882 F. Supp. 2d 1340
S.D. Fla.2012Background
- JWR Construction, Florida corporation, insured under two identical Contracting Services Environmental Liability Policies with Great American; Gulf Reflections Condominium plaintiffs sue JWR for Chinese drywall defects in Lee County, Florida; Gulf Reflections action alleges five counts including strict liability, negligence, implied warranty, private nuisance, and vicarious liability via its installer; Great American defends on the basis of two policy exclusions: Faulty Workmanship/Own Work and Products Liability; the action is ongoing and the court will decide duty to defend now but not indemnity; New York law governs contract interpretation due to choice-of-law provision and diversity-based jurisdiction.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is the Faulty Workmanship/Own Work exclusion applicable to bar defense? | Great American: allegations fall wholly within exclusion. | JWR/Gulf Reflections: exclusion limited to insured’s own fault and may not cover subcontractor work. | No, exclusion does not wholly preclude defense; factual basis remains for potential indemnity. |
| Is the Products Liability exclusion applicable to bar defense? | Great American: drywall/sales/handling by insured or products constitute excluded conduct. | JWR/Gulf Reflections: drywall/unit not sold/distributed by JWR; products exclusion may not apply to contracting services absent sale/distribution by insured. | No, exclusion does not apply; JWR did not manufacture/sell/distribute drywall. |
| Did Frontier/Fitzpatrick require absence of any possible basis for indemnity to relieve defense obligation? | Great American: show no possible factual basis for indemnity. | N/A or opposing view. | Court requires absence of any possible basis for indemnity; insurer failed to meet this burden. |
| Is the duty to indemnify ripe or premature for this action? | Indemnity depends on underlying outcome. | Indemnity depends on underlying trial results; stay pending outcome. | Indemnity not decided now; duty to defend determined; indemnity remains premature. |
| Do subcontractors’ involvement affect the insured status for exclusions (i.e., is INSURED broad enough to include subcontractors)? | Elements of exclusion could include subcontractor conduct if within insured’s scope. | Subcontractors not insured; exclusion should apply only to acts by insured. | Insured does not include subcontractors; exclusions do not automatically apply to subcontractor conduct. |
Key Cases Cited
- Frontier Insulation Contrs. v. Merchants Mut. Ins. Co., 91 N.Y.2d 169 (N.Y. 1997) (duty to defend depends on possibility of indemnity, not four-corners test alone)
- Fitzpatrick v. American Honda Motor Co., 78 N.Y.2d 61 (N.Y. 1991) (duty to defend includes potential coverage, not only allegations in the complaint)
- Seaboard Sur. Co. v. Gillette Co., 64 N.Y.2d 304 (N.Y. 1984) (earlier standard for insurer's duty to defend based on complaint contents)
- Maroney v. New York Cent. Mut. Fire Ins. Co., 5 N.Y.3d 467 (N.Y. 2005) (‘arising out of’ broad interpretation for coverage determiners)
- New York Marine & General Insurance Co. v. United States Fire Ins. Co., 268 A.D.2d 19 (N.Y. App. Div. 1st Dept. 2000) (focus on acts giving rise to liability and exclusions based on those acts)