By: Stearns, Roberts & Guttentag, LLC.

Section 718.203 of the Florida Statutes requires developers to perform warranty work for structural components of a condominium building. The question arises as to whether an owner’s property insurance policy will cover hurricane damage when the damage results from defective warranty work, and the owner releases the developer and/or contractor from the performance of such work.

In Landmark American Insurance Company (“Landmark”) v. Santa Rosa Beach Development Corp. I, (“Santa Rosa”) Ard Contractors, Inc. (“Ard”) and Beach Colony Resort on Navarre East Condominium Association, Inc. (“Beach Colony”), 2012 WL 5971204 (Fla. 1st DCA Nov. 30, 2012), Santa Rosa, the developer, and Ard, the general contractor, completed the construction of the condominium buildings at Beach Colony in 2002. Prior to Hurricanes Ivan and Dennis in 2004 and 2005, the condominium building sustained damages resulting from water intrusion through the stucco exterior cladding. In 2005, Beach Colony entered into an agreement with Santa Rosa and Ard, whereby Santa Rosa and Ard agreed to undertake corrective work to the stucco exterior cladding to the Beach Colony buildings in compliance with Santa Rosa’s warranty obligations under section 718.203 of the Florida Statutes. In return, Beach Colony provided Ard and Santa Rosa with a release from any claims relating to or arising out of their repairs. (“Agreement”)

Following each of Hurricanes Ivan and Dennis in 2004 and 2005, Beach Colony notified its property insurer, Landmark, of structural damages allegedly caused by the hurricanes. Landmark investigated the claim and determined that the water intrusion resulted from the improperly designed and installed exterior cladding. Accordingly, Landmark denied the claim relying on its policy terms, which excluded payment “for loss or damage caused by or resulting from …[f]aulty, inadequate or defective . . . [d]esign, specifications, workmanship, repair, construction . . . ,”

Beach Colony filed suit against Landmark for breach of contract. Landmark raised several defenses and also filed a third party complaint against Santa Rosa and Ard asserting that if coverage did exist under the policy, the cause of damage to Beach Colony was the defective construction by Santa Rosa and Ard. In turn, Santa Rosa and Ard raised the release in the Agreement as a defense alleging that Beach Colony released Santa Rosa and Ard.

Ard and Santa Rosa moved for summary judgment on Landmark’s third party complaint arguing that the release barred Beach Colony from raising any causes of action against Ard and Santa Rosa with respect to any liability for the repairs to the structure. Landmark moved for summary judgment on Beach Colony’s complaint arguing that Beach Colony breached the insurance contract by entering into the Agreement with Santa Rosa and Ard for warranty repairs which released the developer and contractor, impairing Landmark’s subrogation rights. The trial court granted Santa Rosa and Ard’s motions for summary judgment, but denied Landmark’s summary judgment motion finding disputed issues of material fact concerning whether the damage to the condominium was caused by the hurricanes or the prior stucco cladding defects.

On appeal, the First District affirmed. The First District concluded that the plain language of the Agreement released Santa Rosa and Ard from further liability because the Agreement provided that Beach Colony would make no claim against the developer or contractors, and agreed not to sue or seek any relief whatsoever from the developer or contractor. The court held that the release was broader than simple repair of the stucco, and encompassed all matters raised in Landmark’s third party action. In a concurring opinion, one of the justices suggested that summary judgment in favor of Landmark may be appropriate on the basis that Beach Colony entered into so broad of a release that it impaired Landmark’s subrogation rights.

This case illustrates that courts may interpret the plain language of a release broadly even when it bars unanticipated future damages caused by or resulting from hurricanes on the basis that the damages resulted from defective construction. It also illustrates that owners, contractors, and developers alike should carefully consider the terms of a release, and whether entering into an agreement impairs the third party subrogation rights of an insurer who may provide coverage for future damages.

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