Swire Pacific Holdings, Inc. v. Zurich Ins. Co.

• Decision Date: 10 April 2003
• Docket Number: No. SC02-613.,SC02-613.
• Parties: SWIRE PACIFIC HOLDINGS, INC., Appellant, v. ZURICH INSURANCE COMPANY, Appellee.
• Court: Florida Supreme Court

845 So.2d 161

SWIRE PACIFIC HOLDINGS, INC., Appellant,
v.
ZURICH INSURANCE COMPANY, Appellee

No. SC02-613.

Supreme Court of Florida.

April 10, 2003.

845 So.2d 163

Elliot H. Scherker, Marlene K. Silverman, and Elliot B. Kula of Greenberg Traurig, P.A., Miami, FL, for Appellant

Janet L. Brown of Boehm, Brown, Seacrest & Fischer, Maitland, Florida; and Thomas W. Brunner, Leslie A. Platt, and Gary P. Seligman of Wiley, Rein & Fielding LLP, Washington, DC, for Appellee.

Ronald L. Kammer of Hinshaw & Culbertson, Miami, FL, for Insurers' Technology Litigation Roundtable, Complex Insurance Claims Litigation Association and National Association of Mutual Insurance Companies, Amici Curiae; and the American Insurance Association, Amicus Curiae.

LEWIS, J.

We have for review three questions of Florida law certified by the United States Court of Appeals for the Eleventh Circuit to be determinative of a cause pending in that court and for which there appears to be no controlling Florida precedent. We have jurisdiction. See art. V, § 3(b)(6), Fla. Const.

Swire Pacific Holdings ("Swire") is the owner and developer of a high-rise condominium building in Miami, Florida, while Zurich American Insurance Company ("Zurich") is the successor in interest to Zurich Insurance Company. See Swire Pacific Holdings, Inc. v. Zurich Ins. Co., 284 F.3d 1228, 1229 (11th Cir.2002). The Court of Appeals for the Eleventh Circuit, in its opinion certifying three questions for this Court's review, detailed the relevant facts and procedural history:

Swire purchased from Zurich a builder's risk policy, effective February 24, 1997, through February 24, 1999, which was drafted in relevant part by Zurich. The policy insured the Two Tequesta Point Condominium Project, located in Miami, Florida. Swire is one of the insureds under the policy.

In March of 1998, the City of Miami's Building Department informed Swire that Richard Klein, the structural engineer on the condominium project, was being investigated in connection with certain design projects for failure to comply with appropriate governmental building codes and ordinances. Swire's agent, CHM Consulting Engineers, performed a peer review of Klein's structural work on the project and the potential claim of damage arising from that structural work. While the peer review was underway, the City of Miami halted the issuance of a certificate of occupancy. The peer review revealed numerous errors and omissions in the project that had to be corrected.

As a result of the design defects, Swire altered the plans and construction to bring the building into compliance with appropriate governmental building codes. Swire spent approximately $4.5 million in costs to correct the structural deficiencies and filed a claim with Zurich under its builder's risk policy seeking coverage for those costs. Zurich denied coverage on the ground that Swire's claim dealt "with the cost of correcting a design defect and not any physical loss or damage resulting from the defect."

. . . .

In October of 1999, Swire filed a two-count lawsuit against Zurich. Count I sought declaratory and monetary relief to determine Swire's rights to insurance

845 So.2d 164

coverage under the Builder's Risk Policy. Count II sought recovery of money damages arising out of Zurich's failure to provide coverage for loss incurred in correcting the structural deficiencies of the building. Zurich filed an answer containing affirmative defenses. The fourth one asserted that Swire's loss was specifically excluded from coverage due to the Design Defect Exclusion Clause of the policy.

Swire sought partial summary judgment on Count I of its complaint and on Zurich's fourth affirmative defense, arguing that Swire was entitled as a matter of law to a declaration that the Design Defect Exclusion Clause invoked by Zurich does not apply to costs incurred by Swire under the policy's Sue and Labor Clause. Swire alternatively argued that the Design Defect Exclusion Clause does not exclude any costs for work that necessarily damages or destroys portions of the insured property as a result of required remediation or repair of defective property. Zurich moved for summary judgment in its favor on the grounds that the Design Defect Exclusion Clause bars coverage for Swire's claim, the Design Defect Exclusion Clause applies to sue and labor expenses, and the Sue and Labor Clause at issue applies only to actual, covered loss or damage anyway.

The district court granted summary judgment in favor of Zurich. It concluded that Swire's loss was an excluded loss under the policy's Design Defect Exclusion Clause. The court also held that the policy's Sue and Labor Clause did not provide coverage for otherwise excluded losses. Relying on Southern California Edison Co. v. Harbor Insurance Co., 83 Cal.App.3d 747, 148 Cal. Rptr. 106 (1978), the court reasoned that sue and labor expenses are reimbursable only to the extent that they are incurred for the benefit of the insurer in mitigating or preventing a covered loss. The court held that the answer to the question of whether expenses are incurred for the benefit of the insurer lies not in whether the insured's actions may potentially benefit the insurer in some way, but in whether the insured's actions "correlate to an excluded loss." Because the actions taken by Swire correlated to the excluded loss of repairing design defects, the court found that the costs incurred by Swire were not incurred for the benefit of Zurich and thus were not reimbursable under the Sue and Labor Clause. The district court stated that it was unnecessary to reach the issue of whether the Sue and Labor Clause applies only when an actual, covered loss has occurred.

Id. at 1229-31. The Eleventh Circuit noted that because this case presents several issues of first impression under Florida law, it "could guess how the Florida Supreme Court would decide this case, but it would only be a guess." Id. at 1234. The court then certified the following questions to this Court:

1. Whether the policy's Design Defect Exclusion Clause bars coverage for the cost of repairing the structural deficiencies in the condominium building;

2. If the first question is answered in the affirmative, whether the policy's Sue and Labor Clause applies only in the case of an actual, covered loss;

3. If the second question is answered in the negative, whether the policy's Sue and Labor Clause covers the cost of repairing the structural deficiencies in the condominium building.

Id. Based on the analysis below, we answer the first two questions in the affirmative and, therefore, find it unnecessary to address the third.

845 So.2d 165

Initially, we note that when analyzing an insurance contract, it is necessary to examine the contract in its context and as a whole, and to avoid simply concentrating on certain limited provisions to the exclusion of the totality of others. Here the general nature of the risk assumed and contract with which we are dealing is a builder's risk policy. Builder's risk insurance is a type of property insurance coverage, not liability insurance or warranty coverage. The purpose of this type of insurance is to provide protection for fortuitous loss sustained during the construction of the building. If a described loss occurs, the insurer generally pays the cost of removing the debris, salvaging material and equipment, and repairing the damaged property. However, those losses for which coverage is provided are clearly dependent upon the specific language of the builder's risk policy. With this in mind, we turn to the first certified question

First, the policy contains a coverage clause which provides:

INSURING AGREEMENT

Subject to the limitations, exclusions, terms and conditions contained herein, this Policy insures, in respect of occurrences happening during the term of this Policy, against: Physical loss or damage to the property insured, except as excluded hereunder.

Excluded from this coverage, however, are losses related to design defects. The design defect exclusion clause at issue in the Swire-Zurich policy excludes coverage for:

Loss or damage caused by fault, defect, error or omission in design, plan or

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