Damage Before Project is Complete Excluded by CGL

Post 5013

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Consolidated appeals required the Eleventh Circuit to (1) decide whether an insured has standing to seek reformation before it makes a claim on the portion of the policy that it wants reformed, (2) construe an exclusion in a commercial general liability policy under Florida law, and (3) determine whether the district court properly denied the insured’s motion for attorney’s fees.

In Liberty Surplus Insurance Corporation v. Kaufman Lynn Construction, Inc., United Glass Systems Corp. Liberty Surplus Insurance Corporation v. Kaufman Lynn Construction, Inc., Nos. 23-12715, 23-12835, United States Court of Appeals, Eleventh Circuit (March 5, 2025)

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FACTS

The case involves JM Family Enterprises hiring Kaufman to build a new corporate campus in South Florida. Kaufman obtained a commercial general liability policy from Liberty Surplus Insurance to insure itself and its subcontractors. After Tropical Storm Eta caused significant water damage to the completed buildings, Kaufman sought indemnification from Liberty, which was denied based on the policy’s Course of Construction Exclusion (COCE). Liberty then filed a declaratory judgment action, and Kaufman counterclaimed for declaratory relief, breach of contract, and reformation of the insurance policy due to mutual mistake.

JM Family Enterprises hired Kaufman to build its new corporate campus in South Florida. The campus was to consist of three office buildings, a training and conference center, a sports and recreation building, a dining hall, an amphitheater, a central energy plant, a parking garage, and various landscaping and water features. To insure itself and its subcontractors, Kaufman obtained a commercial general liability policy from Liberty Surplus Insurance.

The district court granted Liberty’s motion for summary judgment, concluding that the COCE excluded coverage until the entire project was completed. The court also dismissed Kaufman’s reformation counterclaim for lack of standing. On appeal, the Eleventh Circuit reversed the district court’s dismissal of the reformation counterclaim, affirming that Kaufman had Article III standing to seek reformation. However, the court affirmed the district court’s ruling that the COCE precluded coverage for the water damage and denied Liberty’s motion for attorney’s fees.

ANALYSIS

The Course of Construction Exclusion (COCE) in the insurance policy issued by Liberty Surplus Insurance Corporation to Kaufman Lynn Construction, Inc. was significant because it determines the scope of coverage during the construction phase of a project. The COCE states that the insurance does not apply to any property damage at or to any project insured under the policy during the course of construction until the project is completed.

A court of equity has the power to reform a written instrument where, due to a mutual mistake, the instrument as drawn does not accurately express the true intention or agreement of the parties to the instrument. A mistake is mutual when the parties agree to one thing and then, due to either a scrivener’s error or inadvertence, express something different in the written instrument. Reformation can correct a mutual mistake in the description of the premises or articles insured due to the fact that in the case of a mere mutual mistake in the description of the subject matter equity will correct it to conform to the intention of the parties

Florida law subjects reformation claims to a five-year statute of limitations. An insured in Florida may need to bring a reformation claim soon after the issuance of the policy containing the mistake or risk forever losing the ability to fix the error.

The policy issued by Liberty to Kaufman was a general commercial liability policy and not a builder’s risk policy. The critical language in the COCE is the phrase “until the project is completed,” but the terms “project” and “completed” are not separately defined in the policy.

The language “until the project is completed” means that the COCE precludes coverage until the entire project is finished. It would have been better, of course, for Liberty to draft the COCE to expressly state that there is no coverage unless and until the “entire project” is completed. But Liberty’s failure to adhere to the standards of impeccable draftsmanship here does not result in ambiguity. The mere fact that a provision in an insurance policy could be more clearly drafted does not necessarily mean that the provision is otherwise inconsistent, uncertain or ambiguous.

The Eleventh Circuit concluded that Kaufman has standing to seek reformation of the policy. The Eleventh Circuit reversed the district court’s dismissal of the reformation counterclaim and remanded to the District Court for further proceedings.

With respect to the parties’ dispute about the policy the Eleventh Circuit affirmed the district court’s ruling that the COCE precludes coverage for the water damage to the buildings caused by Tropical Storm Eta.

ZALMA OPINION

A course of construction policy is designed to protect the owner and contractors for fortuitous losses in the course of construction. A commercial general liability policy is not intended to, and has no wording similar language to, a course of construction policy. The claims were for damage to the property that would be the subject of a course of construction policy but not a Commercial General Liability policy, especially one with a COCE.

(c) 2025 Barry Zalma & ClaimSchool, Inc.

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