Pozzi Window Co. v. Auto-Owners Insurance, (11th Cir. 2006)

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[P U B L IS H ]

IN THE UNITED STATES COURT OF APPEALS

FILED

F O R THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS

ELEVENTH CIRCUIT

APR 19, 2006

N o . 05-10559 THOMAS K. KAHN

CLERK

D . C. Docket No. 02-23093-CV-TK

P O Z Z I WINDOW COMPANY,

Plaintiff-Counter-

Defendant-Appellee

Cross-Appellant,

versus

AUTO-OWNERS INSURANCE,

Defendant-Counter-

Claimant-Third Party-

Plaintiff-Appellant

Cross-Appellee,

versus

CORAL CONSTRUCTION OF SOUTH FLORIDA, INC.,

JAMES IRBY,

Third-Party-Defendants.

A p p e als from the United States District Court

fo r the Southern District of Florida

(A p ril 19, 2006)

B e fo r e TJOFLAT and HULL, Circuit Judges, and RESTANI *, Judge.

P E R CURIAM: T h is appeal involves an insurance coverage dispute. Appellant AutoO w n e r s Insurance Company ("Auto-Owners") issued to contractor Coral C o n stru ctio n of South Florida, Inc. ("Coral") and Coral's president, James J. Irby, tw o commercial general liability policies (the "Policies"). The insured Coral a ss ig n e d its rights under the Policies to Pozzi Window Company ("Pozzi"), which m an u factu red the windows in a home that Coral constructed. The parties dispute w h eth er the Policies cover Coral and Irby's liability for the repair or replacement o f the defectively installed windows. The district court concluded that coverage ex isted and granted partial summary judgment in favor of Coral and Irby's assig n ee Pozzi and against Auto-Owners.

The case then proceeded to a jury trial before a magistrate judge on Pozzi's claim s of bad faith and breach of contract against Auto-Owners. The jury found in P o zzi's favor and awarded Pozzi $500,000 in punitive damages on the bad faith claim . Thereafter, the magistrate judge granted Auto-Owners' motion for ju d g m en t as a matter of law as to the bad-faith verdict and set aside the jury's p u n itiv e-d am ag es award. A u to -O w n ers appeals the judgment in favor of Pozzi as to the coverage issu es and argues that its Policies do not cover the costs of repair or replacement of d efectiv e work. After review and oral argument, we certify the coverage issue to th e Florida Supreme Court. In Pozzi's cross-appeal, we affirm the magistrate ju d g e 's grant of judgment as a matter of law in favor of Auto-Owners on the bad faith and punitive damages issues.

I. BACKGROUND Auto-Owners issued to Coral and its president, Irby, two identical co m m ercial general liability policies. The Policies provided a general aggregate lim it of liability coverage (other than "Products-Completed Operations") of $1 m illio n as well as a separate aggregate limit of liability coverage for "ProductsC o m p leted Operations" of $1 million.

A. U n d erly in g litigation D u rin g the coverage period, Coral and Irby constructed a multi-milliond o lla r house for Jorge Perez in Coconut Grove, Florida. The house included w in d o w s manufactured by Pozzi and installed by Coral's subcontractor, Brian S c o tt Builders, Inc. ("Scott"). The windows apparently were defectively installed b y Scott. After moving into the house in 1997, Perez complained of water damage to his home as a result of leakage around the windows. P e re z filed suit in state court against Pozzi, Coral, and Scott. Pozzi entered in to a settlement with Perez, under which Pozzi agreed to remedy the defective in stallatio n of the windows. In the same lawsuit, Pozzi filed cross-claims against C o ral for negligent supervision of Scott. Pozzi later added Irby as a defendant on its cross-claims. Coral and Irby made a claim under the Policies, and Auto-Owners asserted that the damages Pozzi was seeking were not covered.

Auto-Owners provided a defense for Coral under a reservation of rights.

Auto-Owners paid Perez for his claims for personal property damage caused by leak ag e from the windows, and Perez released Coral and Irby from any liability.

However, Auto-Owners continued to maintain that there was no coverage for the co sts of repair or replacement of the windows.

Irby retained Stanley Klett as his attorney in the litigation with Pozzi.

According to Irby, Auto-Owners initially refused to pay for Irby's defense. Klett sch ed u led a mediation for April 2002.1 At the mediation, Auto-Owners took the p o sitio n that there was no coverage. As a result, Pozzi's lawyers told AutoO w n ers to "go home," and Pozzi, Coral, and Irby continued settlement talks w ith o u t Auto-Owners. A t the mediation, the parties reached an agreement in principle to settle all claim s among them. Under the proposed settlement, Pozzi would recover from C o ral and Irby and release its claims against them, and Coral and Irby would assig n to Pozzi their insurance claims against Auto-Owners.

Just after the mediation, having been informed of the separate settlement d iscu ssio n s among Pozzi, Coral, and Irby, Auto-Owners had Thomas Berger, the d efen se lawyer it had retained for Coral, file a notice of appearance on behalf of Irb y. Auto-Owners agreed to defend Irby under the same reservation of rights issu ed to Coral. Auto-Owners, however, continued to refuse to reimburse Klett an d /o r Irby for the fees Klett had incurred in representing Irby in the previous s ev e n months. According to Irby and Klett, although Berger and Klett had co m m u n icated about the case, Irby and Klett were not informed prior to the filing o f the notice of appearance that Berger would be taking over Irby's representation.

S h o rtly thereafter, Coral and Irby entered into a settlement with Pozzi. As p art of the settlement, Pozzi, Irby, and Coral signed onto a Consent Judgment, w h ic h was entered by the state court. Under the Consent Judgment, Pozzi was en titled to recover from Coral and Irby $646,726 in principal, $163,298 in p r e ju d g m e n t interest, and post-judgment interest at the statutory rate. Also under th e settlement, Coral and Irby assigned to Pozzi their claims against Auto-Owners an d their rights under the Policies.

B . This Litigation Pozzi then filed this lawsuit in the district court alleging that Auto-Owners b re ac h ed its insurance contract by denying coverage to Coral and Irby for Pozzi's claim s in the underlying litigation, refusing to defend Irby or reimburse his defense c o s ts , and refusing to participate in the settlement (Count One). Pozzi also asserted th a t Auto-Owners' conduct was in bad faith (Count Two). Pozzi further asserted th at, as assignee of Coral's and Irby's rights under the Policies, it was entitled to fees and costs incurred by Coral and Irby in prosecuting this action (Count Three).

Auto-Owners filed a counterclaim for declaratory relief, seeking a determination th a t it had no duty to defend Coral and Irby and that there was no coverage under th e Policies for the claims asserted in the underlying litigation.

T h e parties filed cross-motions for summary judgment. The district court co n clu d ed the Policies provided coverage for the repair or replacement of the d efectiv e windows and that Auto-Owners had breached its duty to defend Irby.

The district court thus granted partial summary judgment in favor of Pozzi.

P o zzi and Auto-Owners then consented to the magistrate judge conducting th e jury trial on the issues of damages under the Policies, bad faith, and punitive d am ag es. Before the case was submitted for the jury's consideration, Auto- O w n ers moved for a directed verdict concluding that there was no bad faith and th at punitive damages were inappropriate. The magistrate judge reserved ruling on A u to -O w n ers' motion and submitted the case to the jury. The jury returned a v e r d ic t for Pozzi, found bad faith, and awarded $500,000 in punitive damages ag ain st Auto-Owners.

The jury also made the following findings in special interrogatories: (1) the settlem en t between Coral or Irby and Pozzi was not the product of collusion or frau d ; (2) Pozzi and Coral and Irby acted reasonably and in good faith in settling th e underlying lawsuit but the settlement in the amount of $646,726, as specified in th e Consent Judgment in the underlying litigation, was not reasonable and in good faith , and $300,000 was a reasonable settlement amount; (3) Auto-Owners acted in b a d faith in denying coverage for the cross-claims asserted by Pozzi against Coral an d Irby in the underlying litigation and in breaching its duty to defend Irby; and (4 ) an award of $500,000 in punitive damages was warranted.

The magistrate judge entered final judgment in favor of Pozzi and awarded co m p en sato ry and punitive damages in the amounts specified by the jury. AutoO w n ers then moved for judgment as a matter of law on three issues, arguing (1) th a t the evidence was insufficient to support an award of punitive damages, (2) that th e evidence was insufficient to support the finding of bad faith, and (3) that, based o n the evidence at trial, the Policies did not provide coverage, and the district court h ad erred in awarding partial summary judgment in favor of Pozzi on the coverage issu e. In the alternative, Auto-Owners sought a new trial on all issues.

The magistrate judge granted in part Auto-Owners' motion for judgment as a m a tte r of law. Specifically, the magistrate judge concluded that the evidence was in su fficien t to support the jury's finding of bad faith or its award of punitive d am ag es and set aside the jury's punitive-damages award. The magistrate judge a ls o conditionally granted the motion for new trial on these issues, specifying that a new trial on bad faith and punitive damages should proceed in the event that its d ecisio n is reversed or vacated on appeal. The magistrate judge concluded that he w a s without authority to modify the district court's earlier grant of partial summary ju d g m e n t as to coverage.

II. DISCUSSION A. A u to -O w n ers' Coverage Appeal O n appeal, Auto-Owners argues that its Policies do not provide productsco m p leted operations hazard ("PCOH") coverage for repair or replacement of d efectiv e work. Auto-Owners argues that under Florida law, comprehensive g e n e r a l liability ("CGL") policies, such as the Policies2 here, cover bodily injury an d property damage resulting from defective work, but not the repair or rep lacem en t of the work itself.

The district court rejected this argument, concluding that the Policies u n am b ig u o u sly provided PCOH coverage for repair or replacement of defective w o r k by a subcontractor. We first describe the relevant policy language and then o u tlin e the Florida law.

1. The Policies T h e Policies provide coverage for sums that the insured Coral is legally o b lig a te d to pay as damages because of "bodily injury" and "property damage" cau sed by an "occurrence" that takes place in the "coverage territory" and during th e policy period. Specifically, the Policies state as follows: 1 . Insuring Agreement. a. W e will pay those sums that the insured becomes legally o b lig ated to pay as damages because of "bodily injury" o r "property damage" to which this insurance applies.

W e will have the right and duty to defend any "suit" seek in g those damages. We may at our discretion in v estig ate any "occurrence" and settle any claim or "su it" that may result. . . .

... b. T h is insurance applies to "bodily injury" and "property d a m a g e " only if: ( 1 ) The "bodily injury" or "property damage" is caused b y an "occurrence" that takes place in the "coverage territo ry"; and ( 2 ) The "bodily injury" or "property damage" occurs d u rin g the policy period.

T h e Policies also specifically provide for "Products-Completed Operations H a za rd " coverage limited to $1 million. The Policies define "Products-completed o p eratio n s hazard" as including all property damage "arising out of `your product' o r `your work,'" as follows: 11. a. " P r o d u c t s - c o m p l e t e d operations hazard" includes all "b o d ily injury" and "property damage" occurring away fro m premises you own or rent and arising out of "your p ro d u ct" or "your work" except: (1 ) Products that are still in your physical possession; or (2 ) Work that has not yet been completed or abandoned. b. "Y o u r work" will be deemed completed at the earliest of th e following times: ( 1 ) When all of the work called for in your contract has b een completed.

( 2 ) When all of the work to be done at the site has been c o m p le te d if your contract calls for work at more than o n e site.

( 3 ) When that part of the work done at a job site has been p u t to its intended use by any person or organization o th er than another contractor or subcontractor working o n the same project.

W o rk that may need service, maintenance, correction, r ep a ir or replacement, but which is otherwise complete, w ill be treated as completed. c. T h is hazard does not include "bodily injury" or "property d a m a g e " arising out of: (1 ) The transportation of property, unless the injury or d a m a g e arises out of a condition in or on a vehicle created by the "loading or unloading" of it; (2 ) The existence of tools, uninstalled equipment or ab an d o n ed or unused materials; (3 ) Products or operations for which the classification in th is Coverage Part or in our manual of rules includes p ro d u cts or completed operations.

P o zz i claims that the defective windows here were completed work ­ in Perez's h o m e, in which he resided ­ and that the damages arose out of that work and thus w o u ld fall within the PCOH coverage definition.

The Policies further define "your work" to mean "[w]ork or operations p erfo rm ed by you or on your behalf," (emphasis added) as follows: 15. "Y o u r work" means: a. Work or operations performed by you or on your behalf; and b . Materials, parts or equipment furnished in connection with su ch work or operations.

"Your work" includes: a . Warranties or representations made at any time with respect to the fitness, quality, durability, performance or use of "your w o rk "; and b. The providing of or failure to provide warnings or in s tr u c tio n s .

(Emphasis added.) Pozzi thus claims that the work performed by Coral's su b co n tracto r Scott is also covered under the Policies.

The Policies also define "property damage" to mean: a. Physical injury to tangible property, including all resulting loss of u s e of that property. All such loss of use shall be deemed to occur at th e time of the physical injury that caused it; or b . Loss of use of tangible property that is not physically injured. All s u c h loss shall be deemed to occur at the time of the "occurrence" that cau sed it.

T h u s, the main question is whether the "products-completed operations hazard" ("P C O H ") coverage provided to Coral and Irby includes Coral and Irby's liability fo r the repair or replacement of defective work performed by Coral's s u b c o n tr a c to r .

2. E x c lu s io n s T h e Policies also contain two relevant exclusions, as follows: 2. E x c lu s io n s T h is insurance does not apply to: ... j. "P ro p erty damage" to: ...

(6 ) That particular part of any property that must be r e s t o r e d , repaired or replaced because "your work" was in co rrectly performed on it.

...

Paragraph (6) of this exclusion does not apply to "p r o p e rty damage" included in the "products-completed o p e ra tio n s hazard".

... l. "P ro p erty damage" to "your work" arising out of it or a n y part of it and including in the "products-completed o p e ra tio n s hazard".

T h is exclusion does not apply if the damaged work or the w o rk out of which the damage arises was performed on y o u r behalf by a subcontractor.

F irst, exclusion (j)(6) provides that the insurance does not apply to property d am ag e to "[t]hat particular part of any property that must be restored, repaired or rep laced because `your work' was incorrectly performed on it." However, the P o lic ie s further provide that this exclusion "does not apply to `property damage' in clu d ed in the `products-completed operations hazard.'" Thus, if the costs of r ep a ir or replacement are covered under the PCOH coverage, this exclusion does n o t affect coverage.

S eco n d , exclusion (l) excludes "`[p]roperty damage' to `your work' arising o u t of any part of it and including in the `products-completed operations hazard.'" However, the Policies further provide that this exclusion "does not apply if the d am ag ed work or the work out of which the damage arises was performed on your b e h a lf by a subcontractor." Here, the damaged or defective work was performed o n the insured Coral's behalf by the subcontractor Scott. Thus, this exclusion also is inapplicable.

B e ca u s e none of the exclusions applies, the main question in this appeal rem ain s, as stated earlier, whether the Policies' PCOH coverage includes Coral and I rb y 's liability for the cost of the repair or replacement of defective work p erfo rm ed by Coral's subcontractor.

3. LaMarche v. Shelby Mutual Insurance Co.

Viewing the language of the Policies in isolation, the district court's c o n c lu s io n that coverage exists arguably would seem to be proper. The Policies clearly cover PCOH property damage caused by occurrences in the coverage te rr ito r y during the coverage period. Defective construction is an "occurrence" u n d er Florida law, see State Farm Fire & Cas. Co. v. CTC Dev. Corp., 720 So. 2d 1 0 7 2 , 1076 (Fla. 1998), and it is undisputed that the defective work here occurred in the coverage territory and during the coverage period. Thus, according to Pozzi, th e costs of repair or replacement are covered under the PCOH provision because it is a sum the insureds Coral and Irby were legally obligated to pay as damages b ecau se of property damage (damaged, incorrectly installed windows) arising out o f the subcontractor Scott's work.

However, the Florida Supreme Court in LaMarche v. Shelby Mutual In su ran ce Co., 390 So. 2d 325, 326 (Fla. 1980), concluded that CGL policies do n o t cover the costs of repair and replacement of defective work, but only cover any d a m a g e or injury resulting from the defective work. In LaMarche, the LaMarches e n te re d into a building contract for the construction of their home. The general co n tracto r's work proved to be deficient, and the LaMarches sought payment from th e contractor's CGL insurance company for the replacement and repair of the d e f ec tiv e work. The Florida Supreme Court concluded that the policy covered p erso n al injury or property damage as a result of faulty work, but that no coverage ex isted for the replacement and repair costs: T o interpret the policy as providing coverage for construction d eficien cies, as asserted by the petitioners and a minority of states, w o u ld enable a contractor to receive initial payment for the work from th e homeowner, then receive subsequent payment from his insurance co m p an y to repair and correct deficiencies in his own work. We find th is interpretation was not the intent of the contractor and the in su ran ce company when they entered into the subject contract of in su ran ce, and the language of the policy clearly excludes this type of co v erag e. Rather than coverage and payment for building flaws or d eficien cies, the policy instead covers damage caused by those flaws.

L aM arch e, 390 So. 2d at 326. The Florida Supreme Court then adopted the fo llo w in g reasoning of the Supreme Court of New Jersey in Weedo v. Stone-EB rick , Inc., 405 A.2d 788 (N.J. 1979): An illustration of this fundamental point may serve to mark the b o u n d a ries between "business risks" and occurrences giving rise to in su r a b le liability. When a craftsman applies stucco to an exterior w all of a home in a faulty manner and discoloration, peeling and ch ip p in g result, the poorly-performed work will perforce have to be r e p l a c e d or repaired by the tradesman or by a surety. On the other h an d , should the stucco peel and fall from the wall, and thereby cause in ju ry to the homeowner or his neighbor standing below or to a p assin g automobile, an occurrence of harm arises which is the proper su b ject of risk-sharing as provided by the type of policy before us in th is case.

L aM arch e, 390 So. 2d at 326-27 (quoting Weedo, 405 A.2d at 791-92) (quotation m ark s omitted).

The particular policy language and exclusions at issue in LaMarche were d ifferen t from those at issue here. However, the broad language and reasoning of L aM arch e does not seem to be dependent on the precise terms of the policy.

Rather, LaMarche indicates that CGL policies (as opposed to warranty policies, for in stan ce) generally do not cover the costs of repair or replacement of defective w o rk .

While the Florida Supreme Court has not reviewed the policy language here, th e majority of Florida intermediate appellate courts have applied LaMarche b ro ad ly and concluded that CGL policies do not cover repair or replacement costs.

See, e.g., Auto-Owners Ins. Co. v. Marvin Dev. Corp., 805 So. 2d 888, 892-93 ( F la . Dist. Ct. App. 2001) ("We also note that the Auto-Owners' insurance policies w ere not warranty policies providing coverage for construction deficiencies or d efectiv e workmanship. Comprehensive liability policies generally do not provide co v erag e to a contractor for deficiencies in its own work."); Auto Owners Ins. Co. v . Tripp Constr., Inc., 737 So. 2d 600, 601 (Fla. Dist. Ct. App. 1999) (CGL p o licies protect against only personal injury or property damage resulting from d efectiv e work, not for the repair of the work itself); Aetna Cas. & Sur. Co. of Am. v . Deluxe Sys., Inc., of Fla., 711 So. 2d 1293, 1296 (Fla. Dist. Ct. App. 1998) (q u o tin g LaMarche, 390 So. 2d at 326, for the proposition that the "`purpose of . . . c o m p r e h e n s iv e liability insurance coverage is to provide protection for personal in ju ry or for property damage caused by the completed product, but not for the rep lacem en t and repair of that product"); Lassiter Constr. Co. v. Am. States Ins.

C o ., 699 So. 2d 768, 769 n.1 (Fla. Dist. Ct. App. 1997) (same); Home Owners W arran ty Corp. v. Hanover Ins. Co., 683 So. 2d 527, 529 (Fla. Dist. Ct. App.

1 9 9 6 ) (concluding, based on LaMarche, that the CGL policy, which was similar to th e Policies here, did not provide coverage for repair or replacement of defective w o r k , and rejecting argument that exclusion identical to exclusion (l) created such c o v e r a g e ); Tucker Constr. Co. v. Michigan Mut. Ins. Co., 423 So.2d 525, 528 (Fla.

D ist. Ct. App. 1982) (same); see also Auto Owners Ins. Co. v. Travelers Cas. & S u r. Co., 227 F.Supp.2d 1248, 1262 (M.D. Fla. 2002) (applying Florida law to sim ilar policy and concluding that, while the policy language was different from th o se in LaMarche, "Florida courts examining the same CGL policies . . . in this case continue to hold that CGL policies do not cover the costs to repair and/or r ep la ce defective construction" performed by subcontractors).

M o s t of the post-LaMarche cases are distinguishable in that the courts rested th e ir decisions, at least in part, on specific policy language or factual circumstances th a t do not exist here. See Marvin Dev. Co., 805 So. 2d at 891-92 (policy excluded P C O H coverage); Deluxe Sys., 711 So. 2d at 1296-97 (claims fell within two d ifferen t exclusions); Lassiter, 699 So. 2d at 770 (no coverage for repair or rep lacem en t of subcontractor's faulty work because claim fell within exclusion for w o r k on real property by the insured "or any other contractors or subcontractors w o r k in g directly or indirectly on [the insured's] behalf"); Tucker, 423 So. 2d at 5 2 8 -2 9 (claims fell within exclusion for property damage to work performed by the n am ed insured). However, in each case cited above, the courts nevertheless went b eyo n d the language of the particular policies in issue and reaffirmed the L aM arch e holding that repair or replacement costs for defective work are not the typ e of costs covered by CGL policies generally. Further, at least one of those c as es , the district court's decision in Travelers, 227 F.Supp. 2d at 1263, involves p o licy language identical to the Policies here and similar factual circumstances.

4. R ecen t Split in Florida Courts Although the majority of Florida interim appellate courts have concluded C G L policies do not cover repair or replacement of the defective construction its elf , in J.S.U.B., Inc. v. United States Fire Insurance Co., 906 So. 2d 303 (Fla.

D ist. Ct. App. 2005), the Florida Court of Appeal, Second District, came to the o p p o site conclusion. In J.S.U.B., the claims at issue related to damage resulting f ro m the subcontractor's faulty work in constructing houses, and the insurer argued th a t the damages were outside the scope of the CGL policies. The court a ck n o w le d g e d LaMarche and its progeny, but concluded that both the standard C G L provisions and the controlling law had changed since LaMarche.3 T h e Florida court first noted that the policies contained broad insuring la n g u a g e covering property damage caused by an "occurrence," defined as "an accid en t, including continuous or repeated exposure to substantially the same g e n e r a l harmful conditions." J.S.U.B., 906 So. 2d at 308. "Accident" was u n d e f in e d in the policies. Id. At the time LaMarche was decided, Florida law d efin ed "accident," for insurance coverage purposes, to exclude "the natural and p r o b a b le consequences of the insured's deliberate actions." Id. (citing Hardware M u t. Cas. Co. v. Gerrits, 65 So. 2d 69 (Fla. 1953)). But in State Farm Fire & C asu alty Co. v. CTC Development Corp., 720 So. 2d 1072, 1076 (Fla. 1998), the F lo r id a Supreme Court broadened the scope of insurance coverage, concluding that "a n occurrence included not only an accidental event but also `the unexpected in ju ry or damage resulting from the insured's intentional acts. Thus, if the resu ltin g damages are unintended, the resulting damage is accidental even though th e original acts were intentional.'" J.S.U.B., 906 So. 2d at 308 (quoting CTC, 720 S o . 2d at 1075) (other quotation marks and citation omitted). In CTC, the Florida S u p rem e Court concluded that a contractor's construction of a home in violation of setb ack requirements, where the contractor was under the mistaken belief that it h a d obtained a variance, was an "occurrence" under the policy. CTC, 720 So. 2d at 1 0 7 6 . Based on this expanded definition of coverage events, the J.S.U.B. court c o n c lu d e d that LaMarche and its progeny no longer compelled the conclusion that C G L policies do not provide coverage for claims for repair or replacement of the su b co n tracto r's faulty work. J.S.U.B., 906 So. 2d at 309.

The Florida court in J.S.U.B. also looked to the policies' exclusions to d eterm in e that coverage existed. The court acknowledged that, under Florida law, a n exclusion cannot "create" coverage. However, the Florida court also recognized th a t "`[r]eading the coverage provision of the policy together with the exclusionary clau se could support a conclusion that coverage is provided in the . . . policy for o c c u r r en c e s where the insured did not intend or expect to cause harm to the third p arty.'" Id. at 310 (quoting CTC, 720 So. 2d at 1075).

In J.S.U.B., the Florida court also addressed the same exclusions relevant h ere and found that they supported coverage of claims for repair or replacement of a subcontractor's faulty work. Specifically, the Florida court reasoned as follows: . . . Subparagraph 6 excludes coverage for restoration, repair, or rep lacem en t that is required because of work that was incorrectly p e r f o r m e d . However, an exception to the exclusion is for "property d a m a g e " included in the "products-completed operations hazard." If w e were to read the policies as suggested by the Insurer, without co n sid erin g the import of the exclusions, it is arguable that this e x c lu s io n and exception to the exclusion would have no meaning or effect in this policy . . . .

S im ila rly , the "Damage To Your Work" exclusion contains an ex ce p tio n for work performed by a subcontractor on the Builder's b eh alf. The Insurer does not contend that the exclusion applies: in stead , it simply reiterates its view that the policy simply provides no c o v e r a g e for the Builder's claims. If the policies provide coverage, th e exception to this exclusion would apply because the damage that o c c u r r e d was the result of the subcontractors' use of poor soil and im p ro p er soil compaction and testing. Accordingly, based on our co n clu sio n that the policies provide coverage, this exclusion does not ap p ly because the exception to the exclusion applies.

Id . Thus, the Florida court concluded that LaMarche was inapplicable, that the p o licies provided coverage, and that none of the exclusions applied. Id. at 310-11.

However, the Florida Supreme Court on April 5, 2006, accepted jurisdiction of the J.S .U .B . case and ordered briefing.

5. U n s e ttle d Question of Florida Law T h e facts relevant to this appeal are basically undisputed and the parties ag ree that Florida law controls. Thus, the appeal turns on the purely legal question o f the interpretation of the standard terms in CGL policies, such as the Policies in is su e .

"W h e r e there is doubt in the interpretation of state law, a federal court may certify the question to the state supreme court to avoid making unnecessary Erie g u esses and to offer the state court the opportunity to interpret or change existing law ." Tobin v. Michigan Mut. Ins. Co., 398 F.3d 1267, 1274 (11th Cir. 2005). As d iscu ssed above, there is dissension among Florida intermediate appellate courts, as well as federal district courts, about the continued vitality of LaMarche and its ap p licab ility to standard CGL policies such as the Policies. Accordingly, because th is appeal depends on resolution of a question of Florida law that will affect many o th er cases, we certify the issue to the Florida Supreme Court.

6. C e rtif ic atio n to the Florida Supreme Court C E R T IF IC A T IO N FROM THE UNITED STATES COURT OF APPEALS FOR T H E ELEVENTH CIRCUIT TO THE SUPREME COURT OF FLORIDA, P U R S U A N T TO ARTICLE V, SECTION 3(B)(6) OF THE FLORIDA C O N S T IT U T IO N .

T O THE SUPREME COURT OF FLORIDA AND ITS HONORABLE JU S T IC E S : W e certify the following question to the Supreme Court of Florida for d eterm in atio n under Florida law: D O E S A STANDARD FORM COMPREHENSIVE GENERAL LIABILITY P O L IC Y WITH PRODUCT COMPLETED OPERATIONS HAZARD C O V E R A G E , SUCH AS THE POLICIES DESCRIBED HERE, ISSUED TO A G E N E R A L CONTRACTOR, COVER THE GENERAL CONTRACTOR'S L IA B IL IT Y TO A THIRD PARTY FOR THE COSTS OF REPAIR OR R E P L A C E M E N T OF DEFECTIVE WORK BY ITS SUBCONTRACTOR? T h e phrasing used in this certified question should not restrict the Supreme C o u rt's consideration of the problem posed by this case. "This latitude extends to th e Supreme Court's restatement of the issue or issues and the manner in which the an sw ers is given." Tobin, 398 F.3d at 1275 (quotation marks and citations o m itte d ) . To assist the Supreme Court's consideration of the case, the entire reco rd , along with the briefs of the parties, shall be transmitted to the Supreme C o u r t of Florida.

B. P o zzi's Cross-appeal W e now turn to Pozzi's claim on cross-appeal that the magistrate judge erred in granting judgment as a matter of law in favor of Auto-Owners as to the issues of b ad faith and punitive damages.

T h e Florida Supreme Court has identified the following factors as relevant to a bad-faith determination: (1) "efforts or measures taken by the insurer to resolve th e coverage dispute promptly or in such a way as to limit any potential prejudice to the insureds"; (2) "the substance of the coverage dispute or the weight of legal au th o rity on the coverage issue"; (3) "the insurer's diligence and thoroughness in in v estig atin g the facts specifically pertinent to coverage"; and (4) "efforts made by th e insurer to settle the liability claim in the face of the coverage dispute." State F a rm Mut. Auto. Ins. Co. v. Laforet, 658 So.2d 55, 63 (Fla. 1995). The parties ag ree that these are the relevant factors.

In granting judgment as a matter of law in favor of Auto-Owners, the m a g is tr ate judge concluded that the evidence showed Auto-Owners' conduct was ap p ro p riate for an insurer that believed reasonably and in good faith that the claims w ere not covered: . . . The evidence shows that Auto-Owners denied coverage, defended th e case under a reservation of rights, challenged coverage through the ap p ro p riate legal mechanism, and eventually was found to be wrong o n the issue of coverage. Despite Pozzi's characterization of the e v i d e n c e, it is clear that Auto-Owners did what insurance companies p ro p erly do when they have a serious doubt as to coverage: it d e f en d e d under a reservation of rights, and sought declaratory relief o n the question of coverage. There was no evidence of unreasonable co n d u ct, no evidence of any independent tort, and no evidence that it ex p o sed its insureds to excess judgments by its conduct. It did not m i sle ad its insureds, and did not cause them any damages other than th e amount of coverage provided by the policy.

T h e magistrate judge then concluded that each of the LaForet factors weighed in fav o r of Auto-Owners.

On appeal, Pozzi challenges the magistrate judge's application of the L aF o ret factors. After careful review of the record, we conclude that the m ag istrate judge did not err in applying the LaForet factors.4 For example, as the 4 We review de novo a district court's grant of a motion for judgment as a matter of law, applying the same standards as the district court. Transamerica Leasing, Inc., v. Institute of London Underwriters, 430 F.3d 1326, 1331 (11th Cir. 2005). "A district court may not grant a motion for a judgment as a matter of law unless `the evidence is such that, without weighing the credibility of the witnesses or otherwise considering the weight of the evidence, there can be but one conclusion as to the verdict that reasonable [persons] could have reached.'" Olmsted v. Taco m ag istrate judge's order explained, the coverage issue was and is subject to serious d eb ate; the evidence showed that Auto-Owners' denial of coverage was wellreaso n ed ; there was no evidence that Auto-Owners misrepresented the terms of its P o licies; Auto-Owners did not subject its insured to any damages beyond the d en ial of coverage; and the evidence was insufficient to support the jury's bad faith v erd ict. We conclude that Auto-Owners was entitled to judgment as a matter of la w on the bad faith issue.5 P o zzi also argues that the same factors establishing bad faith warrant a p u n itiv e-d am ag es award.6 For the reasons set forth above and in the magistrate ju d g e's order, we reject this argument and conclude that the magistrate judge p ro p erly granted Auto-Owners judgment as a matter of law.

III. CONCLUSION F o r the foregoing reasons, the magistrate judge's grant of judgment as a Bell Corp., 141 F.3d 1457, 1460 (11th Cir. 1998) (quotation marks and citations omitted).

5 We recognize that Pozzi emphasizes the June 10, 2002, letter that Auto-Owners' coverage counsel sent to Klett regarding Irby's defense and argues that this letter illustrates Auto-Owners' bad faith. However, we conclude that the letter does not create an issue of material fact as to bad faith and punitive damages.

6 Under Florida law, "the plaintiff must establish at trial, by clear and convincing evidence, its entitlement to an award of punitive damages." Fla. Stat. § 768.725 (emphasis added). Florida courts have clarified that for punitive damages to be awarded, "the conduct of the insurer against the interests of the insured must be so egregious as to constitute an independent tort." Dunn v. Nat'l Sec. Fire & Cas. Co., 631 So. 2d 1103, 1108 (Fla. Dist. Ct.

App. 1993). Generally, dishonesty, misrepresentations, or fraudulent conduct must be alleged and proven. Id. m atter of law in favor of Auto-Owners as to the issues of bad faith and punitive d am ag es is affirmed. As to the coverage issue, we certify the above question to the F lo rid a Supreme Court.

A F F IR M E D in part and QUESTION CERTIFIED.

* Honorable Jane A. Restani, Chief Judge, United States Court of International Trade, sitting by designation.

1 Shortly after the mediation was scheduled, Auto-Owners also brought a separate declaratory judgment action in state court seeking a determination that the Policies did not cover the repair or replacement costs. In this case, the district court denied Auto-Owners' motion to dismiss in light of that action, and Auto-Owners has not challenged that ruling in this appeal.

2 The Policies are form policies promulgated by the Insurance Services Offices ("ISO") and include standard language used in commercial general liability policies.

3 The Policies here, and the policies in J.S.U.B., are standardized ISO policies that are identical in all material respects.

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