Florida Appellate Court Confirms That Builder's Risk Policy is Property Policy and a First-Party Contract That Does Not Indemnify a Third-Party
December, 2003
In U.S. Fire Ins. Co. v. Sovran Constr. Co., Inc., 854 So.2d 221 (Fla. App. 2003), a Florida appellate court reversed the trial court’s holding that a builder’s risk policy was a liability policy. Following the Florida Supreme Court’s decision in Swire Pac. Holdings, Inc. v. Zurich Ins. Co., 845 So.2d 161 (Fla. 2003), the District Court of Appeal held that a builder’s risk policy is a property policy. The U.S. Fire court also followed the holding in Edward J. Gerrits, Inc. v. Nat’l. Union Fire Ins. Co. of Pittsburgh, PA, 634 So.2d 712 (Fla. App. 1994), that a builder’s risk policy is a first-party contract which does not indemnify a third party for faulty workmanship.
Facts
Sovran and Jade East Towers Developers (“Developers”) were constructing a condominium project in Dustin, Florida. After occupancy and taking control over the units, the Jade East Towers Owners Association, Inc. (“Association”) and its individual unit owners brought claims against Sovran and Developers for damages that resulted from construction defects and deficiencies. The trial court entered judgment in favor of the Association.
Sovran and Developers brought third-party actions against U.S. Fire. Developers purchased a builder’s risk policy from U.S. Fire that was effective during construction of the condominium project. In assessing coverage and liability under the builder’s risk insurance policy, the trial court ruled that the builder’s policy must indemnify the Association for all claimed construction defects and deficiencies. The trial court reasoned that the builder's risk policy was essentially a liability policy, stating that “[t]his court finds that the policy must cover, and does cover, the losses claimed against Sovran by the Plaintiff in this case.”
Analysis
The District Court of Appeal reversed, holding that a builder’s risk policy is not a liability policy. Following the Florida Supreme Court’s holding in Swire, the court determined that “[b]uilder’s risk insurance is a type of property insurance coverage, not liability insurance or warranty coverage. The purpose of this type of insurance is to provide protection for fortuitous loss sustained during the construction of the building.” Swire, 845 So.2d at 165. The U.S. Fire court further relied on the reasoning in Gerrits that a builder’s risk policy is a first-party contract which does not indemnify a third party, such as the condominium association in this case, for faulty workmanship.
Learning Point: A builder’s risk policy is not a liability policy but rather a type of property insurance coverage intended to provide protection for fortuitous losses sustained during construction. Further, a builder’s risk policy is a first-party contract which does not indemnify a third party for faulty workmanship.
Learning Point:
A builder's risk policy is not a liability policy but rather a type of property insurance coverage intended to provide protection for fortuitous losses sustained during construction. Further, a builder's risk policy is a first-party contract which does not indemnify a third party for faulty workmanship.
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