Southern-Owners Insurance Company v. Omni Amelia Island, LLC

UNITED STATES DISTRICT COURT

MIDDLE DISTRICT OF FLORIDA

JACKSONVILLE DIVISION

SOUTHERN-OWNERS

INSURANCE COMPANY,

Plaintiff,

v. Case No. 3:21-cv-773-TJC-MCR

OMNI AMELIA ISLAND, LLC,

MANHATTAN CONSTRUCTION

(FLORIDA), INC., NEW ERA

BUILDING, INC., STARR

INDEMNITY AND LIABILITY

COMPANY, CINCINNATI

SPECIALTY UNDERWRITERS

INSURANCE COMPANY, and

UNITED SPECIALTY

INSURANCE COMPANY,

Defendants.

ORDER

This is an insurance coverage dispute about a “stucco exclusion” and the

duty to defend. This declaratory judgment action is before the Court on Plaintiff

Southern-Owners Insurance Company and Defendant Manhattan Construction

(Florida), Inc.’s cross-motions for summary judgment, which have been fully

briefed by all parties. (Docs. 47–52, 55, 60, 63).1 Manhattan Construction also

moves to amend its answer, which Southern-Owners opposes. (Docs. 56, 57).

1 Defendants Omni Amelia Island, LLC, United Specialty Insurance

I. BACKGROUND

In 2012, Omni Amelia Island, LLC hired Manhattan Construction to

manage the construction of its Amelia Island Plantation resort. (Doc. 47-1 ¶¶

10, 11).2 Manhattan Construction subcontracted with New Era Building, Inc.

to, among other things, install stucco. Id. ¶ 13. Southern-Owners insured New

Era at that time under both a commercial general liability coverage contract

and a commercial umbrella policy. Id. ¶¶ 24–29; (Docs. 1-2, 1-3).

Both policies, which were renewed several times, contained similar

exterior finishing system and stucco exclusions (“stucco exclusion”). (Doc. 1-2 at

44, 72, 123); (Doc. 1-3 at 18, 71, 120). The stucco exclusion stated that the

policies did not apply to any suit for property damage “in any way related to or

arising out of any exterior finishing system or exterior stucco application.” Id.

(internal quotation marks and emphasis omitted). The exclusion defined

“exterior finishing system” as “an exterior insulating and finishing system

applied to the exterior of a structure which incorporates any synthetic stucco or

material similar in substance or purpose” including “insulating board or other

material; adhesive or mechanical fasteners; and the application of flashings,

Company, and Starr Indemnity & Liability Company have filed stipulations to

Southern-Owners’ complaint and do not contest Southern-Owners’ motion for

summary judgment. (Docs. 18, 35, 43).

2 The Court cites the underlying state court complaint, which is not

disputed. See (Docs. 47, 50).

coatings, caulking or sealants.” Id. Stucco was defined as “a material made of

[P]ortland cement, sand, cement, lime, and/or plaster, or any combination

thereof, applied as a hard covering for exterior walls.” Id.

In June 2020, Omni Amelia Island sued Manhattan Construction, New

Era, and a host of other builders and subcontractors in state court (“the

underlying complaint”). (Doc. 47-1). Omni Amelia Island alleges that it

discovered several latent construction defects in the decks and walls around the

resort, resulting in significant water damage. Id. ¶¶ 15–38. In its negligence

claim against New Era, Omni Amelia Island alleges the subcontractor breached

its “duty of reasonable care in the installation of stucco, cementitious

waterproofing and related work for the Project.” Id. ¶¶ 72–73.

Southern-Owners is defending New Era in the state court proceedings

under a reservation of rights. (Doc. 47 at 6). Subsequently, Southern-Owners

filed this action seeking a declaratory judgment that it has no duty to defend

New Era in the state court proceedings. (Doc. 1). Southern-Owners reasons that

because its insurance contracts excluded coverage for claims “in any way related

to or arising out of . . . ‘stucco’ application,” it is not on the hook to defend New

Era for alleged improper “installation of stucco, cementitious waterproofing and

related work for the Project.” Id. ¶¶ 22, 25–30, 32. Southern-Owners moved for

summary judgment, which drew oppositions from Manhattan Construction,

Cincinnati Specialty, and New Era, as well as a cross-motion for summary

judgment from Manhattan Construction. (Docs. 47–50).

II. SOUTHERN-OWNERS’ MOTION FOR SUMMARY JUDGMENT

Summary judgment is appropriate if “there is no genuine dispute as to

any material fact and the movant is entitled to judgment as a matter of law.”

FED. R. CIV. P. 56(a). This is a diversity action3 and the parties do not dispute

that the challenged contract was formed in Florida, so Florida law controls.

Travelers Prop. Cas. Co. of Am. v. Moore, 763 F.3d 1265, 1270 (11th Cir. 2014);

Fioretti v. Mass. Gen. Life Ins. Co., 53 F.3d 1228, 1235 (11th Cir. 1995).

Under Florida law, an insurer must defend its insured in a lawsuit if the

allegations in the complaint “fairly and potentially bring the suit within policy

coverage.” Jones v. Fla. Ins. Guar. Ass’n, Inc., 908 So. 2d 435, 442–43 (Fla.

2005). This generous standard requires insurers to provide a defense regardless

of the ultimate truth or merits of the case. Id. at 443. Except in special

circumstances, the duty to defend depends solely on the underlying complaint

3 Southern-Owners’ complaint, which invokes diversity jurisdiction,

names Omni Amelia Island, LLC as a defendant but does not plead the

citizenship of the LLC’s members. See (Doc. 1 ¶ 2); Rolling Greens MHP, L.P.

v. Comcast SCH Holdings L.L.C., 374 F.3d 1020, 1022 (11th Cir. 2004). Even

so, Omni Amelia Island is a nominal party to this declaratory action, so its

citizenship can be disregarded for jurisdiction purposes. See Thermoset Corp.

v. Bldg. Materials Corp of Am., 849 F.3d 1313, 1317 (11th Cir. 2017); cf. (Doc.

18 ¶ 3).

and the insurance contract—the “eight corners.” Mid-Continent Cas. Co. v.

Royal Crane, LLC, 169 So. 3d 174, 182 (Fla. 4th DCA 2015) (citation omitted).

Finally, Florida uses three shifting burdens of proof. The insured bears

the initial burden of proving that the claims in the underlying complaint fall

within the insurance contract’s coverage. E. Fla. Hauling, Inc. v. Lexington Ins.

Co., 913 So. 2d 673, 678 (Fla. 3d DCA 2005). Then “the burden shifts to the

insurer to prove an exclusion applies to the coverage.” Id. (citation omitted).

Finally, the burden shifts back to the insured to show an “exception to the

exclusion.” Id. (citation omitted).

A. Coverage Generally

The Court’s task is complicated at the outset because neither New Era

nor Manhattan Construction, the purported insureds, meaningfully address

their initial burden. New Era jumps straight to analyzing the stucco exclusion

without ever establishing that one of the Southern-Owners policies would

ordinarily cover the claims in the underlying complaint. (Doc. 48 at 6); (Doc. 49

at 1) (New Era’s notice of joinder in Cincinnati Specialty’s response). And

Manhattan Construction simply argues that “[Southern-Owners] does not

dispute” the threshold question of coverage, apparently reversing the burden.

(Doc. 50 at 9). Southern-Owners does not make this concession. (Doc. 51 at 2).

That said, Southern-Owners admits that it provided commercial general

liability and umbrella policies to New Era between 2010 and 2013,

(Doc. 1 ¶¶ 24, 28); see (Doc. 1-2 at 105); (Doc. 1-3 at 88),4 and that the policies

covered property damage, id. ¶ 25; see, e.g., (Doc. 1-3 at 30). New Era was

apparently hired to work on the resort during the coverage period. See (Doc.

50-2 at 19). And the underlying complaint alleges that New Era’s defective work

caused property damage. (Doc. 47-1 ¶ 74). Given Florida’s minimal demands on

an insured at the duty to defend stage, these allegations are enough shift the

burden to Southern-Owners to show an applicable exclusion. See Jones, 908 So.

2d at 443 (“Any doubts regarding the duty to defend must be resolved in favor

of the insured.”).

B. The Stucco Exclusion

To defeat the duty to defend, an exclusion must apply to every underlying

claim against the insured. Lime Tree Vill. Cmty. Club Ass’n, Inc. v. State Farm

Gen. Ins. Co., 980 F.2d 1402, 1405–06 (11th Cir. 1993) (citation omitted). The

first step then is to identify the underlying claims against New Era. As

Southern-Owners concedes, New Era did more with the Omni Amelia Island

project than apply stucco. See (Doc. 52 at 2 n.1). In fact, the New Era

subcontract, which is incorporated into the underlying complaint, shows that

4 Southern-Owners alleges that the final set of policies were only active

until August 14, 2012, although the policies themselves, provided by Southern-

Owners, list a January 14, 2013, expiration date. Compare (Doc. 1 ¶¶ 24, 28),

with (Doc. 1-2 at 105), and (Doc. 1-3 at 88). The reason for these discrepancies

is unclear.

New Era had a diverse range of responsibilities, including framing, scaffolding,

working with mineral wool, and myriad other projects. (Doc. 47-2 at 19–20). But

despite New Era’s extensive work, the underlying complaint does not suggest it

was all problematic. To the contrary, Count V of the underlying complaint, the

sole cause of action against New Era, focuses on only three things: “the

installation of stucco, cementitious waterproofing[,] and related work for the

Project.” (Doc. 47-1 ¶ 72). Thus, as Southern-Owners argues, if “installation of

stucco” and “cementitious waterproofing” are both related to stucco application,

then “related work,” is also related to stucco application, and all three are

covered by the exclusion. (Doc. 47 at 20–21).

No doubt, the underlying complaint’s “installation of stucco” language fits

within the stucco exclusion. (Doc. 47-1 ¶ 72); see, e.g., (Doc. 1-2 at 123)

(excluding coverage for claims “in any way related to or arising out of . . . ‘stucco’

application”). Not so for “cementitious waterproofing.” Southern-Owners

proposes that the Court interpret this phrase to mean “cement-based

waterproofing material applied as part of the stucco system.” (Doc. 47 at 21)

(emphasis added). But this definition does not come from the underlying

complaint or the insurance policy. Instead, it appears to be a generous

paraphrase of two paragraphs of the affidavit attached to Southern-Owners’

motion for summary judgment. See (Doc. 47-3 ¶¶ 12–13) (stating that “the

Portland cement-based finish coat of stucco” and “the cementitious

waterproofing work” both fall within the stucco exclusion). Even if the Court

were to go beyond the “eight corners” and consider this affidavit, Manhattan

Construction’s dueling affidavit contradicts Southern-Owners’ position. See

(Doc. 50-6 ¶¶ 11–16) (stating that waterproofing work is not covered by the

stucco exclusion and that the New Era subcontract suggests that stucco

application and waterproofing should be viewed distinctly).5

Even if only one of several possible claims falls within insurance coverage,

“the insurer is obligated to defend the entire suit.” Lime Tree Vill. Cmty. Club

Ass’n, Inc., 980 F.2d at 1405 (quotation marks and citation omitted). And “[a]ny

doubts regarding the duty to defend must be resolved in favor of the insured.”

Jones, 908 So. 2d at 443. Although “cementitious waterproofing” may ultimately

turn out to be included in the stucco exclusion, the Court’s review at this stage

is limited. Southern-Owners has not shown that the stucco exclusion applies to

5 The parties extensively discuss a related case from this district which

analyzed an identical stucco exclusion: S. Owners Ins. Co. v. Gallo Bldg. Servs.,

Inc., No. 8:15-cv-01440, 2018 WL 6619987, at *1 (M.D. Fla. Dec. 18, 2018). Gallo

is distinguishable. There, the insurer made different arguments: 1) that the

alleged defects were all related to stucco because they were “limited to the

exterior of the Project,” and 2) that the defective work was covered by the

“exterior finishing system” counterpart to the stucco exclusion. Id. at *7–8. That

said, Gallo’s broader point—that an insurer must show that the defective work

is all stucco-related for the stucco exclusion to apply—is generally instructive.

Id.

all of claims against New Era in the underlying complaint, so it is not absolved

of its duty to defend.6

III. MANHATTAN CONSTRUCTION’S CROSS-MOTION FOR

SUMMARY JUDGMENT AND MOTION TO AMEND ANSWER

Manhattan Construction moves for summary judgment against

Southern-Owners, arguing that the insurer has a duty to defend not only New

Era but also Manhattan Construction. (Doc. 50 at 9, 19). But as

Southern-Owners notes and Manhattan Construction concedes, this motion is

outside the scope of the pleadings because Manhattan Construction

inadvertently failed to plead a compulsory counterclaim seeking a declaratory

judgment against Southern-Owners. (Doc. 55 at 3); (Doc. 56 ¶ 7); see (Doc. 26).

Manhattan Construction thus requests leave to amend its answer. (Doc. 56).

The Court will deny Manhattan Construction’s cross-motion for summary

judgment without prejudice but will grant its motion to file an amended answer.

Although Manhattan Construction’s motion to amend comes late in the case,

the motion was filed promptly after Manhattan Construction noticed its error

and there will be little prejudice to Southern-Owners given the minimal need

for discovery and the ongoing state court action. See (Doc. 56 ¶¶ 14, 18).

6 This is a close call on the duty to defend. The Court makes no judgment

as to whether Southern-Owners will ultimately have a duty to indemnify.

That said, the Court recognizes that its ruling on Southern-Owners’

motion for summary judgment perhaps resolves some issues Manhattan

Construction would raise in a second motion for summary judgment. The

parties should confer and file a new case management report advising the Court

whether new dispositive motions and discovery deadlines are necessary.

Accordingly, it is hereby

ORDERED:

1. Plaintiff Southern-Owners Insurance Company’s Motion for

Summary Judgment (Doc. 47), which seeks a declaratory judgment that it has

no duty to defend New Era in the underlying state court action, is DENIED.

2. Defendant Manhattan Construction (Florida), Inc.’s Cross-Motion

for Summary Judgment (Doc. 50) is DENIED without prejudice.

3. Defendant Manhattan Construction (Florida), Inc.’s Opposed

Motion to Amend Answer (Doc. 56) is GRANTED. Manhattan Construction

shall file its amended answer and counterclaim no later than April 28, 2023.

Southern-Owners should respond to the counterclaim no later than May 31,

2023.

4. No later than April 28, 2023, the parties shall jointly file a second

case management report detailing what remains to be done in this case.

DONE AND ORDERED in Jacksonville, Florida the 30th day of March,

2023.

\ Ww TIMOTHY J. CORRIGAN

= United States District Judge

rmv

Copies to:

Counsel of record

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