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Vol. 7 - Issue 7
September 26, 2018


The Rarely Discussed Provision In The CGL Insuring Agreement

In Foremost Signature Ins. Co. v. Silverboys, No. 17-20581 (S.D. Fla. Sept. 11, 2018), the federal court addressed coverage for defective construction of a home. With one exception, Silverboys resembles most construction defect coverage cases. The court addressed whether the CGL Insuring Agreement was satisfied, namely, was there “property damage” caused by an “occurrence,” with the court making a distinction between an insured’s own defective work and damage to other property caused by an insured’s own defective work. There was also the question whether there was “property damage” on a loss of use basis. Northing to see here folks. Move along.

But there is. In addition to the widely popular “property damage” and “occurrence” issues, the court also addressed a part of the Insuring Agreement that nobody ever pays attention to – the “coverage territory” requirement. Namely, any occurrence must take place in the “coverage territory.” It is the green and black Jujyfruits of the CGL Insuring Agreement.

Here’s why it mattered. The home at issue was in the Bahamas. The insurer argued that the policy’s “coverage territory” requirement was not satisfied. It provided in relevant part – just as in the standard ISO commercial general liability policy – that the coverage territory includes “[t]he United States of America . . . or [a]ll parts of the world if . . . the . . . damage arises out of . . . [g]oods or products made or sold by you in the [United States]; or . . . [t]he activities of a person whose home is in the [United States], but is away for a short time on your business.”

The insurer argued that the “coverage territory” requirement was not satisfied because any alleged property damage was caused by an occurrence that took place in the Bahamas, which is outside of the coverage territory. The counter-argument was that “the alleged negligent conduct that caused the damage occurred in the coverage territory since Designer [the insured] failed to supervise Whittingham [the architect], made billing mistakes, and drafted the designs in Miami.”

The court did not struggle to conclude that the “coverage territory” requirement was not satisfied. It borrowed from Florida’s number of occurrences case law, as discussed in the Northern District of Florida’s 2015 decision in Auto-Owners Ins. v. Globe International: “There, the underlying complaint alleged that the insured was negligent in failing to perform background checks on employees who sexually abused children at a home in Haiti. The bulk of the alleged negligent hiring/supervision occurred at the insured’s offices in Pensacola, Florida. The damage — in that case bodily injury—occurred in Haiti. The policy’s coverage territory was identical to the one in this action. The court, relying on the ‘cause theory’ set forth by the Florida Supreme Court in Koikos v. Travelers Insurance Co., held that when the insured is being sued for negligence, an occurrence ‘is defined by the immediate injury-producing act and not by the underlying tortious omission.’ As a result, the court held that the occurrence that caused the injury was not the insured’s negligence in Florida, but rather, the sexual abuse in Haiti. . . . The location of the alleged property damage in this action is in the Bahamas, outside of the coverage territory.”

Thanks to a case involving the Bahamas, the “coverage territory” requirement had a day in the sun.


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