Insurer Has Duty To Defend Where State Law Is Unclear Regarding Whether Its Policy Is Triggered

The Eleventh Circuit held that the insurer breached its duty to defend its policyholder, a building contractor, where Florida law was uncertain regarding whether property damage triggers the policy in place when damage occurs (injury-in-fact) or, alternatively, when damage is discovered (manifestation). The Court ultimately determined that the injury-in-fact trigger methodology applied and, because defendant insurer issued the policy when the property damage occurred, the insurer also had a duty to indemnify.

Homeowners Hugh and Katherine Carithers (“Carithers”) sued their homebuilder Cronk Duch Miller & Associates, Inc. (“Cronk Duch”) for defects in the construction of their house.  The Carithers claimed that they did not discover the property damage until 2010, and established that the property damage occurred in 2005. Cronk Duch’s insurer, Mid-Continent Casualty Company (Mid-Continent), issued coverage to Cronk Duch on an annual basis from 2005 to 2008. Mid-Continent refused to defend Cronk Duch in the action. The Carithers and Cronk Duch entered into a consent judgment for $90,000 in favor of the Carithers, including Cronk Duch’s assignment of its right to collect on the judgment from Mid-Continent.

The Carithers sued Mid-Continent for breaching its duty to defend Cronk Duch and to recover indemnity for the amount of the consent judgment. Mid-Continent argued that it had no duty to defend because the proper trigger for determining whether property damage occurs during a policy period is the “manifestation” trigger, which provides that damage occurs when it is discovered by reasonable inspection or that damage occurs when it is actually discovered. According to Mid-Continent, because the Carithers alleged that the property damage could not have been discovered until 2010, the duty to defend under its 2005-2008 policies was not triggered. The Carithers contended that property damage occurs when the property is damaged, i.e., the “injury-in-fact” trigger applies.

In affirming the district court’s grant of summary judgment in favor of the Carithers as to Mid-Continent’s breach of its duty to defend, the Eleventh Circuit held: “Given the uncertainty in the law at the time, Mid-Continent did not know whether there would be coverage for the damages sought in the underlying action because Florida courts had not decided which trigger applies. Mid-Continent was required to resolve this uncertainty in favor of the insured and offer a defense to Cronk Duch.”

The Eleventh Circuit also determined that Mid-Continent had a duty to indemnify, because the “injury-in-fact” trigger applied where it was factually established that the property damage occurred in 2005: “The potential for coverage is triggered when an ‘occurrence’ results in ‘property damage.’  There is no requirement that the damages ‘manifest’ themselves during the policy period. Rather, it is the damage itself which must occur during the policy period for coverage to be effective.” Carithers v. Mid-Continent Cas. Co., Cas No. 3:12-cv-00890-MMH-PDB (11th Cir. April 7, 2015).