By: Stearns, Roberts & Guttentag, LLC

Typically, CGL policies provide a “limit” for each occurrence. Therefore, the question arises as to whether a single “occurrence” or multiple “occurrences” exist for damages arising under a breach of contract. In Mid-Continent Cas. Co. v. Basdeo, 2012 WL 2094376 (11th Cir. June 12, 2012), the Eleventh Circuit held that multiple “occurrences” could arise from contract work relating to the repair of the roof, and thus, exposed the insurer to multiple coverage limits.

In Mid-Continent Cas. Co. v. Basdeo, the case arose in the aftermath of damages to Southgate Gardens Condominium Association, Inc. (“Southgate”) from Hurricane Wilma. Southgate hired First State to complete the tarping, and also to remove and replace the roofs of the Southgate buildings, remove debris, and make interior repairs to the individual units. First State did not complete its work properly. First, the tarps that First State installed were inadequate or did not stay in place. As a result, the water entered into one of the units. In addition, when applying the tarps, First State caused holes to be made into the roofs, leading to additional leakage into the units. Second, First State left the mansards open. Third, the “peeled-back condition of the roofing” left the interior exposed to the elements and rain entered through the openings.

The trial court held that there were three “occurrences” under the policy – one for the tarps, a second for the mansards, and a third for First State’s work on the flat portion of the roofs. Accordingly, because the CGL policy provided coverage of $1 million limit per occurrence, a $3 million dollar coverage limit applied. The Eleventh Circuit affirmed.

The Eleventh Circuit first acknowledged that “occurrence” is defined under the CGL policy as “an accident, including continuous or related exposure to substantially the same general harmful conditions.” The Court quoted the Florida Supreme Court’s decision in Kiokos, noting that Florida has adopted the “cause theory,” as follows:

[it] is the act that causes the damage, which is neither expected nor intended from the standpoint of the insured, that constitutes the occurrence
. . .
The inclusion of the ‘continuous or repeated exposure’ language does not restrict the definition of ‘occurrence’ but rather expends it by including ongoing and slowly developing injuries, such as those in the field of toxic torts.

Koikos v. Travelers Ins. Co., 849 So. 2d 263, 271 and 268 (Fla. 2003). The Eleventh Circuit rejected Mid-Continent’s argument that damages caused in connection with First State’s work on the flat top portion of the roofs is not a separate occurrence from the damages caused in connection with First State’s work on the mansards. Rather, the Court held that an insurer is not limited to one occurrence for all damages caused by a breach of contract. To do so, the insurer would have to clearly draft the policy to accomplish that result, and here, it did not do so. Second, the Court held that Mid-Continent failed to demonstrate the “proximate causal link” between the mansard work and the flat top portion of the roofs. The Court stated that “it is not enough to show that the work on the flat top portion of the roofs was a but-for cause of the damages resulting from the work on the mansards.” Rather, Mid-Continent would have to show that “by leaving the mansards open, the damages resulting from the deficient work on the flat top portions of the roof were reasonably foreseeable.” As such, Mid-Continent was liable for three occurrences at $1 million dollars each, totaling $3 million dollars.

This case illustrates that, under a CGL policy, multiple “occurrences” and multiple “limits” can apply under a CGL policy related to performance of a contractor’s contract work when an insurer fails to establish a foreseeable proximate cause link between damages occurring on two separate areas of the project.

About the Author: The construction law firm of Stearns, Roberts & Guttentag, LLC is one of South Florida’s most recognized names in construction dispute avoidance and resolution. The firm represents contractors, subcontractors, material suppliers, property owners, condominium associations, sureties and design professionals throughout the State of Florida. The senior attorneys of Stearns, Roberts & Guttentag, LLC, are all board certified by the Florida bar in construction law and offer more than 40 years of combined experience in construction dispute avoidance and resolution. The firm has earned a reputation throughout the construction industry and legal community as skillful counselors, litigators, and negotiators on behalf of plaintiffs and defendants in the construction setting.

_{1 The Eleventh Circuit also reviewed whether the trial court’s erred in holding that Mid-Continent was liable under the policy despite its “coverage defense”, and insured’s failure to cooperate. In all respects, the Eleventh Circuit affirmed because Mid-Continent failed to comply with 627.426, Fla. Stat., which sets forth two requirements: 1) written notice of its reservation of rights to the insured within 30 days after the insurer knew of the coverage defense, and 2) written notice of refusal to defend, non-waiver agreement, or retention of independent counsel within 60 days of receipt of a complaint or compliance with 627.426(2)(a) but not later than 30 days before trial.}