Duty to defend separated from duty to indemnify
Though the judges of the Eleventh Circuit ruled the insurer was bound to defend the insured, they said it was too early to determine the duty to indemnify.
The judges of the Eleventh Circuit affirmed a decision of the U.S. District Court for the Southern District of Florida that Cincinnati Specialty Underwriters must defend a subcontractor in a construction suit, but agreed that it was too early to decide whether Cincinnati also had a duty to indemnify the subcontractor.
PPE Casino Resorts (PPE) hired general contractor Tutor Perini Building Corporation (Tutor Perini) to build a new casino in Maryland. Tutor Perini, in turn, contracted with GM&P Consulting and Glazing Contractors, Inc. (GM&P) for the building’s exterior glazing, for which GM&P hired KNS Group, LLC (KNS). As part of its contract with GM&P, KNS obtained a commercial general liability (CGL) policy from Cincinnati Specialty Underwriters (Cincinnati) that named GM&P as an additional insured and would cover GM&P for damages caused, in whole or in part, by the work of KNS.
In June 2020, PPE sued Tutor Perini and its subcontractors because GM&P had allegedly installed defective windows and glazing that “creat[ed] a risk of property damage.” GM&P filed a third-party suit against KNS for defective construction. Shortly thereafter, Cincinnati filed suit for a declaratory judgment that they owed neither the duty to defend nor the duty to indemnify to GM&P or KNS. The judges of the Southern District of Florida held that while Cincinnati owed neither duty to GM&P, it did have the duty to defend KNS even if the duty to indemnify was yet to be determined.
Regarding GM&P, the Eleventh Circuit judges agreed that Cincinnati was not bound to defend or to indemnify GM&P as an “additional insured.” The KNS policy provided for GM&P’s defense and indemnity in case of negligence or damage caused by KNS or its agents. The underlying suit by PPE against GM&P made no mention of KNS or their work; it alleged that GM&P had been “negligent in its furnishing of materials and installation of the Glass Façade.” Since there was no allegation of negligence or damage against KNS, coverage for GM&P did not kick in under KNS’ policy.
For KNS, the Eleventh Circuit pointed out that for one, an insurer’s duty to defend was decided not on the merits of the case, but on whether the complaint against the insured alleges facts that bring the situation under the purview of the policy. For another, once an insured shows the situation is covered under the policy, it becomes the insurer’s burden to prove the case is excluded. Cincinnati cited Florida case law that said coverage did not apply to property damage under CGL policies when a contractor merely used defective materials or made a defective installation of materials. The Eleventh Circuit agreed. However, the underlying complaint had alleged that one non-KNS subcontractor had given GM&P certain materials to install in the building, and it could not be determined whether the materials themselves were defective or if GM&P had negligently installed them.
Cincinnati cited three policy exclusions to defend its position concerning KNS. The Eleventh Circuit rejected them all. One had been waived because Cincinnati had not cited that exclusion in the court below, and no party may make an argument on appeal that they did not make in the trial court. The other two, the court said, depended on whether the allegedly defective work had been within the intended scope of GM&P’s contract. While the judges said it was not the time to decide that particular issue, “Cincinnati ha[d] a duty to defend this whole suit if any claims [was] within its scope of coverage.”
Insurance Coverage Law Center editor’s note: The duty to defend and the duty to indemnify are separate and distinct. The duty to defend is determined by the “eight corners rule,” where a court will look at the complaint and the policy and determine whether an insurer is obligated to defend an insured. The complaint only needs to show, as it did in this case, that the situation giving rise to the suit could plausibly bring the suit within the scope of coverage. The duty to indemnify, or pay for the damages for which an insured has been found liable, is much narrower.
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