Home builders in the Sunshine State received some rare good news in January when the Florida Supreme Court ruled 6-0 that an insurance company had to pay a builder for damages that resulted from faulty work done by a subcontractor.
The Florida decision marks the third time in the last year in which home builders won high-profile cases over insurance companies. Similar cases were decided in 2007 at the state Supreme Court level in Tennessee and Texas.
Home builders Pat Logue and Jim Sublett, the pair who started First Home Builders of Fort Myers, Fla., originally filed the Florida case in 1999. First Home was sold to Hovnanian Enterprises in 2005 and has been hit hard by the housing downturn, recently laying off about 200 employees.
The case stems from faulty testing and soil compaction work done by a local subcontractor. The defective work resulted in cracked walls and foundations on about 40 homes when the soil shifted after rainstorms. The builder paid millions of dollars to fix the defects and tried to get United States Fire Insurance Co. to cover the claim. The insurance company refused, and the case has been in the courts for almost a decade.
The crux of the decision: Most home builders with general liability insurance already believe that they are covered for faulty work done by a sub. Now, the Florida Supreme Court has clarified that coverage exists for property damage that arises after the home is completed out of negligent work done by a subcontractor.
“It’s much harder to get coverage if the damage occurs while the job is ongoing,” says Mark Boyle, the attorney for the builder.
“The message to home builders is that on your defects cases, your insurance companies need to be helping you,” he says.
At press time, the insurance company was in the process of filing for a rehearing, but Boyle says it’s very unlikely that the court will reverse a unanimous decision.
Boyle anticipates that the case will be sent back to the trial court to determine damages. He says the insurance company may be forced to pay well in excess of $2 million.—S.Z.