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Construction company battles with insurance over definition of “suit”

A construction company, like any other professional business, has a responsibility to carry insurance coverage. Their insurance policy should provide protection against any claims filed against them. This is usually in the form of providing legal counsel, and paying all legal expenses and/or damages, as well as any bodily injuries.

In 2012, a general contractor completed construction on a high-rise condominium project in Florida. Within months of completion, the company had received numerous Notices of violations under Chapter 558, Florida Statutes. Most were for construction defects. The owner was also claiming damages to the building.

The company implored its insurance company to provide defense for the company against the Notices. The insurance company denied on grounds that the policy would provide counsel only if a suit was filed, but claimed that Notices were not considered a “suit” under their policy.

This left the contractor having to find his own counsel to defend the Notices. By the time the Notices had reached more than 800, the insurance company finally, under a Reservation of Rights – and still arguing the Notices were not a suit -- hired counsel for the general contractor. But by this time, the contractor decided to stay with his own counsel and was able to get all claims settled without a suit being filed.

Then the general contractor and his counsel filed a suit against the insurance company for failing their duty to defend and indemnify. The insurance company won the first round, as the court agreed that a civil proceeding was not a “suit.” But the contractor didn’t give up, and filed an appeal with the Eleventh Circuit Court.

After examining the verbiage in the insurance policy, the Florida Supreme Court made a new ruling. The conclusion was that the process for resolving the Notices under Chapter 558 (which was used by the contractor and his counsel) did not qualify as a civil proceeding; however, it did qualify as an “alternative dispute resolution,” which the insurance policy listed as a definition of the word “suit.”

Persistence and a good legal team paid off. Contractors will always require legal protection and a committed legal team who understands their business. Notices or claims against construction companies are sure to arise from time to time. Having a legal team well-versed in construction law onboard at the start of a project is perhaps the best insurance policy. 

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