Meridian Construction & Development, LLC v. Admiral Insurance

Citations: 105 F. Supp. 3d 1331; 2013 U.S. Dist. LEXIS 190030; 2013 WL 10605832Docket: Case No. 8:12-cv-971-T-26AEP

Court: District Court, M.D. Florida; April 2, 2013; Federal District Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Cross motions for summary judgment have been filed in the case involving Meridian Construction and Development, LLC (Meridian) and Admiral Insurance Company (Admiral). Admiral seeks summary judgment, while Meridian opposes it and also files its own motion for summary judgment. The court has reviewed the submissions and determined that Admiral's motion will be granted, and Meridian's motion will be denied.

The background involves Meridian, a contractor for D.R. Horton, Inc. (Horton), which entered into a contract in September 2004 for the Terrace Ridge condominium project in Davenport, Florida. Admiral issued three consecutive commercial general liability (CGL) policies to Meridian from May 2005 to 2007. A faulty roofing system discovered in 2007 resulted in a consolidated lawsuit in state court involving the condominium association, Horton, Meridian, Hartford Fire Insurance Company, and several subcontractors.

In this diversity action, Meridian seeks a declaration for Admiral to defend and indemnify it in the state court lawsuit and claims damages for breach of the CGL and/or excess liability policies. The CGL policies contain a special condition endorsement requiring Meridian to obtain specific documentation from its subcontractors to ensure coverage. This endorsement stipulates that no coverage for bodily injury, property damage, or personal and advertising injury is provided unless Meridian obtains Certificates of Insurance that identify it as an Additional Insured under the subcontractors' CGL insurance, with limits equal to or greater than those specified in the policy. The endorsement also states that the subcontractors' insurance should be primary to Admiral's coverage.

A written contract must be established between the independent contractor/subcontractor and the primary party, stipulating that the former will hold harmless, defend, and indemnify the latter against all potential losses, claims, and damages, including those arising from the primary party's own negligence, except in cases of sole negligence. The contract should require the independent contractor/subcontractor to name the primary party as an Additional Insured under their Commercial General Liability Insurance before commencing work. The insurance coverage for the primary party will be excess and not contribute to any other insurance that names them as an Additional Insured, regardless of policy language.

The primary party is required to retain Certificates of Insurance and Additional Insured Endorsements for up to ten years after the policy period and must provide copies upon request. Written contracts with independent contractors/subcontractors must also be retained for the same duration and made available upon request. If the independent contractor's insurance declines to provide a defense, the primary party’s insurer will take over, and the primary party must cooperate in seeking reimbursement from the independent contractor’s insurer.

In relation to litigation, in April 2007, Horton raised concerns about a roofing system, leading to a site visit by Meridian's president and representatives from the roofing subcontractor, The Roof Depot, Inc. It was discovered that Horton had engaged another subcontractor, Collis Roofing, Inc., complicating the situation. Horton sued Meridian and Joe N. Guy Co. Inc. in September 2008 for construction defects, followed by a lawsuit from the Association against Horton in October 2009. Horton subsequently filed a third-party complaint against Meridian and others, and Meridian later filed a fourth-party complaint against several subcontractors. The 2008 lawsuit was dismissed in 2011, consolidating claims into the ongoing 2009 lawsuit, scheduled for trial in July 2014.

Further, on September 19, 2008, Meridian’s representative, Deriso, notified insurance agent David DiPonzio about the 2008 lawsuit, believing DiPonzio represented Admiral Insurance. However, Admiral claims no notification was received at that time. Deriso maintains that DiPonzio reviewed subcontractor agreements and insurance certificates for compliance with the necessary endorsements.

Deriso claims he was not informed of deficiencies in the subcontracts or insurance certificates. Admiral's representative, Ms. Letonya Darby, stated that DiPonzio was not an Admiral representative. Admiral, acting as an excess and surplus-lines insurer through agent Genesee General, received a construction defect notice from the Association on February 25, 2009, which Horton forwarded to Meridian on March 16, 2009. Deriso informed DiPonzio of the claims in March 2009, but there is no record of Admiral being notified about the 2008 lawsuit or the construction defect notice at that time. By July 13, 2009, Admiral acknowledged awareness of the claim in letters to Meridian and conducted an investigative site visit with Deriso on July 15, 2009. Meridian's counsel sent various documents related to the 2008 lawsuit to Admiral's adjuster, Austin, in subsequent months, but Ms. Darby disputes that Admiral received these documents. In 2010 or 2011, Admiral closed the file, believing Hartford was responsible for the case. Deriso sent certified letters to Admiral on December 27, 2011, and January 28, 2012, demanding defense and indemnification for Meridian. Meridian's counsel communicated with Ms. Darby about insurance certificates on January 10, 2012, to which she responded, highlighting conditions precedent for coverage regarding additional insured status. 

Meridian initiated section 558.004 notices to subcontractors starting in May 2009, with further notices sent throughout 2010. None of these included requests for defense or indemnification. Of the fourteen subcontractors involved, eight are part of the underlying action. On January 26, 2012, Meridian demanded defense and indemnification from six subcontractors, but did not contact their CGL insurers, resulting in two insurers declining coverage based on Meridian’s lack of additional insured status. Further requests sent in 2012 also yielded declinations from CGL insurers, citing similar reasons.

Two CGL insurers have not yet clarified their positions on coverage. Summary judgment is appropriate when no genuine dispute exists regarding material facts, as per Fed. R.Civ. P. 56(a). Courts must assess records favorably towards the nonmoving party, referencing United States v. Diebold, Inc. In cases with cross-motions for summary judgment, each motion is evaluated independently, favoring the nonmoving party's inferences. Summary judgment is particularly suitable for resolving insurance coverage disputes since contract interpretation is a legal question for the court, supported by Technical Coating Applicators, Inc. v. U.S. Fidelity and Guar. Co. and DEC Elec. Inc. v. Raphael Constr. Corp. Given the diversity jurisdiction, the federal court applies the substantive law of Florida, as established in Sphinx Int'l, Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. A declaratory judgment can ascertain the duty to defend or indemnify, as noted in Higgins v. State Farm Fire & Cas. Co. If any ambiguity in the policy arises, it is a legal issue for the court to resolve, following Gulf Tampa Drydock Co. v. Great Atlantic Ins. Co. Under Florida law, insurance contracts are interpreted according to their plain language, with ambiguous provisions favoring the insured, as stated in Swire Pac. Holdings, Inc. v. Zurich Ins. Co. Complexity does not automatically denote ambiguity; each policy should be read holistically. The duty to defend is independent from the duty to indemnify, with the former determined solely by the complaint's allegations. If those allegations indicate an exclusion applies, the insurer has no duty to defend, unless the exclusion is based on facts not typically included in the underlying complaint, according to Landis v. Allstate Ins. Co. and Higgins.

Admiral asserts it has no obligation to defend or indemnify Meridian due to Meridian's failure to meet conditions precedent for coverage. Specifically, Meridian did not obtain Certificates of Insurance from its subcontractors that identified Admiral as an additional insured and confirmed that the subcontractors' insurance was primary. Additionally, Meridian failed to secure written contracts requiring subcontractors to hold Admiral harmless and to defend and indemnify it, as well as to retain relevant documents for ten years. Meridian argues that these conditions should be viewed as prerequisites for coverage to commence, claiming that the lack of compliance voided the insurance agreement from the start. It contends that Admiral waived its right to challenge compliance because a representative reviewed the relevant documents before Admiral raised the issue in 2012. However, the Court must first determine whether the conditions are essential to coverage or the existence of the policy itself. Previous cases, notably Halikoytakis and Sharp Gen. Contractors, have established that similar endorsements requiring certificates and additional insured status are indeed conditions precedent to coverage, and failure to comply can result in the insurer's lack of duty to defend or indemnify.

In Scottsdale Ins. Co. v. Essex Ins. Co., the court addressed the validity of an endorsement that voids liability for subcontractor work unless specific insurance conditions are met. The appellate court reversed the trial court’s decision, emphasizing that the absence of a clause explicitly voiding coverage does not negate the endorsement's effect when considered within the entire policy. The endorsement’s language indicated that the conditions listed were indeed conditions for coverage. 

The court clarified that while the policy's language might initially suggest a condition precedent to coverage, a holistic reading confirms these conditions are essential for coverage to exist. Furthermore, the endorsement establishes that Admiral, under its policy, is not required to defend Meridian for subcontractor work unless all special conditions are satisfied, and the subcontractors’ insurers have also declined to defend. The policy delineates that coverage is excess to the subcontractors’ insurance, which neither specified primacy nor contribution to Admiral's coverage.

The court rejected Meridian’s argument that Admiral waived its right to challenge the sufficiency of subcontracts and certificates of insurance, asserting that DiPonzio, who reviewed these documents, acted as Meridian’s retail agent, not as Admiral's surplus-lines agent. Therefore, the duty to defend was not triggered by the current circumstances.

DiPonzio reviewed documents as Meridian's retail agent, not as an agent of Admiral. Meridian argues that Admiral has a duty to defend against a complaint alleging consequential damages due to defective work by subcontractors. The court finds this case fits within an exception to the general rule regarding the duty to defend, as referenced in Higgins and Composite Structures, Inc. v. Continental Ins. Co. The complaint's references to subcontractor insurance and contracts would not typically be included in the underlying action. Consequently, the court concludes that neither the duty to defend nor indemnify is applicable, granting Admiral Insurance Company's Motion for Summary Judgment and denying Meridian's Motion. The judgment is directed against Meridian Construction and Development, LLC, with the case to be closed. The contract explicitly identifies Meridian Construction and Development, LLC, and Joe N. Guy Co. Inc. Joint Venture as the contractors. The insurance policy was canceled on December 25, 2007. Additionally, Hartford is named as the surety for Meridian in a performance bond related to the project, yet did not provide a defense for Meridian. Eight subcontractors are currently being sued as fourth-party defendants in the underlying action, and the construction contract was made between Horton and the joint venture of Meridian and Joe N. Guy Co. Inc.

The attorney identifies the involved entities collectively as the Joint Venture rather than solely Meridian. Eight subcontractors are named as defendants in the underlying lawsuit. Regarding indemnification, it is generally required that the underlying claim be resolved to assess coverage. However, if the allegations cannot trigger a duty to indemnify, the court may rule on this before the conclusion of the underlying case. The contracts referenced did not meet specified conditions for indemnification. Meridian argues that a failure to fulfill conditions precedent to the contract's formation renders it void from the outset. Relevant case law supports this position, including instances where insurance policies were declared void due to misrepresentation or non-fulfillment of conditions. In similar cases, courts found endorsements as enforceable conditions precedent to coverage, emphasizing that compliance with such endorsements is necessary for coverage relating to subcontractors’ work. The cited endorsements indicate that coverage is contingent upon meeting specified conditions.