Tuesday, October 22, 2013

Florida Court Holds Contract Claim Does Not Trigger E&O Policy

In its recent decision in Public Risk Mgmt. of Fla. v. One Beacon Ins. Co., 2013 U.S. Dist. LEXIS 150091 (M.D. Fla. Oct. 18, 2013), the United States District Court for the Middle District of Florida had occasion to consider whether a breach of contract claim can constitute a professional liability claim.

Public Risk Mgmt concerned coverage for a payment dispute arising out of a  construction contract entered into between the City of Winter Garden (“Winter Garden”) and a contracting entity named Dewitt involving utility relocation along a Florida highway.  The contract called for Winter Garden to pay certain amounts for Dewitt completing the work within an established timeframe.  During the course of the contract, Dewitt encountered conditions out of its control, some of which was attributable to Winter Garden having provided incomplete information concerning the scope of work involved, that made it impossible for Dewitt to complete the project on time.  Upon completion of the work, Winter Garden withheld a portion of the contract funds from Dewitt, prompting Dewitt to file suit for breach of contract and for violation of Florida’s Sunshine Statutes. 

Public Risk Management of Florida (“PRM”) insured Winter Garden under a public official’s errors and omissions liability policy.  The PRM policy insured against “wrongful acts,” defined as “any actual or alleged error or miss-statement, omission, act or neglect or breach of duty due to misfeasance, malfeasance, and nonfeasance . . . .”  OneBeacon, in turn, reinsured the PRM policy. 

PRM provided Winter Garden with a defense in the Dewitt lawsuit, and paid some $286,000 in legal fees before the matter settled.  PRM then sought reimbursement of these defense costs from OneBeacon under the reinsurance contract.  OneBeacon, however, denied any payment obligation to PRM, contending that PRM should not have defended Winter Garden in the underlying lawsuit since a breach of contract claim is not covered under a professional liability policy.  OneBeacon also asserted that coverage was unavailable to Winter Garden based on a policy exclusion in the PRM policy applicable to intentional breaches of contract.  PRM contended that its policy was triggered as a result of the following assertions in Dewitt’s complaint:

19. Performance of Dewitt's work was far more time-consuming and costly than Dewitt reasonably could have anticipated at the time of contracting as a result of errors and omissions in the City's plans and specifications and the City's engineer's gross under-estimate of quantities of various items, Dewitt would be required to furnish.
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24. Dewitt would have timely completed its Work but for the City's misleading information about the utility locations, errors and omissions in the City's plans and specifications, and other hindrances attributable to the City, the FDOT Contractor, and/or other third parties.

PRM contended that these two paragraphs expressly alleged wrongful acts by Winter Garden in connection with its planning of the construction project, and that these wrongful acts are what gave rise to the contract dispute. 

The court rejected PRM’s argument, explaining that the two paragraphs in the complaint on which PRM relied had to be read in the context of the entire complaint, which at its core was a simple payment dispute rather than a claim for any professional negligence.  As the court explained:

The FDOT Project was alleged to have been more complex than originally thought, partly due to information from and actions by Winter Garden. Dewitt alleged it could not finish on schedule and that the materials and labor costs increased due to forces outside of its control, therefore, it claimed that it was owed additional funds under the terms of the Construction Contract.  All of Dewitt's claims in Count I relied on the Construction Contract as the basis for Winter Garden owing it additional money, Dewitt did not rely on negligence.

The court, therefore, concluded that the Dewitt complaint did not allege loss arising out of a “wrongful act” that came within the PRM policy’s coverage.  In passing, the court also noted that the policy’s exclusion applicable to intentional breach of contract served as a secondary basis for noncoverage since the Dewitt complaint alleged that Winter Garden intentionally refused to pay money owed under the construction contract. 


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