HUGH A. CARITHERS, Individual, KATHERINE S. CARITHERS, Individual, Plaintiffs - Appellees,
MID-CONTINENT CASUALTY COMPANY, a corporation, Defendant - Appellant
Appeal from the United States District Court for the Middle District of Florida. D.C. Docket No. 3:12-cv-00890-MMH-PDB.
For HUGH A. CARITHERS, Individual, KATHERINE S. CARITHERS, Individual, Plaintiffs - Appellees: Robert Edward Warren I, Law Offices of Robert E. Warren P.A., Ponte Verda Beach, FL.
For MID-CONTINENT CASUALTY COMPANY, a corporation, Defendant - Appellant: John R. Catizone, Morris D. Pataky, Litchfield Cavo, LLP, Fort Lauderdale, FL.
Before ED CARNES, Chief Judge, COX, Circuit Judge, and ROYAL,[*] District Judge.
COX, Circuit Judge:
This is an insurance dispute, in a diversity case, arising out of defects in the construction of a house for the Plaintiffs, Hugh and Katherine Carithers (" the Carithers" ). Florida law applies. The policy at issue is a post-1986 commercial general liability policy with products-completed operations coverage issued to general contractor Cronk Duch Miller & Associates, Inc. (" Cronk Duch" ). Cronk Duch assigned the rights under the policy to the Carithers. We address a number of coverage issues related to damage to a completed project caused by the defective work of sub-contractors. We affirm in part and reverse in part.
I. Facts and Procedural History
After discovering a number of defects in their home, the Carithers filed suit against their homebuilder, Cronk Duch, in state court (" the underlying action" ). Cronk Duch's insurance company, Mid-Continent Casualty Company (" Mid-Continent" ), refused to defend the action on behalf of Cronk Duch. The Carithers and Cronk Duch then entered into a consent judgment in the underlying action for approximately $90,000, in favor of the Carithers. The consent judgment also assigned to the Carithers Cronk Duch's right to collect the judgment amount from Mid-Continent. The Carithers then filed this action against Mid-Continent in state court to collect from Mid-Continent on the settlement. Mid-Continent removed the case to the Middle District of Florida. The Carithers are the Plaintiffs in this action due to Cronk Duch's assignment of its rights to them.
Mid-Continent issued four insurance policies to Cronk Duch. The first policy provided coverage from March 9, 2005, to March 9, 2006, the second from March 9, 2006, to March 9, 2007, the third from March 9, 2007, to March 9, 2008, and the fourth from March 9, 2008 to October 6, 2008. The policies read, in relevant part,
SECTION 1 -- COVERAGES COVERAGE A BODILY INJURY AND PROPERTY DAMAGE LIABILITY
1. Insuring Agreement
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 the insured against any " suit" seeking those damages . . . .
b. This insurance applies to " bodily injury" and " property damage" only if . . . .
(2)The " bodily injury" or " property damage" occurs during the policy period . . . .
This insurance does not apply to . . . .
j. Damage To Property
" 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 these 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. Damage To Your Work
" 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 sub-contractor . . . .
SECTION V -- DEFINITIONS . . . .
13. " Occurrence" means an accident, including continuous or repeated exposure to substantially the same general harmful conditions . . . .
17. " Property damage" means:
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 . . . .
This insurance does not apply to:
1. " Bodily injury", " property damage", " personal or advertising injury" or " medical payments" arising out of, resulting from, caused by, contributed to, attributed to, or in any way related to any fungus, mildew, mold or resulting allergens . . . .
(Insurance Policy # 1, DE 69-4 at 16--29, 42).
The parties filed cross-motions for summary judgment on the issue of Mid-Continent's duty to defend Cronk Duch in the underlying action. The complaint in the underlying action alleged that the defects could not have been discovered until 2010. Since Mid-Continent had only agreed to insure Cronk Duch until 2008, Mid-Continent argued, it was not liable for damages that could not have been discovered by reasonable inspection before 2010. On the duty to defend issue, the district court granted summary judgment for the Carithers and denied summary judgment for Mid-Continent. In reaching this conclusion, the district court held that the proper " trigger" for determining if property damage " occurred" during the policy period is the date of the actual damage. The district court rejected Mid-Continent's argument that property damage occurs when it is discovered, or, alternatively, when it could be discovered by reasonable inspection.
The coverage issue was decided following a bench trial. During the trial, the Carithers's expert testified that the damage to the Carithers's garage was the product of wood rot. This expert also testified that wood rot is usually caused by fungus. After this, Mid-Continent asked for leave to amend its answer to assert a defense based on an exclusion in the policy for damage caused by fungus and mold. The district judge denied the motion, holding that Mid-Continent had impermissibly delayed in raising this issue and that an amendment was not permissible under Fla. Stat. § 627.426(2)(a), which, according to the district court, requires thirty days written notice if an insurer is going to deny coverage based on a coverage defense.
Following trial, the court found that the damage occurred in 2005, and, therefore, that the 2005--2006 policy applied. Next, applying the 2005--2006 policy, the court concluded that the policy's coverage for " property damage" does not include the defective work of a sub-contractor, but does include damage to other property caused by the defective work of a sub-contractor. Based on this conclusion, the court determined: (1) that a faulty electrical system caused property damage to the electrical appliances; (2) that the incorrect application of exterior brick coating caused property damage to the brick; (3) that the use of inadequate adhesive and an inadequate base in the installation of tile caused property damage to the tile; and (4) that the incorrect construction of a balcony, which allowed water to seep into the ceilings and walls of the garage leading to wood rot, caused property damage to the garage.
The court concluded that Mid-Continent was liable for all of the damages awarded in the state court judgment. This included the cost of repairing the balcony itself, which, the district judge ...