VOLUME XV, NUMBER 6
June, 2003

THE FLORIDA SUPREME COURT GRAPPLES WITH THE DESIGN DEFECT EXCLUSION AND SUE AND LABOR CLAUSES

In Swire Pacific Holdings, Inc. v. Zurich Ins. Co., 28 FLW S307 (Fla. April 10, 2003) the United States Court of Appeals, Eleventh Circuit certified the following three questions for the Florida Supreme Court to decide.

1. Whether an insurance policy’s Designed Defect Exclusion Clause bars coverage for the cost of constant repairing the structural deficiencies in a condominium building;
2. If the first question is answered in the affirmative, whether the policy’s Sue and Labor Clause applies only in the case of an actual, covered loss;
3. If the second question is answered in the negative, whether the policy’s Sue and Labor Clause covers the costs of repairing the structural deficiencies in a condominium building.

Swire Pacific Holdings, Inc. (“Swire”) was the owner/developer of a high-rise condominium building in Miami. It was insured by Zurich Insurance Company (“Zurich”). Zurich provided a builders’ risk policy to Swire effective February 24, 1997 through February 24, 1999.

In March of 1998, the Miami building department informed Swire that its structural engineer, Richard Klein, was being investigated for failure to comply with appropriate government building codes and ordinances on certain design projects. As a result of this information, Swire’s agent, CHM Consulting Engineers, performed a peer review of Klein’s structural work and determined that there were numerous errors and omissions in the project which needed to be corrected. During CHM’s peer review, the City of Miami halted the issuance of a Certificate of Occupancy to Swire. Because of the finding of design defects, Swire paid $4.5 million in altering the plans and construction to bring the building in compliance with government building codes. Swire then filed a claim with Zurich to recover the costs associated with correcting the errors and omissions in the project. Zurich denied coverage, stating that Swire did not have a physical loss, but was seeking coverage for the cost of correcting design defects.

In October 1999, Swire filed a two-count lawsuit against Zurich seeking declaratory and monetary relief to determine Swire’s rights to insurance coverage under the policy and money damages arising out of Zurich’s failures to provide coverage for loss incurred in correcting the structural deficiencies of the building. Zurich filed an answer containing several affirmative defenses, one which stated that Swire’s loss was specifically excluded from coverage due to the Design Defect Exclusion Clause of the policy.

Both Swire and Zurich filed cross-motions for summary judgment and the district court granted summary judgment in favor of Zurich. The court concluded that the Design Defect Exclusion Clause barred coverage for Swire’s claim and that the Design Defect Exclusion Clause applied to the sue and labor expenses. The court further determined that the Sue and Labor Clause applied only to actual, covered loss or damages. Swire appealed to the court of Appeals for the Eleventh Circuit. The Eleventh Circuit determined that the case presented several issues of first impression under Florida law and certified the questions to the Florida Supreme Court.

The insurance agreement provided coverage for physical loss or damage to the property insured, except as excluded in the policy. The Design Defects Exclusion Clause provided as follows:

Loss or damage caused by fault, defect, error or omission in design, plan or specification, but this exclusion shall not apply to physical loss or damage resulting from such fault, defect, error or omission in design, plan or specification.

The Florida Supreme Court determined that this clause was unambiguous and that “loss or damage” as used in the first prong of the clause clearly meant loss caused directly by the design defect. The Supreme Court also declared that the only “reasonable definition for the term ‘physical loss or damage’ as used in the ensuing loss provision of the clause is damage that occurs subsequent to, and as a result of, a design defect.” Since the exclusion clause was unambiguous, the court then considered whether Swire’s $4.5 Million expended to correct the construction following discovery of the design defects was covered as a physical loss which would result in reimbursement under the policy. The court determined that Swire’s claim was an attempt to recover the expenses incurred in repairing the design defect and that no ensuing or separate loss resulted to invoke the exception to the exclusionary provision. Thus, the expenses claimed were clearly excluded under the first provision of the Design Defect Exclusion Clause. The court concluded that to hold otherwise would allow the ensuing loss provision to completely consume the design defect exclusion.

Since the first question was answered in the affirmative, the court moved on to consider the second issue whether the Sue and Labor clause applied only in the case of an actual, covered loss. The Sue and Labor Clause in the policy stated as follows:

“In case of loss or damage, it shall be lawful and necessary for the insured... to sue, labor and travel for, in and about the defense, safeguard and recovery of the insured property hereunder or any part thereof without prejudice to this insurance, nor shall the acts of the insured or the Company, in recovering, saving, and preserving the property insured in case of loss or damage be considered a waiver or an acceptance of abandonment. The expenses so incurred shall be borne by the insured and the Company, proportionately to the extent of their respective interests.”

The court noted that this was not a coverage clause and that the provisions had nothing concerning payment for prevention efforts. Thus, sue and labor expenses were only recoverable in the case of loss or damage, not simply when one asserted that the expenses were to prevent loss as Swire did. Therefore, the Supreme Court answered the second question in the affirmative that the Sue and Labor Clause applied only in the case of an actual loss. “In reaching this decision, the court found that any other conclusion would result in the Sue and Labor Clause becoming the primary coverage provision of the contract without regard to the content of the contract or the coverage it was designed to provide.”

Because the second issue was answered in the affirmative, the court did not go on to consider the third issue certified by the Court of Appeals.

Jacqueline A. Grady

PLAINTIFFS’ PROPOSAL FOR SETTLEMENT MUST SPECIFY AMOUNT ALLOCATED TO EACH PLAINTIFF

The case of Willis Shaw Express, Inc. v. Hilyer Sod, Inc., Fla. S. Ct. 28 FLW S225 (Fla. S. Ct. March 13, 2003), involves two different plaintiffs seeking recovery for damages to a tractor trailer and its contents against the Defendant, Hilyer Sod, Inc. The plaintiffs filed a joint proposal of settlement in the total amount of $95,001.00. However, the joint proposal of settlement did not specify the amount that each plaintiff was to receive. After a trial, the plaintiffs prevailed in an amount greater than 25% over the proposal of settlement and the trial court awarded attorneys’ fees and costs pursuant to the proposal of settlement. See §768.79(1), Fla. Stat. (1999). The First District Court of Appeal reversed the trial court’s order of attorneys’ fees and costs because it found that an offer of settlement made jointly by multiple plaintiffs must apportion amounts attributed to each party.

Accepting jurisdiction over this matter, the Supreme Court noted that different district courts had contrary rulings regarding joint proposals of settlement. The Florida Supreme Court upheld the First District’s decision in reversing the trial court’s award of attorneys’ fees and costs finding that the proposal for settlement was invalid because it failed to apportion the amount attributed to each plaintiff. In its holding, the Supreme Court noted the following:

1. The language of the offer of judgment statute must be strictly construed because the offer of judgment statute (§768.79) and Florida Rule of Civil Procedure are in derogation of common law that each party pay its own fees.
2. The strict construction of the plain language of Rule 1.442(c)(3) requires that offers of judgment made by multiple offerers must apportion the amount attributed to each offerer.
3. Florida Rule of Civil Procedure 1.442 was amended in 1996 and mandates greater detail in settlement proposals than its predecessor in hopes that it will enable parties to focus with greater specificity in their negotiations and thereby facilitate more settlement and less litigation.

In conclusion, proposals for settlements, demands for judgment or offers of judgment made pursuant to Florida Statute and Florida Rule of Civil Procedure must apportion the dollar amount attributed to each plaintiff and/or each defendant to be valid.

Steven C. Teebagy

SUPREME COURT BROADENS APPEARANCE OF DECEPTIVE AND UNFAIR TRADE PRACTICES ACT

The Supreme Court broadens the application of the Florida Deceptive and Unfair Trade Practices Act (hereinafter FDUTPA). In the case of PNR, Inc. v. Beacon Property Management Inc., 28 FLW S229, decided by the Supreme Court on March 13, 2003. The Court established the principle that the FDUTPA may be applied in a private cause of action arising from unfair or deceptive acts involving a single party in a single transaction or directed to a single contract.

The material facts in this case involved a business dispute concerning a commercial tenancy where PRN, Inc. was the tenant who operated a restaurant in the building owned by Defendant, Ocean One North, Inc. The Defendant, Beacon Property Management Inc., served as the property manager for the building leased. Under the provisions of the lease agreement, Ocean One was responsible for keeping the major structural components of the building in repair.

PNR’s request for maintenance of the leased building went unattended, which resulted in numerous building code violations and eventually, the north wall of the leased structure collapsed. The collapse forced PNR to cease restaurant operations for a period of seven months. Following an eight-day jury trial, the jury returned a verdict against the defendant on the basis that the lessor, through its property management agent, had failed to properly maintain the premises and the failure to maintain the same constituted an unfair and deceptive trade practice under the FDUTPA. The jury awarded $ 1.2 million in damages including $500,000.00 in punitive damages.

On appeal, the Fourth District reversed the verdict, based upon the appellate court’s analysis that the FDUTPA does not embrace a single act of iniquity or deception. The court’s position was premised on Section 501.204(1), which utilized the terms “methods” and “practices” (in the plural). The appellate court determined that the operative words “methods” and “practices” connoted a “regular and systematic way of accomplishing something” and a “habitual, customary action or way of doing something.”

Concluding that the evidence in the subject case was limited to a single lease in question and a single tenant, the Fourth District did not imply the existence of a method or practice with regards to other leases and other tenants in order to be within the plurality of the language used in the statute.

In reversing the opinion of the Fourth District, the Supreme Court clearly annunciated that construing the terms of Section 501.204(1) relating to “methods and practices” in pari materi with other terms and provisions of the FDUTPA, it was clear that the prohibition contained in the legislative intent of the statute was broad enough to protect against singular instances of unfair and deceptive conduct. Citing the definitions section of the Florida Statute (Section 1.01)(1), which provides in substance that the plural includes the singular where the context of the statutory provision allows, the court determined that anyone aggrieved by a violation of this part may bring an action to obtain a declaratory judgment that an act or practice violates this part and to enjoin a person who has violated the Act. The court determined that the provisions of the Act that provided that a person who has suffered a loss as a result of a violation of this Act may recover damages.

In summation, the court concluded that the FDUTPA applies to private causes of action arising from a single unfair or deceptive act in the conduct of any trade or commerce, even if it involves only a single party, a single trier of action, or a single contract. The court reiterated that an unfair practice is one that offends established public policy and one that is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.

Based on the court’s broad interpretation and application of the FDUTPA, it appears to enhance the utility of the Act as a useful tool for plaintiffs’ attorneys pursuing consumer-based complaints.

Andrew DeGraffenreidt, III