The Eleventh Circuit, in Mid-Continent Casualty Co. v. Adams Homes of Northwest Florida, Inc., No. 17-12660, 2018 WL 834896, at * 3-4 (11th Cir. Feb. 13, 2018) (per curiam), recently held under Florida law that a homebuilder’s alleged failure to implement a proper drainage system that allowed for neighborhood flooding triggered a general liability insurer’s duty to defend because the allegations involved a potentially covered loss of use of covered property.
Homeowners in Driftwood Estates filed suit against their builder for failure to use a proper drainage plan causing the homes, streets, and common areas to be prone to flooding. The policyholder, Adams Homes, was insured under commercial general liability policies issued by Mid-Continent. The policies contained standard-form language, which provided coverage for liability because of, among other things, “property damage,” which was defined to include “physical injury to tangible property” or “loss of use of tangible property.”
The district court found that the homeowners did not allege any physical injury to their homes and that Mid-Continent, therefore, was not obligated to defend Adams Homes against the homeowners’ suit. On appeal, the Eleventh Circuit reversed and found that while the homeowners did not allege physical injury to property, the homeowners did allege a loss of use of their property, which was sufficient to trigger a defense under the language of the policy. The Court drew a parallel to a Florida appellate court decision in which the court found a similarly covered loss of use, where it was alleged that a neighbor’s dog prevented the resident from using and enjoying his home. As the Eleventh Circuit explained, “[p]hysical discomfort in the use of property, like insecurity and unsafety in the use of property, raises the specter of loss of use.” The Court concluded, therefore, that the allegations of flooding were enough to allege a potentially covered loss of use. The Court also rejected Mid-Continent’s contention that there was no duty to defend because the homeowners sought only economic damages, stating there was no support for finding that “general-liability policies do not cover purely economic damages in a case like this one.”
The Adams Homes decision serves to remind policyholders of multiple ways that coverage may potentially arise under broad standard-form general liability policies. Even in the absence of direct physical damage to property, a mere loss of use of covered property may alone be sufficient to trigger coverage. Policyholders, therefore, should review their policy language carefully and thoroughly to ensure that all potential angles for recovery have been pursued, and that all potential types of damage, including pure economic damage, have been considered. A copy of the Court’s decision can be found here.