Facts
In Liberty Surplus Lines Insurance Corp. v. Kaufman Lynn Construction, Inc., No. 23-12715 (11th Cir. 3/5/2025), Kaufman was the general contractor for a corporate campus. As part of a contractor controlled insurance program (“CCIP”), Kaufman procured a wrap CGL policy from Liberty insuring Kaufman and its subcontractors. The project included demolition of multiple existing buildings and new construction of multiple buildings, a power plant, and a parking garage. Kaufman completed the construction of several of the buildings, plus the power plant and parking garage, which were put to use by the owner. However, before Kaufman could complete the rest of the project–demolition of the existing buildings and construction of the remaining new buildings, a storm resulted in moisture penetration property damage to the completed buildings. The owner asserted a claim against Kaufman which in turn filed suit against multiple subcontractors and also made a claim under the Liberty policy. Liberty denied coverage under a “course of construction” exclusion which provided that the policy did not apply to property damage to the project “during the course of construction until the project is completed.” The policy described the project as consisting of demolition of existing buildings and construction of multiple new buildings. Liberty filed suit against Kaufman seeking a judicial declaration of no duty to defend or indemnify.
Holding
The federal district trial court granted Liberty’s motion for summary judgment. On appeal, the Eleventh Circuit affirmed. The issue was whether the course of construction exclusion precluded any coverage for property damage to any part of the project until the entire project was complete or whether it applied only to those parts of the project that had not been completed. The Eleventh Circuit rejected Kaufman’s argument that the exclusion was ambiguous. The ambiguity argument was apparently that, if Liberty meant the “entire” project, it should have expressly said so by including the word “entire.” While acknowledging that use of “entire project” would have been better, the court states “Liberty’s failure to adhere to the standards of impeccable draftsmanship here does not result in ambiguity.” But the court does not stop there, next looking to the application for the policy to resolve what it alludes to as a “possible ambiguity.” In support of the rule that the application is part of the policy, the court cites to a 1973 Florida Supreme Court decision. While acknowledging that Kaufman’s application for the Liberty policy says there are two phases to the project, the court relies on references in the application to one start date and one completion date for the project. The court states: “So the project encompassed both phases and would be completed only when those phases were finished.
Takeaways
There are two takeaways here. First, in evaluating coverage where Florida law potentially applies, the application needs to be part of the analysis. Second, in drafting policy language, “impeccable draftsmanship” should be the standard. While the Eleventh Circuit excuses Liberty’s failure to meet that standard here, that failure was both risky and costly as coverage litigation is both uncertain and expensive.