Coverage Limited to What the Insured Pays For at Inception
Barry Zalma
Dec 28, 2023
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The Eleventh Circuit Court of Appeals was asked to resolve whether two residential homes destroyed by a fire while under construction were covered under an insurance policy issued by Travelers Property Casualty Company of America (“Travelers”) to its named insured, Talcon Group LLC (“Talcon”). Talcon is an underground utility contractor for sewer, storm drains, and treatment plants and never told Travelers it was building two residential buildings.
In Travelers Property Casualty Company Of America v. Talcon Group LLC, No. 22-13547, United States Court of Appeals, Eleventh Circuit (December 20, 2023) the Eleventh Circuit decided the extent of the coverage available to Talcon.
TWO RESIDENTIAL HOMES
Rick testified that “[a]lmost every bit” of Talcon’s work was underground utilities, such as sewers, storm drains, and treatment plant work. Talcon did not own the Florida land on which the two residential homes were constructed. Instead, the land was owned by a different family entity.
Talcon was to benefit from the sale of the two residential homes by becoming a “local vendor” in the county where the homes were being constructed, entitling it to a 5% advantage with other contractors when bidding on future projects in the county.
Wildfire Peril
In May 2020, a wildfire completely destroyed the two residential homes. At that time, the residential homes were mostly complete but did not have certificates of occupancy.
Talcon submitted a property loss notice, stating that the two residential homes were lost in the wildfires. Travelers denied the claim, because construction of two single family homes is not the same type of work as the installation of underground utility contractor work, which is what Travelers agreed to cover.
THE POLICY
In 2019 Talcon, through an insurance agent, submitted a ‘”Commercial Insurance Application” with Travelers. Talcon’s application was for a renewal of a 2018 policy with Travelers. In an application field titled “Description of Primary Operations,” Talcon listed “[u]nderground utility contractor.” Under the “Installation/Builders Risk Section,” Talcon selected “Installation,” indicated that it averaged three commercial projects each year and left blank a section to list the number and value of any residential projects. An e-mail to Travelers submitting the renewal application stated that Talcon conducted “predominately water and sewer line work,” and that a “heavy contractor questionnaire” was attached to explain Talcon’s exposures.
Travelers covered “Installation” property from direct physical loss or damage. The Policy “Definitions” section defined “Installation” as “[p]roperty described in the Declarations under ‘Installation’ owned by you or property of others for which you are legally liable, that you or your subcontractors will install, erect or fabricate at the job site.'”
THE SUIT
Travelers filed a complaint seeking a declaratory judgment that the two residential homes were not covered property under the Policy. The district court entered summary judgment in favor of Travelers. Because the two residential homes were unrelated to Talcon’s underground utility work, the court concluded that the Policy did not cover them declaring that the Policy’s coverage did not extend to the construction of the two residential homes.
DISCUSSION
Under Florida law every insurance contract shall be construed according to the entirety of its terms and conditions as set forth in the policy and as amplified, extended, or modified by any application therefor.
While Rick and Zack testified that Talcon constructed multiple residential homes in recent years, Talcon’s renewal application did not include this past residential work or indicate the prospect of future residential construction. Even though Talcon had begun constructing the two residential homes at the time of the renewal application, it misrepresented to Travelers that it was not engaged in any residential construction. Talcon, in fact, stated that 0% of its current work was “Residential” and 100% was “Municipal/Government.”
The Eleventh Circuit concluded that the only reasonable reading of the Policy and the renewal application is that Travelers provided coverage for Talcon’s underground utility and site development work. The construction of the two residential homes was neither of those items and was not covered by the Policy.
ZALMA OPINION
The covenant of good faith and fair dealing requires that neither party to the contract of insurance will do anything to deprive the other of the benefits of the contract nor misrepresent or conceal material facts from the other. In this case Talcon lied when it submitted its application by claiming it did no residential construction work at the time that it was, in fact, constructing two residential properties. Since it is true that liars never prosper the lie about the work being done defeated its claims.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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