Pozzi Window Co. v. Auto-Owners Insurance , 446 F.3d 1178 ( 2006 )

[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FILED
FOR THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS
________________________ ELEVENTH CIRCUIT
APR 19, 2006
No. 05-10559 THOMAS K. KAHN
________________________ CLERK
D. C. Docket No. 02-23093-CV-TK
POZZI WINDOW COMPANY,
Plaintiff-Counter-
Defendant-Appellee
Cross-Appellant,
versus
AUTO-OWNERS INSURANCE,
Defendant-Counter-
Claimant-Third Party-
Plaintiff-Appellant
Cross-Appellee,
versus
CORAL CONSTRUCTION OF SOUTH FLORIDA, INC.,
JAMES IRBY,
Third-Party-Defendants.
________________________
Appeals from the United States District Court
for the Southern District of Florida
_________________________
(April 19, 2006)
Before TJOFLAT and HULL, Circuit Judges, and RESTANI *, Judge.
PER CURIAM:
This appeal involves an insurance coverage dispute. Appellant Auto-
Owners Insurance Company (“Auto-Owners”) issued to contractor Coral
Construction of South Florida, Inc. (“Coral”) and Coral’s president, James J. Irby,
two commercial general liability policies (the “Policies”). The insured Coral
assigned its rights under the Policies to Pozzi Window Company (“Pozzi”), which
manufactured the windows in a home that Coral constructed. The parties dispute
whether the Policies cover Coral and Irby’s liability for the repair or replacement
of the defectively installed windows. The district court concluded that coverage
existed and granted partial summary judgment in favor of Coral and Irby’s
assignee Pozzi and against Auto-Owners.
The case then proceeded to a jury trial before a magistrate judge on Pozzi’s
claims of bad faith and breach of contract against Auto-Owners. The jury found in
Pozzi’s favor and awarded Pozzi $500,000 in punitive damages on the bad faith
claim. Thereafter, the magistrate judge granted Auto-Owners’ motion for
judgment as a matter of law as to the bad-faith verdict and set aside the jury’s
punitive-damages award.
*
Honorable Jane A. Restani, Chief Judge, United States Court of International Trade,
sitting by designation.
2
Auto-Owners appeals the judgment in favor of Pozzi as to the coverage
issues and argues that its Policies do not cover the costs of repair or replacement of
defective work. After review and oral argument, we certify the coverage issue to
the Florida Supreme Court. In Pozzi’s cross-appeal, we affirm the magistrate
judge’s grant of judgment as a matter of law in favor of Auto-Owners on the bad
faith and punitive damages issues.
I. BACKGROUND
Auto-Owners issued to Coral and its president, Irby, two identical
commercial general liability policies. The Policies provided a general aggregate
limit of liability coverage (other than “Products-Completed Operations”) of $1
million as well as a separate aggregate limit of liability coverage for “Products-
Completed Operations” of $1 million.
A. Underlying litigation
During the coverage period, Coral and Irby constructed a multi-million-
dollar house for Jorge Perez in Coconut Grove, Florida. The house included
windows manufactured by Pozzi and installed by Coral’s subcontractor, Brian
Scott Builders, Inc. (“Scott”). The windows apparently were defectively installed
by Scott. After moving into the house in 1997, Perez complained of water damage
to his home as a result of leakage around the windows.
3
Perez filed suit in state court against Pozzi, Coral, and Scott. Pozzi entered
into a settlement with Perez, under which Pozzi agreed to remedy the defective
installation of the windows. In the same lawsuit, Pozzi filed cross-claims against
Coral for negligent supervision of Scott. Pozzi later added Irby as a defendant on
its cross-claims. Coral and Irby made a claim under the Policies, and Auto-Owners
asserted that the damages Pozzi was seeking were not covered.
Auto-Owners provided a defense for Coral under a reservation of rights.
Auto-Owners paid Perez for his claims for personal property damage caused by
leakage from the windows, and Perez released Coral and Irby from any liability.
However, Auto-Owners continued to maintain that there was no coverage for the
costs of repair or replacement of the windows.
Irby retained Stanley Klett as his attorney in the litigation with Pozzi.
According to Irby, Auto-Owners initially refused to pay for Irby’s defense. Klett
scheduled a mediation for April 2002.1 At the mediation, Auto-Owners took the
position that there was no coverage. As a result, Pozzi’s lawyers told Auto-
Owners to “go home,” and Pozzi, Coral, and Irby continued settlement talks
without Auto-Owners.
1
Shortly after the mediation was scheduled, Auto-Owners also brought a separate
declaratory judgment action in state court seeking a determination that the Policies did not cover
the repair or replacement costs. In this case, the district court denied Auto-Owners’ motion to
dismiss in light of that action, and Auto-Owners has not challenged that ruling in this appeal.
4
At the mediation, the parties reached an agreement in principle to settle all
claims among them. Under the proposed settlement, Pozzi would recover from
Coral and Irby and release its claims against them, and Coral and Irby would
assign to Pozzi their insurance claims against Auto-Owners.
Just after the mediation, having been informed of the separate settlement
discussions among Pozzi, Coral, and Irby, Auto-Owners had Thomas Berger, the
defense lawyer it had retained for Coral, file a notice of appearance on behalf of
Irby. Auto-Owners agreed to defend Irby under the same reservation of rights
issued to Coral. Auto-Owners, however, continued to refuse to reimburse Klett
and/or Irby for the fees Klett had incurred in representing Irby in the previous
seven months. According to Irby and Klett, although Berger and Klett had
communicated about the case, Irby and Klett were not informed prior to the filing
of the notice of appearance that Berger would be taking over Irby’s representation.
Shortly thereafter, Coral and Irby entered into a settlement with Pozzi. As
part of the settlement, Pozzi, Irby, and Coral signed onto a Consent Judgment,
which was entered by the state court. Under the Consent Judgment, Pozzi was
entitled to recover from Coral and Irby $646,726 in principal, $163,298 in
prejudgment interest, and post-judgment interest at the statutory rate. Also under
the settlement, Coral and Irby assigned to Pozzi their claims against Auto-Owners
5
and their rights under the Policies.
B. This Litigation
Pozzi then filed this lawsuit in the district court alleging that Auto-Owners
breached its insurance contract by denying coverage to Coral and Irby for Pozzi’s
claims in the underlying litigation, refusing to defend Irby or reimburse his defense
costs, and refusing to participate in the settlement (Count One). Pozzi also asserted
that Auto-Owners’ conduct was in bad faith (Count Two). Pozzi further asserted
that, as assignee of Coral’s and Irby’s rights under the Policies, it was entitled to
fees and costs incurred by Coral and Irby in prosecuting this action (Count Three).
Auto-Owners filed a counterclaim for declaratory relief, seeking a determination
that it had no duty to defend Coral and Irby and that there was no coverage under
the Policies for the claims asserted in the underlying litigation.
The parties filed cross-motions for summary judgment. The district court
concluded the Policies provided coverage for the repair or replacement of the
defective windows and that Auto-Owners had breached its duty to defend Irby.
The district court thus granted partial summary judgment in favor of Pozzi.
Pozzi and Auto-Owners then consented to the magistrate judge conducting
the jury trial on the issues of damages under the Policies, bad faith, and punitive
damages. Before the case was submitted for the jury’s consideration, Auto-
6
Owners moved for a directed verdict concluding that there was no bad faith and
that punitive damages were inappropriate. The magistrate judge reserved ruling on
Auto-Owners’ motion and submitted the case to the jury. The jury returned a
verdict for Pozzi, found bad faith, and awarded $500,000 in punitive damages
against Auto-Owners.
The jury also made the following findings in special interrogatories: (1) the
settlement between Coral or Irby and Pozzi was not the product of collusion or
fraud; (2) Pozzi and Coral and Irby acted reasonably and in good faith in settling
the underlying lawsuit but the settlement in the amount of $646,726, as specified in
the Consent Judgment in the underlying litigation, was not reasonable and in good
faith, and $300,000 was a reasonable settlement amount; (3) Auto-Owners acted in
bad faith in denying coverage for the cross-claims asserted by Pozzi against Coral
and Irby in the underlying litigation and in breaching its duty to defend Irby; and
(4) an award of $500,000 in punitive damages was warranted.
The magistrate judge entered final judgment in favor of Pozzi and awarded
compensatory and punitive damages in the amounts specified by the jury. Auto-
Owners then moved for judgment as a matter of law on three issues, arguing (1)
that the evidence was insufficient to support an award of punitive damages, (2) that
the evidence was insufficient to support the finding of bad faith, and (3) that, based
7
on the evidence at trial, the Policies did not provide coverage, and the district court
had erred in awarding partial summary judgment in favor of Pozzi on the coverage
issue. In the alternative, Auto-Owners sought a new trial on all issues.
The magistrate judge granted in part Auto-Owners’ motion for judgment as a
matter of law. Specifically, the magistrate judge concluded that the evidence was
insufficient to support the jury’s finding of bad faith or its award of punitive
damages and set aside the jury’s punitive-damages award. The magistrate judge
also conditionally granted the motion for new trial on these issues, specifying that
a new trial on bad faith and punitive damages should proceed in the event that its
decision is reversed or vacated on appeal. The magistrate judge concluded that he
was without authority to modify the district court’s earlier grant of partial summary
judgment as to coverage.
II. DISCUSSION
A. Auto-Owners’ Coverage Appeal
On appeal, Auto-Owners argues that its Policies do not provide products-
completed operations hazard (“PCOH”) coverage for repair or replacement of
defective work. Auto-Owners argues that under Florida law, comprehensive
general liability (“CGL”) policies, such as the Policies2 here, cover bodily injury
2
The Policies are form policies promulgated by the Insurance Services Offices (“ISO”)
and include standard language used in commercial general liability policies.
8
and property damage resulting from defective work, but not the repair or
replacement of the work itself.
The district court rejected this argument, concluding that the Policies
unambiguously provided PCOH coverage for repair or replacement of defective
work by a subcontractor. We first describe the relevant policy language and then
outline the Florida law.
1. The Policies
The Policies provide coverage for sums that the insured Coral is legally
obligated to pay as damages because of “bodily injury” and “property damage”
caused by an “occurrence” that takes place in the “coverage territory” and during
the policy period. Specifically, the Policies state as follows:
1. Insuring Agreement.
a. We will pay those sums that the insured becomes legally
obligated to pay as damages because of “bodily injury”
or “property damage” to which this insurance applies.
We will have the right and duty to defend any “suit”
seeking those damages. We may at our discretion
investigate any “occurrence” and settle any claim or
“suit” that may result. . . .
...
b. This insurance applies to “bodily injury” and “property
damage” only if:
(1) The “bodily injury” or “property damage” is caused
by an “occurrence” that takes place in the “coverage
territory”; and
(2) The “bodily injury” or “property damage” occurs
9
during the policy period.
The Policies also specifically provide for “Products-Completed Operations
Hazard” coverage limited to $1 million. The Policies define “Products-completed
operations hazard” as including all property damage “arising out of ‘your product’
or ‘your work,’” as follows:
11. a. “Products-completed operations hazard” includes all
“bodily injury” and “property damage” occurring away
from premises you own or rent and arising out of “your
product” or “your work” except:
(1) Products that are still in your physical possession; or
(2) Work that has not yet been completed or abandoned.
b. “Your work” will be deemed completed at the earliest of
the following times:
(1) When all of the work called for in your contract has
been completed.
(2) When all of the work to be done at the site has been
completed if your contract calls for work at more than
one site.
(3) When that part of the work done at a job site has been
put to its intended use by any person or organization
other than another contractor or subcontractor working
on the same project.
Work that may need service, maintenance, correction,
repair or replacement, but which is otherwise complete,
will be treated as completed.
c. This hazard does not include “bodily injury” or “property
damage” arising out of:
(1) The transportation of property, unless the injury or
damage arises out of a condition in or on a vehicle
created by the “loading or unloading” of it;
10
(2) The existence of tools, uninstalled equipment or
abandoned or unused materials;
(3) Products or operations for which the classification in
this Coverage Part or in our manual of rules includes
products or completed operations.
Pozzi claims that the defective windows here were completed work – in Perez’s
home, in which he resided – and that the damages arose out of that work and thus
would fall within the PCOH coverage definition.
The Policies further define “your work” to mean “[w]ork or operations
performed by you or on your behalf,” (emphasis added) as follows:
15. “Your work” means:
a. Work or operations performed by you or on your behalf; and
b. Materials, parts or equipment furnished in connection with
such work or operations.
“Your work” includes:
a. Warranties or representations made at any time with respect
to the fitness, quality, durability, performance or use of “your
work”; and
b. The providing of or failure to provide warnings or
instructions.
(Emphasis added.) Pozzi thus claims that the work performed by Coral’s
subcontractor Scott is also covered under the Policies.
The Policies also define “property damage” to mean:
a. Physical injury to tangible property, including all resulting loss of
use of that property. All such loss of use shall be deemed to occur at
the time of the physical injury that caused it; or
b. Loss of use of tangible property that is not physically injured. All
11
such loss shall be deemed to occur at the time of the “occurrence” that
caused it.
Thus, the main question is whether the “products-completed operations hazard”
(“PCOH”) coverage provided to Coral and Irby includes Coral and Irby’s liability
for the repair or replacement of defective work performed by Coral’s
subcontractor.
2. Exclusions
The Policies also contain two relevant exclusions, as follows:
2. Exclusions
This insurance does not apply to:
...
j. “Property damage” to:
...
(6) That particular part of any property that must be
restored, repaired or replaced because “your work” was
incorrectly performed on it.
...
Paragraph (6) of this exclusion does not apply to
“property damage” included in the “products-completed
operations hazard”.
...
l. “Property damage” to “your work” arising out of it or
any part of it and including in the “products-completed
operations hazard”.
This exclusion does not apply if the damaged work or the
work out of which the damage arises was performed on
your behalf by a subcontractor.
First, exclusion (j)(6) provides that the insurance does not apply to property
12
damage to “[t]hat particular part of any property that must be restored, repaired or
replaced because ‘your work’ was incorrectly performed on it.” However, the
Policies further provide that this exclusion “does not apply to ‘property damage’
included in the ‘products-completed operations hazard.’” Thus, if the costs of
repair or replacement are covered under the PCOH coverage, this exclusion does
not affect coverage.
Second, exclusion (l) excludes “‘[p]roperty damage’ to ‘your work’ arising
out of any part of it and including in the ‘products-completed operations hazard.’”
However, the Policies further provide that this exclusion “does not apply if the
damaged work or the work out of which the damage arises was performed on your
behalf by a subcontractor.” Here, the damaged or defective work was performed
on the insured Coral’s behalf by the subcontractor Scott. Thus, this exclusion also
is inapplicable.
Because none of the exclusions applies, the main question in this appeal
remains, as stated earlier, whether the Policies’ PCOH coverage includes Coral and
Irby’s liability for the cost of the repair or replacement of defective work
performed by Coral’s subcontractor.
3. LaMarche v. Shelby Mutual Insurance Co.
Viewing the language of the Policies in isolation, the district court’s
13
conclusion that coverage exists arguably would seem to be proper. The Policies
clearly cover PCOH property damage caused by occurrences in the coverage
territory during the coverage period. Defective construction is an “occurrence”
under Florida law, see State Farm Fire & Cas. Co. v. CTC Dev. Corp., 720 So. 2d
1072, 1076 (Fla. 1998), and it is undisputed that the defective work here occurred
in the coverage territory and during the coverage period. Thus, according to Pozzi,
the costs of repair or replacement are covered under the PCOH provision because it
is a sum the insureds Coral and Irby were legally obligated to pay as damages
because of property damage (damaged, incorrectly installed windows) arising out
of the subcontractor Scott’s work.
However, the Florida Supreme Court in LaMarche v. Shelby Mutual
Insurance Co., 390 So. 2d 325, 326 (Fla. 1980), concluded that CGL policies do
not cover the costs of repair and replacement of defective work, but only cover any
damage or injury resulting from the defective work. In LaMarche, the LaMarches
entered into a building contract for the construction of their home. The general
contractor’s work proved to be deficient, and the LaMarches sought payment from
the contractor’s CGL insurance company for the replacement and repair of the
defective work. The Florida Supreme Court concluded that the policy covered
personal injury or property damage as a result of faulty work, but that no coverage
14
existed for the replacement and repair costs:
To interpret the policy as providing coverage for construction
deficiencies, as asserted by the petitioners and a minority of states,
would enable a contractor to receive initial payment for the work from
the homeowner, then receive subsequent payment from his insurance
company to repair and correct deficiencies in his own work. We find
this interpretation was not the intent of the contractor and the
insurance company when they entered into the subject contract of
insurance, and the language of the policy clearly excludes this type of
coverage. Rather than coverage and payment for building flaws or
deficiencies, the policy instead covers damage caused by those flaws.
LaMarche, 390 So. 2d at 326. The Florida Supreme Court then adopted the
following reasoning of the Supreme Court of New Jersey in Weedo v. Stone-E-
Brick, Inc., 405 A.2d 788 (N.J. 1979):
An illustration of this fundamental point may serve to mark the
boundaries between “business risks” and occurrences giving rise to
insurable liability. When a craftsman applies stucco to an exterior
wall of a home in a faulty manner and discoloration, peeling and
chipping result, the poorly-performed work will perforce have to be
replaced or repaired by the tradesman or by a surety. On the other
hand, should the stucco peel and fall from the wall, and thereby cause
injury to the homeowner or his neighbor standing below or to a
passing automobile, an occurrence of harm arises which is the proper
subject of risk-sharing as provided by the type of policy before us in
this case.
LaMarche, 390 So. 2d at 326-27 (quoting Weedo, 405 A.2d at 791-92) (quotation
marks omitted).
The particular policy language and exclusions at issue in LaMarche were
different from those at issue here. However, the broad language and reasoning of
15
LaMarche does not seem to be dependent on the precise terms of the policy.
Rather, LaMarche indicates that CGL policies (as opposed to warranty policies, for
instance) generally do not cover the costs of repair or replacement of defective
work.
While the Florida Supreme Court has not reviewed the policy language here,
the majority of Florida intermediate appellate courts have applied LaMarche
broadly and concluded that CGL policies do not cover repair or replacement costs.
See, e.g., Auto-Owners Ins. Co. v. Marvin Dev. Corp., 805 So. 2d 888, 892-93
(Fla. Dist. Ct. App. 2001) (“We also note that the Auto-Owners’ insurance policies
were not warranty policies providing coverage for construction deficiencies or
defective workmanship. Comprehensive liability policies generally do not provide
coverage to a contractor for deficiencies in its own work.”); Auto Owners Ins. Co.
v. Tripp Constr., Inc., 737 So. 2d 600, 601 (Fla. Dist. Ct. App. 1999) (CGL
policies protect against only personal injury or property damage resulting from
defective work, not for the repair of the work itself); Aetna Cas. & Sur. Co. of Am.
v. Deluxe Sys., Inc., of Fla., 711 So. 2d 1293, 1296 (Fla. Dist. Ct. App. 1998)
(quoting LaMarche, 390 So. 2d at 326, for the proposition that the “‘purpose of . . .
comprehensive liability insurance coverage is to provide protection for personal
injury or for property damage caused by the completed product, but not for the
16
replacement and repair of that product”); Lassiter Constr. Co. v. Am. States Ins.
Co., 699 So. 2d 768, 769 n.1 (Fla. Dist. Ct. App. 1997) (same); Home Owners
Warranty Corp. v. Hanover Ins. Co., 683 So. 2d 527, 529 (Fla. Dist. Ct. App.
1996) (concluding, based on LaMarche, that the CGL policy, which was similar to
the Policies here, did not provide coverage for repair or replacement of defective
work, and rejecting argument that exclusion identical to exclusion (l) created such
coverage); Tucker Constr. Co. v. Michigan Mut. Ins. Co., 423 So.2d 525, 528 (Fla.
Dist. Ct. App. 1982) (same); see also Auto Owners Ins. Co. v. Travelers Cas. &
Sur. Co., 227 F.Supp.2d 1248, 1262 (M.D. Fla. 2002) (applying Florida law to
similar policy and concluding that, while the policy language was different from
those in LaMarche, “Florida courts examining the same CGL policies . . . in this
case continue to hold that CGL policies do not cover the costs to repair and/or
replace defective construction” performed by subcontractors).
Most of the post-LaMarche cases are distinguishable in that the courts rested
their decisions, at least in part, on specific policy language or factual circumstances
that do not exist here. See Marvin Dev. Co., 805 So. 2d at 891-92 (policy excluded
PCOH coverage); Deluxe Sys., 711 So. 2d at 1296-97 (claims fell within two
different exclusions); Lassiter, 699 So. 2d at 770 (no coverage for repair or
replacement of subcontractor’s faulty work because claim fell within exclusion for
17
work on real property by the insured “or any other contractors or subcontractors
working directly or indirectly on [the insured’s] behalf”); Tucker, 423 So. 2d at
528-29 (claims fell within exclusion for property damage to work performed by the
named insured). However, in each case cited above, the courts nevertheless went
beyond the language of the particular policies in issue and reaffirmed the
LaMarche holding that repair or replacement costs for defective work are not the
type of costs covered by CGL policies generally. Further, at least one of those
cases, the district court’s decision in Travelers, 227 F.Supp. 2d at 1263, involves
policy language identical to the Policies here and similar factual circumstances.
4. Recent Split in Florida Courts
Although the majority of Florida interim appellate courts have concluded
CGL policies do not cover repair or replacement of the defective construction
itself, in J.S.U.B., Inc. v. United States Fire Insurance Co., 906 So. 2d 303 (Fla.
Dist. Ct. App. 2005), the Florida Court of Appeal, Second District, came to the
opposite conclusion. In J.S.U.B., the claims at issue related to damage resulting
from the subcontractor’s faulty work in constructing houses, and the insurer argued
that the damages were outside the scope of the CGL policies. The court
acknowledged LaMarche and its progeny, but concluded that both the standard
18
CGL provisions and the controlling law had changed since LaMarche.3
The Florida court first noted that the policies contained broad insuring
language covering property damage caused by an “occurrence,” defined as “an
accident, including continuous or repeated exposure to substantially the same
general harmful conditions.” J.S.U.B., 906 So. 2d at 308. “Accident” was
undefined in the policies. Id. At the time LaMarche was decided, Florida law
defined “accident,” for insurance coverage purposes, to exclude “the natural and
probable consequences of the insured’s deliberate actions.” Id. (citing Hardware
Mut. Cas. Co. v. Gerrits, 65 So. 2d 69 (Fla. 1953)). But in State Farm Fire &
Casualty Co. v. CTC Development Corp., 720 So. 2d 1072, 1076 (Fla. 1998), the
Florida Supreme Court broadened the scope of insurance coverage, concluding that
“an occurrence included not only an accidental event but also ‘the unexpected
injury or damage resulting from the insured’s intentional acts. Thus, if the
resulting damages are unintended, the resulting damage is accidental even though
the original acts were intentional.’” J.S.U.B., 906 So. 2d at 308 (quoting CTC, 720
So. 2d at 1075) (other quotation marks and citation omitted). In CTC, the Florida
Supreme Court concluded that a contractor’s construction of a home in violation of
setback requirements, where the contractor was under the mistaken belief that it
3
The Policies here, and the policies in J.S.U.B., are standardized ISO policies that are
identical in all material respects.
19
had obtained a variance, was an “occurrence” under the policy. CTC, 720 So. 2d at
1076. Based on this expanded definition of coverage events, the J.S.U.B. court
concluded that LaMarche and its progeny no longer compelled the conclusion that
CGL policies do not provide coverage for claims for repair or replacement of the
subcontractor’s faulty work. J.S.U.B., 906 So. 2d at 309.
The Florida court in J.S.U.B. also looked to the policies’ exclusions to
determine that coverage existed. The court acknowledged that, under Florida law,
an exclusion cannot “create” coverage. However, the Florida court also recognized
that “‘[r]eading the coverage provision of the policy together with the exclusionary
clause could support a conclusion that coverage is provided in the . . . policy for
occurrences where the insured did not intend or expect to cause harm to the third
party.’” Id. at 310 (quoting CTC, 720 So. 2d at 1075).
In J.S.U.B., the Florida court also addressed the same exclusions relevant
here and found that they supported coverage of claims for repair or replacement of
a subcontractor’s faulty work. Specifically, the Florida court reasoned as follows:
. . . Subparagraph 6 excludes coverage for restoration, repair, or
replacement that is required because of work that was incorrectly
performed. However, an exception to the exclusion is for “property
damage” included in the “products-completed operations hazard.” If
we were to read the policies as suggested by the Insurer, without
considering the import of the exclusions, it is arguable that this
exclusion and exception to the exclusion would have no meaning or
effect in this policy . . . .
20
Similarly, the “Damage To Your Work” exclusion contains an
exception for work performed by a subcontractor on the Builder’s
behalf. The Insurer does not contend that the exclusion applies:
instead, it simply reiterates its view that the policy simply provides no
coverage for the Builder’s claims. If the policies provide coverage,
the exception to this exclusion would apply because the damage that
occurred was the result of the subcontractors’ use of poor soil and
improper soil compaction and testing. Accordingly, based on our
conclusion that the policies provide coverage, this exclusion does not
apply because the exception to the exclusion applies.
Id. Thus, the Florida court concluded that LaMarche was inapplicable, that the
policies provided coverage, and that none of the exclusions applied. Id. at 310-11.
However, the Florida Supreme Court on April 5, 2006, accepted jurisdiction of the
J.S.U.B. case and ordered briefing.
5. Unsettled Question of Florida Law
The facts relevant to this appeal are basically undisputed and the parties
agree that Florida law controls. Thus, the appeal turns on the purely legal question
of the interpretation of the standard terms in CGL policies, such as the Policies in
issue.
“Where there is doubt in the interpretation of state law, a federal court may
certify the question to the state supreme court to avoid making unnecessary Erie
guesses and to offer the state court the opportunity to interpret or change existing
law.” Tobin v. Michigan Mut. Ins. Co., 398 F.3d 1267, 1274 (11th Cir. 2005). As
discussed above, there is dissension among Florida intermediate appellate courts,
21
as well as federal district courts, about the continued vitality of LaMarche and its
applicability to standard CGL policies such as the Policies. Accordingly, because
this appeal depends on resolution of a question of Florida law that will affect many
other cases, we certify the issue to the Florida Supreme Court.
6. Certification to the Florida Supreme Court
CERTIFICATION FROM THE UNITED STATES COURT OF APPEALS FOR
THE ELEVENTH CIRCUIT TO THE SUPREME COURT OF FLORIDA,
PURSUANT TO ARTICLE V, SECTION 3(B)(6) OF THE FLORIDA
CONSTITUTION.
TO THE SUPREME COURT OF FLORIDA AND ITS HONORABLE
JUSTICES:
We certify the following question to the Supreme Court of Florida for
determination under Florida law:
DOES A STANDARD FORM COMPREHENSIVE GENERAL LIABILITY
POLICY WITH PRODUCT COMPLETED OPERATIONS HAZARD
COVERAGE, SUCH AS THE POLICIES DESCRIBED HERE, ISSUED TO A
GENERAL CONTRACTOR, COVER THE GENERAL CONTRACTOR’S
LIABILITY TO A THIRD PARTY FOR THE COSTS OF REPAIR OR
REPLACEMENT OF DEFECTIVE WORK BY ITS SUBCONTRACTOR?
22
The phrasing used in this certified question should not restrict the Supreme
Court’s consideration of the problem posed by this case. “This latitude extends to
the Supreme Court’s restatement of the issue or issues and the manner in which the
answers is given.” Tobin, 398 F.3d at 1275 (quotation marks and citations
omitted). To assist the Supreme Court’s consideration of the case, the entire
record, along with the briefs of the parties, shall be transmitted to the Supreme
Court of Florida.
B. Pozzi’s Cross-appeal
We now turn to Pozzi’s claim on cross-appeal that the magistrate judge erred
in granting judgment as a matter of law in favor of Auto-Owners as to the issues of
bad faith and punitive damages.
The Florida Supreme Court has identified the following factors as relevant to
a bad-faith determination: (1) “efforts or measures taken by the insurer to resolve
the coverage dispute promptly or in such a way as to limit any potential prejudice
to the insureds”; (2) “the substance of the coverage dispute or the weight of legal
authority on the coverage issue”; (3) “the insurer’s diligence and thoroughness in
investigating the facts specifically pertinent to coverage”; and (4) “efforts made by
the insurer to settle the liability claim in the face of the coverage dispute.” State
Farm Mut. Auto. Ins. Co. v. Laforet, 658 So.2d 55, 63 (Fla. 1995). The parties
23
agree that these are the relevant factors.
In granting judgment as a matter of law in favor of Auto-Owners, the
magistrate judge concluded that the evidence showed Auto-Owners’ conduct was
appropriate for an insurer that believed reasonably and in good faith that the claims
were not covered:
. . . The evidence shows that Auto-Owners denied coverage, defended
the case under a reservation of rights, challenged coverage through the
appropriate legal mechanism, and eventually was found to be wrong
on the issue of coverage. Despite Pozzi’s characterization of the
evidence, it is clear that Auto-Owners did what insurance companies
properly do when they have a serious doubt as to coverage: it
defended under a reservation of rights, and sought declaratory relief
on the question of coverage. There was no evidence of unreasonable
conduct, no evidence of any independent tort, and no evidence that it
exposed its insureds to excess judgments by its conduct. It did not
mislead its insureds, and did not cause them any damages other than
the amount of coverage provided by the policy.
The magistrate judge then concluded that each of the LaForet factors weighed in
favor of Auto-Owners.
On appeal, Pozzi challenges the magistrate judge’s application of the
LaForet factors. After careful review of the record, we conclude that the
magistrate judge did not err in applying the LaForet factors.4 For example, as the
4
We review de novo a district court’s grant of a motion for judgment as a matter of law,
applying the same standards as the district court. Transamerica Leasing, Inc., v. Institute of
London Underwriters, 430 F.3d 1326, 1331 (11th Cir. 2005). “A district court may not grant a
motion for a judgment as a matter of law unless ‘the evidence is such that, without weighing the
credibility of the witnesses or otherwise considering the weight of the evidence, there can be but
one conclusion as to the verdict that reasonable [persons] could have reached.’” Olmsted v. Taco
24
magistrate judge’s order explained, the coverage issue was and is subject to serious
debate; the evidence showed that Auto-Owners’ denial of coverage was well-
reasoned; there was no evidence that Auto-Owners misrepresented the terms of its
Policies; Auto-Owners did not subject its insured to any damages beyond the
denial of coverage; and the evidence was insufficient to support the jury’s bad faith
verdict. We conclude that Auto-Owners was entitled to judgment as a matter of
law on the bad faith issue.5
Pozzi also argues that the same factors establishing bad faith warrant a
punitive-damages award.6 For the reasons set forth above and in the magistrate
judge’s order, we reject this argument and conclude that the magistrate judge
properly granted Auto-Owners judgment as a matter of law.
III. CONCLUSION
For the foregoing reasons, the magistrate judge’s grant of judgment as a
Bell Corp., 141 F.3d 1457, 1460 (11th Cir. 1998) (quotation marks and citations omitted).
5
We recognize that Pozzi emphasizes the June 10, 2002, letter that Auto-Owners’
coverage counsel sent to Klett regarding Irby’s defense and argues that this letter illustrates
Auto-Owners’ bad faith. However, we conclude that the letter does not create an issue of
material fact as to bad faith and punitive damages.
6
Under Florida law, “the plaintiff must establish at trial, by clear and convincing
evidence, its entitlement to an award of punitive damages.” Fla. Stat. § 768.725 (emphasis
added). Florida courts have clarified that for punitive damages to be awarded, “the conduct of
the insurer against the interests of the insured must be so egregious as to constitute an
independent tort.” Dunn v. Nat’l Sec. Fire & Cas. Co., 631 So. 2d 1103, 1108 (Fla. Dist. Ct.
App. 1993). Generally, dishonesty, misrepresentations, or fraudulent conduct must be alleged
and proven. Id.25
matter of law in favor of Auto-Owners as to the issues of bad faith and punitive
damages is affirmed. As to the coverage issue, we certify the above question to the
Florida Supreme Court.
AFFIRMED in part and QUESTION CERTIFIED.
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