Where faulty installation caused damage to some roof tiles but not others, a CGL policy did not provide coverage for the cost of repairing or replacing an entire roof. Absent allegations that work damaged other portions of the building including components outside of the roof, the court found no coverage.
The policyholder, a general contractor, entered into a contract with Amelia Island Company (Amelia) for the construction of various buildings. Under the agreement, Amelia paid the insured for some of the building materials, including the roof tiles that were delivered to the site prior to their use in the project. After the project was completed, some of the roof tiles fell from one of the buildings. Although repairs were made, the problem continued and was exacerbated by several powerful storms. A couple of years later, Amelia filed a demand for arbitration claiming that the insured was responsible for over $2 million in damages for defectively installing the roof. Amelia, however, did not allege that the roof’s defective installation damaged any part of the building other than the roof itself. The arbitrators ultimately decided that the insured was liable for over $2 million in damages for the roof’s defective installation. The damage award was based in part on evidence that the entire roof had to be replaced because the tiles currently on the roof were unavailable and replacing individual tiles on the roof was impossible due to the roof’s design. The insured’s insurer filed a declaratory judgment action seeking a determination that it was not responsible for the arbitration damages because the cost of removing and replacing the entire roof did not constitute property damage under the policy. Policy Language The policy provided coverage for “those sums that the insured becomes legally obligated to pay as damages” “because of…property damage” that is “caused by an occurrence that takes place in the coverage territory” and “occurs during the policy period.” “Property damage” was defined as “physical injury to tangible property, including all resulting loss of use of that property.”
The damage to the roof did not constitute property damage. U.S. District Court Rationale I. First, the court examined two recent Florida Supreme Court decisions, U.S. Fire Ins. Co. v. J.S.U.B., Inc., 979 S.2d 871 (Fla. 2007), reviewed at LIRB, Comm. Liab. Ins. L. Rev. 2320 (2007) and Auto-Owners Ins. Co. v. Pozzi Window Company, 984 So.2d 1241 (Fla. 2008), reviewed at LIRB, Comm. Liab Ins. L. Rev. 2464 (2008). In J.S.U.B., the subcontractor’s use of poor soil and improper soil compaction techniques at several construction sites damaged other components of the completed homes. After reviewing court decisions in other jurisdictions, the Florida Supreme Court concluded that the damage to the components of the completed homes did not involve a claim for the cost of repairing the subcontractor’s defective work and therefore the court concluded that the policy provided coverage. II. In Pozzi, the Florida Supreme Court concluded that coverage was unavailable. In that case, the homeowner purchased Pozzi manufactured windows directly from a retailer. A subcontractor was to install the windows under the insured’s supervision. After the home was completed and the owner moved in, he discovered that the windows leaked which caused water damage to the surrounding walls, floors and ceiling as well as to the windows themselves. The homeowner sued the contractor and the contractor’s insurer paid the homeowner for the damage the leaky windows caused to his personal property but refused to pay for the windows’ repair or replacement. The Pozzi court considered whether or not the cost of repairing or replacing the defective windows was covered under the policy. The Pozzi court explained that if the windows were not defective prior to their installation, then coverage would exist for repairing or replacing the windows. If, however, the windows were defective prior to being installed and the damage to the completed home was caused by both the defective windows and their improper installation, then there wouldn’t be coverage for the defective window unless the defective window caused property damage to other tangible property. III. Applying these decisions to the present case, the court held that the policy did not provide coverage for the damaged roof. The court acknowledged that the present case was similar to Pozzi in that Amelia purchased the roof tiles like the homeowner did with the windows in Pozzi. However, unlike in Pozzi, in the present case, there was no allegation that the faulty installation damaged another component of the project. The present court found this distinction critical and equated the present case with those cases in which the damage was limited to the faulty work alone. IV. The insured’s arguments were unavailing. A. The insured equated the roof tiles to the windows in Pozzi and argued that its ownership of the roof tiles made them tangible property to which property damage could occur. The court acknowledged that there were cases in which ownership of a construction element made the element tangible property to which property damage could occur. However, Amelia’s ownership of the roof tiles did not fit this model. B. Next, the insured argued that the policy’s definition of “property damage” mandated coverage for the damage. The court agreed that a roof tile was tangible property and that the tiles that fell from the roof and broke sustained physical injury. Amelia, however, was not merely seeking to recover the cost of the tiles that fell and broke but rather sought coverage for replacing the entire roof, most of which was not damaged. Furthermore, the Florida courts have not read the “property damage” definition in isolation but rather have read it in the context of the entire policy and the purpose behind the CGL policy. With these principles in mind, the court held that the damage to the roof while costly and unfortunate was not property damage under the CGL policy.