B. Along with its order, the district court issued an opinion evaluating Florida Supreme Court jurisprudence on what qualifies as “property damage” under a CGL. Relying on two cases we discuss at length in part II, infra, the district court ruled that, under Florida law, claims solely for the repair and replacement of defective work are not claims for “property damage.” A claim for “property damage” requires physical injury to some tangible property other than the contractor’s own defective work. Applying these principles, the district court found that Amelia’s claim in the underlying arbitration did not allege property damage. The amounts Amelia sought were solely for the repair and replacement of the entire roof. Amelia never alleged that the defective installation caused damage to any other component of the project but the roof. The district court rejected as irrelevant Amelia’s argument that the roofing damage was “property damage” because Amelia owned the tiles at the time of installation. Amelia’s claim was not, the court observed, for individual broken tiles, but rather to remedy the failure of the roofing system.