Over recent years and after a push from construction trade groups, states across the county adopted notice and opportunity to repair (“NOR”) statutes. The statutes generally provide that before a property owner initiates an action in court against a builder, the owner should give the builder notice of the alleged defect, permit the builder to inspect the property, and allow the builder to either reject the claim or offer to settle the claim through repairs or a payment.  The purpose of the statutes is to allow builders and owners to quickly and cheaply resolve construction defect claims without getting bogged down in litigation.

The effectiveness of these statutes has been hampered by their interplay, or lack thereof, with builders’ commercial general liability (“CGL”) insurance policies. Builders typically rely on CGL policies and the defense and indemnity they provide, to respond to, assess, defend against, and resolve construction defect claims.  Responding to and assessing an owner’s notice under a NOR statute requires personnel and legal and technical expertise that builders often do not have on staff and do not wish to pay for when a CGL carrier will cover those expenses should litigation ensure.  Also, a builder may be reluctant to offer to repair or settle a claim in response to a NOR notice without the builder’s CGL carrier covering the loss.  In addition to those issues, builders may need the assistance of legal counsel in responding to a NOR notice because in many states the builder’s response to the notice has important effects in any future litigation.

For these reasons, builders and their CGL insurers have been litigating whether a builder’s receipt of notice under a NOR statute triggers its CGL insurer’s duty to defend it. A CGL policy typically provides that the insurer must defend the insured whenever there is a “suit,” and to date four courts—California, Colorado, the United States Court of Appeals for the Tenth Circuit applying Utah law, and the United States District Court for the Southern District of Florida applying Florida law—have addressed whether a NOR notice constitutes a suit triggering the insurer’s duty to defend.

In the Florida case, the district court found a NOR notice was not a suit and the insurer had no duty to defend the insured contractor.[1]  The contractor appealed to the United States Court of Appeals for the Eleventh Circuit, and in August, the Eleventh Circuit issued a decision certifying the question to the Florida Supreme Court.[2]  The certified question means that the Florida Supreme Court will ultimately decide whether a NOR notice triggers the duty to defend under Florida law, but in certifying the question, the Eleventh Circuit gave a strong indication of its opinion that a NOR notice constitutes a suit triggering the duty to defend, and the Eleventh Circuit’s indication of its opinion will likely influence the Florida Supreme Court and other courts addressing this issue.

Reviewing the district court’s conclusion that the term “suit” in the CGL policy was not ambiguous, the Eleventh Circuit expressed its opinion that “we are not as sure.” The Eleventh Circuit went on to note that “there are reasonable arguments presented by both sides” as to whether a NOR notice constitutes a suit, the existence of different reasonable interpretations of a term often indicates ambiguity, and ambiguity in an insurance policy is to be construed in favor of the insured.  Resolution of this issue in Florida awaits a decision from the Florida Supreme Court and even then, this issue will continue to play out on a state-by-state basis across the country, but the Eleventh Circuit’s recent statements place one more weight on the scale on the side of requiring CGL carriers to defend their insureds upon receipt on a NOR notice.

[1] Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co., No. 13-80831, 2015 WL 3539755 (S.D. Fl., June 4, 2015).

[2] Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co., No. 15-12816 (11th Cir., Aug. 2, 2016).