Terry Lavy (Ft. Myers, FL) (Property) obtained an arbitration defense award in a complicated and contentious case for Citizens Property Insurance Company. Plaintiff was a general contracting firm, whose owner is well known in construction defect litigation circles as a causation and damages expert. Focusing on high-end property disputes, they frequently assert multi-million-dollar claims. The firm it hired “focuses its practice on insurance policy disputes.”
Plaintiff obtained an assignment of benefits from a Homeowners Association. It contended the buildings sustained leaks during 2014 and 2015. As a result of widespread water penetration, alleged to be wind-created openings, there was extensive wood-rot of siding. The damage was hidden beneath a surface of vinyl siding. Demolition revealed the extent of the penetration and structural damage. Ultimately, the envelopes of both buildings were removed, structural supports were reinforced or replaced, and new siding and windows were installed. Plaintiff subsequently filed its lawsuit.
The indemnity claim was $2,700,000.00 million. If successful, Plaintiff would be entitled to its attorneys’ fees and costs, increasing the global exposure to above $3,000,000.00. Early in the litigation, Citizens offered a low proposal for settlement.
Debunking the suit was challenging due to a mail-room error which resulted in the insurer never having opened a claim prior to suit. Efforts to dismiss for lack of pre-suit notice failed as Plaintiff could show receipt of the letter purporting to assert a claim in 2015.
The challenge was defending a case without a claim investigation or decision. Fortunately, two unit-owners were also insureds. They had filed claims which were investigated with an engineer. The investigations were limited to the units but revealed construction and maintenance failures on the exterior leading to long-term water penetration. The property was built with wood siding. When vinyl siding was installed, the wood was not removed and flashings were improperly installed. On the maintenance end, the sealants were old and worn. The combination resulted in structures that allowed water penetration into the siding and encapsulated it there. We rehired the engineer to evaluate materials stored by Plaintiff to expand his knowledge base.
A key tool in discovery for HOA and Condominium cases is the statutory record-keeping requirements. Through this, we were able to obtain a history of the property. Records were not as detailed as desired, but through them and depositions of unit owners, we were able to establish a basis for the associations’ knowledge of long-term leaks in diverse locations—shown to exist at least as far back as 2011.
In an unusual turn, Plaintiff moved to disqualify Defense Counsel. The client considered this to be a compliment to the quality of the defense. Plaintiff did not want to litigate against a firm taking an aggressive posture. After evidentiary hearing, the motion was denied as unfounded.
We also used Plaintiff’s strategies against it. Citizens provided wind-only coverage. Plaintiff also sued the HOA’s all-perils carrier which excluded wind damage. Nearing completion of discovery, the other carriers settled, and plaintiff brought its full claims as to Citizens. We continued to point out their inconsistent positions.
Partnering with our client, we continued an aggressive approach heading into nonbinding arbitration. A second proposal for settlement expired just prior to the hearing. Citizens also filed for Summary Judgment and set same for hearing the next day following arbitration. At the arbitration, Citizens contended conclusively that Plaintiff had never identified a date of loss, cause of loss, or even the number of losses claimed. Each distinct loss, of course, would have its own deductible applied. Both sides relied on the extent of the water damage. To Plaintiff, this showed the extent of damage, but to Defendant, the extent of the degraded wood—up to 100% section loss—showed conclusively that the leaks predated the policies. The arbitrator’s decision was held for 10 days.
Similarly, the Court took the Summary Judgment issues under advisement. Shortly after the motions were considered, the arbitrator issued his opinion in Citizens’ favor. Trial had been scheduled to commence in May. The posture left Plaintiff with few options. The arbitration demonstrated the weakness of their position—and provided another basis for fee shifting. Plaintiff had 20 days to seek a trial de novo, but with Summary Judgment pending, it needed to settle quickly.
Citizens held all the cards. Its options: call the plaintiff’s bluff and wait for expiration of the de novo period; wait for a Summary Judgment decision; and try the case confidently if that were denied. Eventually, it would recover fees and costs, but it would have taken years and appeals. Citizens chose to make a minimal settlement offer, well below 1% of the Plaintiff’s demands. The case settled the same day.