State Farm Fire & Cas. Co. v. CTC Development Corp.

• Citation: 720 So.2d 1072
• Decision Date: 08 October 1998
• Docket Number: No. 91717,91717
• Parties: 23 Fla. L. Weekly S527 STATE FARM FIRE AND CASUALTY COMPANY, Petitioner, v. CTC DEVELOPMENT CORPORATION, Respondent.
• Court: United States State Supreme Court of Florida

Page 1072

720 So.2d 1072

23 Fla. L. Weekly S527

STATE FARM FIRE AND CASUALTY COMPANY, Petitioner, v. CTC DEVELOPMENT CORPORATION, Respondent.

No. 91717.

Supreme Court of Florida.

Oct. 8, 1998.

Michael D. Hook and Charles F. Beall, Jr., of Moore, Hill, Westmoreland, Hook & Bolton, P.A., Pensacola, for Petitioner.

Louis K. Rosenbloum, Pensacola, and Stephen H. Echsner of Levin, Middlebrooks, Thomas, Mitchell, Green, Echsner, Proctor & Papantonio, P.A., Pensacola, for Respondents.

PARIENTE, Judge.

We have for review CTC Development Corp. v. State Farm Fire & Casualty Co., 704 So.2d 579 (Fla. 1st DCA 1997), based on express and direct conflict with this Court's opinion in Hardware Mutual Casualty Co. v. Gerrits, 65 So.2d 69 (Fla.1953). We have jurisdiction. See art. V, § 3(b)(3), Fla. Const. For the reasons stated below, we recede from our earlier decision in Gerrits and hold that when the term "accident" is undefined in a liability policy, the term includes not only "accidental events," but also damages or injuries that are neither expected nor intended from the viewpoint of the insured.

I. FACTS

Gregory Uzdevenes is a professional architect and sole owner of the construction company CTC Development Corporation, Inc. (CTC). Both Uzdevenes and CTC were the insureds under a "Contractor's Policy" issued by State Farm Fire and Casualty Company (State Farm), paying a premium of $5,926.92 per year. The contractor's policy described the insureds' business as including "the construction of residential property." The policy provided various types of coverage, including liability coverage of up to $500,000 for damages caused by "occurrences."

The damages in this case resulted from Uzdevenes' construction of a residence for John and Annette Bray (the Brays) on their property, in violation of restrictive covenants requiring that the house be at least fifteen feet from each side lot line. Uzdevenes admitted that he constructed the house knowing it was beyond the easterly setback, but asserted that he was under the mistaken impression that the homeowners' association had approved his request for a variance from the setback requirements.

According to Uzdevenes, a day or two after he submitted the plans to the homeowners' association for approval, he called the association president to "formally" request a variance to place the house beyond the easterly setback. Uzdevenes claimed that the association president did not ask for a written request. A week to ten days later, Uzdevenes received a letter from the association president approving the "plans submitted." Unsure whether this approval included the variance request, Uzdevenes again called the president who told him that the variance would be "no problem."

Uzdevenes proceeded with the construction. It was only after the construction was sixty percent complete that he learned of a possible problem with the variance. According to Uzdevenes, at this point it would have cost him approximately $275,000 to tear down the home and reconstruct it within the setback. Subsequently, the neighboring property owners, Finley and Judy Holmes, filed suit against Uzdevenes, CTC, the Brays, and the Brays' lender, seeking an injunction and compensatory damages.

Uzdevenes called upon State Farm to defend and indemnify him and CTC for the damages claimed, but State Farm denied coverage and declined to defend. Uzdevenes and CTC ultimately settled the suit with the Holmeses for $22,500. Uzdevenes and CTC then brought suit against State Farm seeking damages for State Farm's failure to defend and indemnify them in the Holmeses lawsuit. In addition to seeking the settlement amount of $22,500, Uzdevenes and CTC claimed they incurred $29,400 in attorneys' fees and costs in defending the suit.

Section II of the contractor's policy, entitled "Comprehensive Business Liability," included coverage for:

[T]hose sums that the insured becomes legally obligated to pay as damages because of bodily injury, property damage, personal injury or advertising injury to which this insurance applies.... This insurance applies only:

1. to bodily injury or property damage caused by an occurrence which takes place in the coverage territory during the policy period....

(Emphasis supplied.) "Occurrence" is broadly defined by the policy as:

a. An accident, including continuous or repeated exposure to substantially the same general harmful conditions which result in bodily injury or property damage; or

b. The commission of an offense, or a series of similar related offenses, which results in personal injury or advertising injury.

For purposes of this definition, bodily injury or property damage resulting from the use of reasonable force to protect persons or property will be considered an accident.

(Emphasis supplied.) One of the policy exclusions provides that coverage does not apply to:

1. bodily injury or property damage:

a. expected or intended from the standpoint of the insured; or

b. to any person or property which is the result of willful and malicious acts of the insured.

(Emphasis supplied.)

State Farm moved for summary judgment, relying on Gerrits, which it claimed was "identical" in terms of the facts of the case and the policy language at issue. State Farm contended that, as a matter of law, the construction of the home beyond the setback even if built based on the mistaken assumption that a variance had been granted, did not constitute an "occurrence" within the meaning of its policy. Based on Gerrits, the trial court granted summary judgment, which was reversed by the First District. See CTC Development Corp., 704 So.2d at 581.

II. ANALYSIS

The issue to be decided in this case is whether the term "accident" in a liability policy, which term is not otherwise defined, should be defined to include not only "accidental events," but also injuries or damages that are neither expected nor intended from the standpoint of the insured. To so hold requires that we recede from Gerrits.

A. Gerrits

In Gerrits, the insured (a professional contractor and builder) constructed a home on his own property, which home partially encroached on his neighbor's property. The insured knowingly built the home at the location but did not intend to encroach on the neighboring property, relying on a faulty survey. The insured's policy provided for reimbursement of all sums the insured became obligated to pay by virtue of an "accident." The policy did not define the term "accident."

This Court reasoned in Gerrits that the insured's construction of the home over the property line could not be considered an accident because the insured "deliberately and designedly (although erroneously) located the building on a part of the adjoining property and he intended to build it at that particular site." 65 So.2d at 71. The Court reasoned that:

When a person understands facts to be other than they are and is free from negligence, a "mistake of fact" occurs. An effect which is the natural and probable consequence of an act or course of action is not an accident. The effect which was the natural and probable consequence of the Plaintiff's act in erecting the building was the encroachment on the adjoining property. This is true whether the Plaintiff knew the facts as they were or understood them to be other than they were. The result or effect would be the same.

Id. (some emphasis supplied).

The Court did not address whether the term "accident" as used in the policy was ambiguous or subject to differing interpretations. It also did not consider the determinative issue to be whether the insured actually intended or expected the harm; it concluded only that the encroachment on the adjoining property owner's land could not be considered an accident because it was the "natural and probable consequence" of the insured's deliberate act of building the house on the adjoining property.

By utilizing the concept of "natural and probable consequences," the Court incorporated tort law principles into its interpretation of the term "accident." However, as this Court stated forty years later in Prudential Property & Casualty Insurance Co. v. Swindal, 622 So.2d 467, 470 (Fla.1993), "Florida law has long followed the general rule that tort law principles do not control judicial construction of insurance contracts." In Swindal we considered the term "natural and probable consequence" interchangeably with the term "reasonably foreseeable," see id. at 472, and quoted with approval Justice Drew, who in writing for a majority ¹ of this Court in Gulf Life Insurance Co. v. Nash, 97 So.2d 4, 9 (Fla.1957), stated that the " 'doctrine of foreseeability is a doctrine totally unsuited and unadaptable in construing accident policies.' " Swindal, 622 So.2d at 470 (quoting Nash ).

B. The Present Case

The State Farm policy in the present case defines occurrence as an "accident," but then leaves the term "accident" undefined. However, an exclusionary clause in the same policy provides that coverage does not apply to property damage "expected or intended from the standpoint of the insured."

Although exclusionary clauses cannot be relied upon to create coverage, see LaMarche v. Shelby Mut. Ins. Co., 390 So.2d 325, 326 (Fla.1980); Lassiter Constr. Co. v. American States Ins. Co., 699 So.2d 768, 769 (Fla. 4th DCA 1997), principles governing the construction of insurance contracts dictate that "[w]hen construing an insurance policy to determine coverage the pertinent provisions should be read in pari materia." Nationwide Mut. Fire Ins. Co. v. Olah, 662 So.2d 980, 982 (Fla. 2d DCA 1995); see also § 627.419(1), Fla. Stat. (1997) ("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 or any ride or endorsement thereto.") (emphasis supplied). Reading the coverage provision of the policy together with the exclusionary clause could...