Colony Insurance Company v. Montecito Renaissance, Inc. et al

Filing 102

ORDER: Plaintiff's Second Motion for Summary Judgment 48 is GRANTED. Defendant The Avalon at Clearwater Condominium Association, Inc.'s Second Motion for Summary Judgment 97 is DENIED. The Clerk is directed to enter final summary jud gment in favor of Plaintiff Colony Insurance Company and against Defendants MONTECITO RENAISSANCE, INC., MONTECITO RENAISSANCE, LLP, WILLIAM S. ROGERS, JR., DEBBIE CLARK, EDWARD W. CONK, and AVALON AT CLEARWATER ASSOCIATION, INC. The Clerk is directed to terminate any pending motions as moot, and to close this case. Signed by Judge James S. Moody, Jr on 9/30/2011. (LN)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION

COLONY INSURANCE COMPANY,
Plaintiff,
v.

Case No. 8:09-cv-1469-T-30MAP

MONTECITO RENAISSANCE, INC.,
et al.,
Defendants.
_____________________________________/

ORDER
THIS CAUSE comes before the Court upon Plaintiff’s Second Motion for Summary
Judgment (Dkt. 48), responses in opposition furnished by Defendants (Dkts. 53, 54, and 84),
a Second Motion for Summary Judgment (Dkt. 97) submitted by Defendant The Avalon at
Clearwater Condominium Association, Inc., (“Avalon”), and Plaintiff’s Response in
Opposition (Dkt. 98). The Court, having considered the motions and responses, and being
otherwise advised, concludes that Plaintiff’s Second Motion for Summary Judgment should
be granted, and that Avalon’s Second Motion for Summary Judgment should be denied.
Background
Plaintiff Colony Insurance Company (“Colony”) brings this action seeking a
declaratory judgment that it has no duty to defend, and/or indemnify its insureds in an

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underlying state case currently pending in the Circuit Court for the 6th Judicial Circuit in
Pinellas County, Florida.
Defendant Montecito Renaissance LLP (“Montecito” or “Developer”), owned an
apartment building located in Clearwater, Florida. Montecito later decided to convert this
apartment building to a condominium complex. Towards that end the Developer, among
other things, legally converted the apartment complex to condominium ownership, created
a condominium association, and made various repairs to the buildings in order to better
market and sell the individual condos.
The formal “Declaration of Condominium,” filed on April 25th, 2005, created the
Avalon Condominium Association, a Defendant in this action and the Plaintiff in the
underlying state court case. The Developer sold a number of units around this time. On May
24, 2005, Colony issued a Commercial General Liability (“CGL”) Policy to Montecito
Investment, a non-party to this action. By endorsement, the Developer was named as an
additional named insured. This insurance policy ran from May 24, 2005 until May 24, 2006.1
Montecito’s CGL policy protected it and other insureds from third-party liability for
“bodily injury” and “property damage” caused by an “occurrence” taking place in the
“coverage territory” and during the policy period. The policy also contained various
exclusions. Notably, in addition to standard CGL exclusions, the policy contained a

1

The primary purpose of CGL policies is to protect companies from third-party liability incurred as
a result of that company’s business operations. Such policies are not meant to serve as first-party insurance;
thus, in addition to other exclusions, coverage is generally not available to pay for damage to property that
the company owns, and/or to compensate a company to repair its own defective work.
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“Designated Work Exclusion” which excepted the insurer (Colony) from liability for “all
construction operations pertaining to apartment to condominium conversion.”
Some time after the Declaration of Condominium was filed, the Developer entered
into a “turnkey” contract with Paramount Development and Construction, LLC
(“Paramount”). Under the terms of the contract, Paramount was to undertake certain repairs
to the complex in furtherance of the marketing and selling of individual condominium units.
Inter alia, the contract called for Paramount to correct defects in the complex’s roof, stucco
system, and landscaping. Paramount started this work on or about June 13, 2005, and
completed the work on or about October 15, 2005. Some time after the unit owners took
control of the Condominium Association (November 21, 2005), the Association sued the
Developer, Paramount, and others.
Avalon alleges various counts against the Developer and others in the currently
pending state court action. Inter alia, Avalon alleges that the Developer: (1) failed to
adequately fund converter and capital reserves as required by Florida law; (2) converted
some of the money meant for these reserves; (3) engaged in fraud in the inducement and
negligent misrepresentation by failing to make required disclosures in the “Final Disclosure
of Building Conditions Report” (the “AASI report”) and in the “The Avalon at Clearwater,
A Condominium Prospectus” (the “Prospectus”); (4) breached various warranties and
fiduciary duties, and; (6) defectively repaired the apartment/condominium complex, thus
generating claims for waste, breach of warranty, and negligence.

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Colony argues that all of these causes of action are either not covered by its policy or
are excluded by various provisions contained in it. Thus, Colony contends that it has no duty
to defend, and/or indemnify any of its insureds in the underlying state court action.
Summary Judgment Standard
Motions for summary judgment should only be granted when the pleadings,
depositions, answers to interrogatories, and admissions on file, together with the affidavits,
show there is no genuine issue as to any material fact and that the moving party is entitled
to judgment as a matter of law. Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317,
322 (1986). The existence of some factual disputes between the litigants will not defeat an
otherwise properly supported summary judgment motion; “the requirement is that there be
no genuine issue of material fact.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986) (emphasis in original). The substantive law applicable to the claimed causes of action
will identify which facts are material. Id. Throughout this analysis, the court must examine
the evidence in the light most favorable to the non-movant and draw all justifiable inferences
in its favor. Id. at 255.
Once a party properly makes a summary judgment motion by demonstrating the
absence of a genuine issue of material fact, whether or not accompanied by affidavits, the
nonmoving party must go beyond the pleadings through the use of affidavits, depositions,
answers to interrogatories and admissions on file, and designate specific facts showing that
there is a genuine issue for trial. Celotex, 477 U.S. at 324. The evidence must be
significantly probative to support the claims. Anderson, 477 U.S. at 248-49 (1986).
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This Court may not decide a genuine factual dispute at the summary judgment stage.
Fernandez v. Bankers Nat’l Life Ins. Co., 906 F.2d 559, 564 (11th Cir. 1990). “[I]f factual
issues are present, the Court must deny the motion and proceed to trial.” Warrior Tombigbee
Transp. Co. v. M/V Nan Fung, 695 F.2d 1294, 1296 (11th Cir. 1983). A dispute about a
material fact is genuine and summary judgment is inappropriate if the evidence is such that
a reasonable jury could return a verdict for the nonmoving party. Anderson, 477 U.S. at 248;
Hoffman v. Allied Corp., 912 F.2d 1379 (11th Cir. 1990). However, there must exist a
conflict in substantial evidence to pose a jury question. Verbraeken v. Westinghouse Elec.
Corp., 881 F.2d 1041, 1045 (11th Cir. 1989).
Discussion
A.

Potential Coverage for Counts I-XVI Under Colony’s Insurance Policy

In its Revised Third Amended Complaint (“RTAC”) in the underlying state court
action, Avalon alleges a total of sixteen counts against the Developer and others. Colony
seeks a declaratory judgment that is has no duty to defend, and/or indemnify any of these
counts. In its own Motion for Summary Judgment (Dkt. 97), Avalon concedes that counts
I-VI, VIII, and X-XII, as pled, are not covered by the Colony Insurance Policy; however, as
other Defendants have not made such concessions, this Court will examine these counts as
well.
The Interpretation and Construction of Insurance Contracts in Florida
The interpretation and construction of an insurance contract is a question of law to be
decided by the Court using generally accepted rules of contract construction. National Union
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Fire Ins. Co. of Pittsburgh, PA v. Underwriters at Lloyd’s, London, 971 So.2d 885, 888 (Fla.
3rd DCA 2007); U.S. Fire Ins. Co. v. J.S.U.B., Inc., 979 So.2d 871, 877 (Fla. 2007). In
Florida, insurance provisions granting coverage are to be construed broadly, while
exclusions are to be read narrowly. Westmoreland v. Lumbermens Mut. Cas.Co., 704 So.2d
176, 179 (Fla. 4th DCA 1997).
Insurance contracts are to be interpreted and construed in a manner that is “reasonable,
practical, sensible, and just.” Doctors Co. v. Health Mgmt. Assocs., Inc., 943 So.2d 807, 809
(Fla. 2nd DCA 2006). Terms are to be given their plain and ordinary meaning and the
language of the policy will control unless such language is ambiguous. Bethel v. Sec. Nat’l
Ins. Co., 949 So.2d 219, 222 (Fla. 3rd DCA 2006).
An insurance policy is ambiguous if “the relevant policy language is susceptible to
more than one reasonable interpretation.” Ernie Haire Ford, Inc. v. Universal Underwriters
Ins. Co., 331 Fed.Appx. 640, 645 (11th Cir. 2009). However, the mere fact that parties argue
for different interpretations does not make a policy ambiguous and a court will not construe
an insurance policy to reach an absurd result. Deni Assocs of Fla. v. State Farm Fire &
Casualty Ins. Co., 711 So.2d 1135, 1140 (Fla. 1998).
If a policy is ambiguous and extrinsic evidence fails to clear up the ambiguity, a court
will construe the policy against the insurer as the draftsman of the policy. U.S. Fire Ins. Co.,
979 So.2d at 877.

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I.

Count I

Count I of the underlying Complaint filed in state court is a claim for declaratory
relief. Specifically, Avalon asks the state court to declare that the Developer Montecito
failed to properly fund converter reserves (reserve funds for repairs) as required under
Florida law.
As discussed above, the Colony Insurance Policy only covers “bodily injury” or
“property damage” which was “caused” by an “occurrence.” As Count I of Avalon’s RTAC
fails to allege either “bodily injury” or “property damage” as comprehended by the policy,
it is not potentially covered.
The allegation of Count one is that the Developer failed to adequately fund the
converter reserves, and hence, failed to pay Avalon money owed to it. Such an economic
injury does not meet the policy definition of “property damage,” defined as “[p]hysical injury
to tangible property, including all resulting loss of use that property.” See, e.g., Mullin v.
Travelers Indemnity Co. Of Connecticut, 541 F.3d 1219, 1223-24 (10th Cir. 2008); Johnson
v. Amica Mut. Ins. Co., 733 A.2d 977, 979 (Me. 1999). Nor does it meet the definition of
“bodily injury.” Thus, Count one is not potentially covered by Colony’s insurance policy.
Notably, Avalon has previously conceded that this count is not potentially covered.

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II.

Count II

Count II of the RTAC, inter alia, asks the state court to order the Developer to refund
to Avalon sums allegedly improperly retained by the Developer from the proceeds of the
condominium unit sales.
Count II similarly fails to allege the occurrence of “property damage” as understood
by the policy. On the contrary, Avalon alleges merely an economic injury, a type not
covered by the policy. Notably, Avalon has previously conceded that this count is not
potentially covered.
III.

Count III

Count III asks for an equitable accounting and a constructive trust. Here, the alleged
injury is that Developer wrongfully appropriated funds meant for Avalon. As this count once
again pleads an “economic injury,” it fails to allege “property damage” or “bodily injury” and
is therefore not potentially covered by Colony’s insurance policy. Notably, Avalon has
previously conceded that this count is not potentially covered.
IV.

Count IV

Count IV is a claim for conversion. The alleged injury is that the Developer
wrongfully appropriated funds meant for Avalon. As this count also pleads merely an
“economic injury,” it is therefore not potentially covered by Colony’s insurance policy.
Notably, Avalon has previously conceded that this count is not potentially covered.

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V.

Count V

Count V alleges, inter alia, that the Developer and others intentionally understated
replacement costs and intentionally overstated useful lives, thus enabling the Developer to
improperly and insufficiently fund reserves. The underlying injury here is that Avalon failed
to receive the funds necessary to properly maintain the property. This is an economic injury,
not “property damage” or “bodily injury” and thus does not fall within the terms of the
Colony policy. Notably, Avalon has previously conceded that this count is not potentially
covered.
VI.

Count VI

Count VI of the RTAC alleges fraud in the inducement. Specifically, Count VI
alleges that the Developer “made a false statement of material fact when it published the
Prospectus...that stated [Developer] would fund converter reserves...[when] Developer had
a specific intention of not doing so at the time.” (RTAC ¶ 169). This alleged fraud
purportedly resulted in Avalon receiving insufficient reserve funds.
This count of the Complaint also fails to properly allege “property damage” as
comprehended by the policy. Again, the underlying injury here is that Avalon failed to
receive funds allegedly owed to it. This is an economic injury, not “property damage” or
“bodily injury” and thus does not fall within the terms of the Colony policy. Notably,
Avalon has previously conceded that this count is not potentially covered.

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VII.

Count VII

Count VII alleges that the Developer and others negligently misrepresented in the
Prospectus the amount of converter and capital reserves to be funded to the Condo
Association (Avalon). Such deficient funding purportedly left Avalon with insufficient funds
with which to make repairs. Avalon further argues that this inability to fund necessary
repairs led to “property damage” due to the resulting deterioration of the property. In short,
Avalon alleges that there was an “occurrence” (negligent misrepresentation) that caused
“property damage.” Avalon therefore contends that Count VII should be covered by
Colony’s insurance policy.
Under Colony’s CGL policy, an “occurrence” is defined as “an accident, including
continuous or repeated exposure to substantially the same general harmful conditions.” The
Supreme Court of Florida has stated that the term “accident,” when left undefined in a CGL
policy, as here, includes “injuries or damage neither expected nor intended from the
standpoint of the insured,” in addition to encompassing accidental events. Koikos v.
Travelers Ins. Co., 849 So.2d 263, 267 (Fla. 2003) (quoting State Farm Fire & Casualty Co.
v. CTC Development Corp., 720 So.2d 1072, 1075-76 (Fla. 1998)) (emphasis omitted).
Unfortunately, no Florida court has ruled on the issue of whether negligent
misrepresentation can constitute an “occurrence” under a CGL policy. Moreover, there is
a split of authority among courts that have considered the issue. Some courts have found that
negligent misrepresentation can constitute an “occurrence” as long as the resulting damage
was unforseen or unexpected. See, e.g., Sheets v. Brethren Mutual Ins. Co., 342 Md. 634,
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652 (Md. 1996). Others, apparently the majority, have held that negligent misrepresentation
does not constitute an “occurrence” for purposes of coverage under a CGL policy. See, e.g.,
Chatton v. National Union Fire Ins. Co. of Pittsburgh, 13 Cal.App.4th 846, 861-862 (Cal.
Ct. App. 1992) (the tort of negligent misrepresentation is not an “accident” as it contains an
intentional element; specifically, the intent to induce reliance).
Even assuming that a “negligent misrepresentation” can constitute an “occurrence”
in Florida for purposes of coverage under a CGL policy, it is nonetheless clear here that the
alleged negligent misrepresentation did not cause property damage. Thus, this Court need
not decide whether a “negligent misrepresentation” can constitute an “occurrence” under
Florida law.
Here, the alleged “negligent misrepresentation” did not “cause property damage” for
two reasons. First, Count VII fails to properly allege “property damage” as comprehended
by the policy.
The underlying injury of Count VII is that Avalon was deprived of its rightful reserve
funds. As discussed above, such a failure to receive a debt is an economic injury that does
not constitute “physical injury to tangible property,” and thus is not “property damage” under
the policy. Moreover, the fact that Avalon’s failure to receive this money allegedly
prevented it from making repairs to property (and thus purportedly led to the deterioration
of the property) does not transform this failure to receive a debt into “property damage.” To
hold otherwise would be to sanction an unparalleled enlargement of CGL coverage,
effectively turning CGL insurers into guarantors of their insured’s debts. This Court declines
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to make such an unwarranted expansion. In short, because this count fails to adequately
allege “property damage,” it is not potentially covered by Colony’s policy.
Second, even had Count VII properly alleged “property damage,” it is nonetheless
clear that such damage was not caused by the purported negligent misrepresentations.
Indeed, the alleged failure of Developer and others to make adequate and truthful disclosures
in the Prospectus did not cause any of the alleged physical defects found in the condominium
complex. On the contrary, any such physical damage was caused by defective construction,
and/or maintenance of the property.
As Count VII fails to allege an adequate causal nexus between the alleged “negligent
misrepresentation” and the purported “property damage,” it is not potentially covered by
Colony’s policy. See, e.g., Bush v. Shoemaker-Beal, 26 Kan.App.2d 183, 184-185 (Kan. Ct.
App. 1999) (termites caused property damage, not seller’s non-disclosure of termite
infestation; therefore, negligent misrepresentation did not cause property damage and
consequently negligent misrepresentation claim was not covered by the seller’s insurance
policy).
For the above reasons, Count VII is not potentially covered by Colony’s insurance
policy.
VIII. Count VIII
Count VIII alleges fraud in the inducement. Specifically, Count VIII contends that
the Developer and others made fraudulent misrepresentations in the AASI “Final Disclosure

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of Building Conditions” report which purportedly resulted in Avalon obtaining insufficient
reserve funds.
The underlying injury alleged in this count is that Avalon failed to receive funds
purportedly owed to it. For the reasons stated above, this is an economic injury, not
“property damage” or “bodily injury” and thus does not fall within the terms of the Colony
policy. Notably, Avalon has previously conceded that this count is not potentially covered.
IX.

Count IX

Count IX, for negligent misrepresentation, alleges, inter alia, that the Developer and
others negligently failed to disclose material defects in the AASI “Final Disclosure of
Building Conditions” report, intending that Avalon and the individual unit purchasers would
rely on the report. Among other things, Avalon alleges that the Developer failed to disclose
rotted fascias, mold and mildew, cracked stairway wall caps allowing water infiltration, a
damaged retaining wall, inadequate gutters and downspouts, and soil erosion adjacent to the
building foundation. (RTAC ¶ 294).
Avalon alleges that the negligent failure to disclose these defective conditions led to
the funding of insufficient reserves. According to Avalon, the “failure to disclose the defects
documented in the Land America Report...was negligent and with the purpose of evading
requirements for funding converter reserves and to induce purchase prices for units greater
than the market would justify if the Developer had made full and truthful disclosures of
conditions.” (RTAC ¶ 301). Avalon further alleges that these misrepresentations deprived
Avalon of both the knowledge of the need to make any repairs and of the funds to do so.
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Avalon contends that such accusations adequately plead “property damage” as
comprehended by the policy.2
In short, Avalon argues that Count IX properly pleads an “occurrence” (negligent
misrepresentation) that caused “property damage.” (inter alia, lack of adequate reserve funds
with which to make repairs, and water intrusion damage).
As discussed earlier, Florida courts have not yet decided the question of whether
“negligent misrepresentation” constitutes an “occurrence” under a standard CGL policy.
Moreover, courts that have considered the issue have come to divergent conclusions.
Here, even assuming that negligent misrepresentation can constitute an “occurrence”
in Florida, it is nonetheless clear that the Developer’s alleged negligent misrepresentations
failed to cause property damage; thus, this Court need not decide at this time whether a
“negligent misrepresentation” can constitute an “occurrence” under Florida law.
First, to the extent that the alleged injury is a failure to receive adequate reserve funds,
the Count pleads only economic damages and therefore fails to properly plead “property
damage” or “bodily injury.” Such a claim is not potentially covered by Colony’s insurance
policy.
Second, to the extent that the alleged injury is physical damage to property
purportedly caused by the non-disclosure of alleged material defects, it is also not potentially

2

In addition, Count IX alleges that the Developer negligently misrepresented that it would repair
certain defects with the apartment/condominium buildings. These defects were to be repaired by Paramount.
To the extent this count alleges damage arising from this repair work, it is excluded by the “Designated Work
Exclusion,” as discussed in detail later in this Order.
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covered by the policy; for the reasons laid out below, such a claim fails to properly allege an
occurrence that caused property damage.
The question of whether the negligent non-disclosure of defects by sellers of real
property can be said to have caused the physical damage to property later discovered by the
purchaser has been addressed by several courts.3 Multiple courts have held that such a claim
fails to adequately allege “property damage.”
For example, in State Farm and Casualty Co. v. Brewer, 914 F.Supp. 140 (S.D. Miss
1996), the Court decided the question of whether the seller’s non-disclosure of a termite
infestation was an “occurrence” that caused “property damage.” Id. at 142. The Court found
that it was not. Upon surveying several cases which had considered similar issues, the Court
stated that: “[t]hese cases are virtually unanimous in their holdings that damages flowing
from misrepresentation and/or fraud have no basis in property damage; rather, the only
cognizable damages from such torts are economic and contractual in nature and as such do
not fall within the scope of coverage.” Id. The basic idea is that the essence of these nondisclosure of defects complaints is that the purchaser of the property failed to obtain the
benefit of his bargain; for example, the purchasers in the Brewer case received a home
infested with termites instead of the pest-free home bargained for. Such claims are thought
by many courts to merely plead an economic harm.

3

No Florida court has addressed this issue. As previously discussed, Florida courts have not ruled
on the issue of whether “negligent misrepresentation” can constitute an “occurrence” for purposes of coverage
under a CGL policy.
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The situation is similar here. Avalon essentially alleges in this Count that they failed
to receive the property that they bargained for. They actually received a defective property
badly in need of repairs, and thus failed to receive the property that they bargained for.
Under the authority of Brewer and similar cases, Avalon has failed to show “property
damage” that was caused by an occurrence.
This is not the end of the inquiry, however, as the cases that have considered this issue
are not unanimous. Indeed, Avalon cites a case to the contrary, which holds that the
negligent non-disclosure of defects can result in “property damage.” Sheets v. Brethern
Mutual Ins. Co., 342 Md. 634, 658 (Md. 1996). Moreover, the Sheets court held that
“negligent misrepresentation” can constitute an occurrence that caused property damage,
potentially allowing a negligent misrepresentation to be covered under a CGL policy in a
non-disclosure of defects situation.
In Sheets, the sellers of real property allegedly negligently misrepresented that the
septic system was in good working condition. Id. at 637. This non-disclosure allegedly
caused a couple and their nine children to move into a farm-house, which led to the septic
system malfunctioning and overflowing due to a family too large to use the septic system
moving into the farm-house. Id. at 643. Holding that a negligent misrepresentation could
constitute an “occurrence’ in Maryland, and that the loss of use of the septic system
constituted “property damage,” the Court found that such “occurrence” could be said to have
caused the property damage as the non-disclosures were explicitly alleged to have caused the
homeowners to take affirmative actions (moving into the farm-house and utilizing the septic
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system with their large family) which in turn were alleged to have caused the property
damage. Id.
Here, even if this Court were to assume two highly controversial propositions: (1) that
negligent misrepresentation can constitute an occurrence in Florida, and; (2) that Florida
Courts would recognize Avalon’s alleged damages as “property damages,” Count IX would
still not be potentially covered by the policy as Count IX fails to adequately allege that the
Developer’s negligent misrepresentations caused the property damage.
Indeed, unlike the situation in Sheets, Avalon has not alleged that the purported
misrepresentations caused it or anyone else to take any affirmative actions which led to or
caused the purported property damage. On the contrary, just as the physical damage in
Brewer was caused by the termites, not by the seller’s alleged non-disclosures, the purported
physical damage to the property here was presumably caused by defective construction,
and/or maintenance, not by the Developer’s misrepresentations. Notably, if the alleged
defects had not already “occurred” there would have been nothing for the Developer to
disclose.4
Finally, even if Count IX successfully pleads an “occurrence” that caused “property
damage,” and thus would be covered by the policy, it would nonetheless be excluded by
various provisions in the Colony policy.

4

In addition, the purported defects causing the alleged damage to the property would need to be fixed
regardless of whether the Developer failed to disclose them.
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First, to the extent that the alleged damage did not arise from Paramount’s
construction repair work, any alleged damage would be excluded by exclusions j(1) and/or
j(2).
Exclusion j(1) excludes “property damage” to “property you own, rent or occupy.”5
Exclusion j(2) excludes “property damage” from “[p]remises you sell, give away or abandon,
if the ‘property damage’ arises out of any part of those premises.”6 “You” is further defined
as a “Named Insured” defined in the policy. As the Developer is a “Named Insured,” the
property it owned and sold are covered under these exclusions.7
Here, all of the property in question was either owned or sold by the Developer.
Consequently, any damage that was not the result of Paramount’s allegedly defective
construction work would have either constituted damage to property that the Developer
owned, or have arisen out of “part of [the] premises” which it sold.
Second, to the extent that such damage was caused by Paramount’s allegedly defective
construction repair work, it would be excluded by the “Designated Work Exclusion” to the
policy, as discussed in detail below.

5

Damage to owned property is typically excluded in CGL policies as such insurance is not intended
to provide the insured with first-person coverage.
6

Damage to sold property is typically excluded in part to prevent recovery for non-disclosure of
defect claims like the one at issue here.
7

This Court disagrees with Avalon’s contention that the meaning of “you” as defined in the policy
is ambiguous. See, e.g., Oregon Mutual Ins. Co. v. Highland Court LLC, 2009 WL 779268, *3 (W.D. Wash.)
(the Court, interpreting a similar provision, states that the definition of “you” is unambiguous, and clearly
excludes from coverage claims of property damage to property owned by the Named Insured).
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For all of the above reasons, Count IX is not potentially covered by Colony’s CGL
insurance policy.
X.

Count X

Count X of the complaint states that, by failing to properly fund the converter
reserves, the Developer was deemed to have granted individual unit owners implied
warranties of fitness and merchantability. Avalon further contends that the Developer
breached those warranties. As the underlying alleged injury is Avalon’s failure to receive
funds owed to it, this count alleges an economic injury. Accordingly, it fails to plead
“property damage” or “bodily injury” and thus is not potentially covered by Colony’s
insurance policy. Notably, Avalon has previously conceded that this count is not potentially
covered.
XI.

Count XI

Count XI alleges that individual Defendants Pearson Clark, and Ebers, as officers of
the condominium board prior to turnover, breached their fiduciary duties to the Association
and individual unit owners by, inter alia, failing to properly reserve funds for Avalon, and
failing to disclose material defects in the property. For the reasons previously stated, such
claims are not potentially covered by Colony’s policy. Notably, Avalon has previously
conceded that this count is not potentially covered.

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XII.

Count XII

Count XII does not include any allegations against any of Colony’s insureds;
accordingly, this count is not potentially covered by Colony’s policy. Notably, Avalon has
previously conceded that this count is not potentially covered.
XIII. Count XIII
Count XIII alleges that individual defendants Pearson, Clark, and Ebers breached their
fiduciary duties by failing to ensure that the Developer adequately funded converter reserves.
Once, again, the alleged underlying injury of this count is that Avalon failed to receive
money owed to it. For the reasons stated above, such a claim for economic damages fails to
allege either “property damage” or “bodily injury.” Thus, this count is not potentially
covered under Colony’s policy.
XIV. Count XIV
As previously discussed in the background section, Developer Montecito contracted
with Paramount to undertake various repairs to the apartment/condominium complex in 2005.
Avalon alleges in its RTAC that Paramount’s work was defectively performed. Count XIV
alleges that such defectively performed work constitutes waste. Moreover, Avalon contends
that such an action for waste is covered by the Colony insurance policy.
1.

Paramount’s Construction Repair Work

Developer Montecito owned an apartment building located in Clearwater, Florida and
later decided to convert this apartment building into a condominium complex, the Avalon at
Clearwater. Before it sold any condominium units the Developer surveyed the property and
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found certain deficiencies; for examples, problems with the roof, stucco system and
landscaping . Upon discovering such problems, the Developer decided to make various
repairs to the complex in an effort to better market and sell the condominium units.
Accordingly, the Developer attached an addendum to its standard contract of sale document
stating that it would undertake various repairs to the Condominium property.
The Developer ultimately decided to delegate this repair work to Paramount.
Paramount started this repair work on approximately June 13, 2005, and completed the work
on or about October 15, 2005. It is undisputed that: (1) all of this work was performed after
the formal declaration of condominium was filed on April 25, 2005; (2) after some units had
already been sold, and; (3) all of the work was completed before the Developer relinquished
control of the Association to the individual unit owners on November 21, 2005.
In its RTAC, Avalon alleges that Paramount’s allegedly deficient construction repair
work constitutes waste. Moreover, Avalon alleges both that the Developer is responsible for
such work and that it constitutes an “occurrence” which caused “property damage.” In short,
Avalon alleges that Count XIV is covered by Colony’s insurance policy.
Colony argues that even if Paramount’s defective work constitutes an “occurrence”
which caused “property damage,” such a claim is excluded by the policy’s “Designated Work
Exclusion” which, it says, excludes all damage due to this construction repair work. Whether
or not Avalon’s claim for waste is potentially covered by Colony’s insurance policy turns on
the applicability of this designated exclusion.

Page 21 of 33

2.

The Designated Work Exclusion

Colony’s Insurance Policy contains a “Designated Work Exclusion” as an
endorsement to the policy; a specific provision which modifies the terms of the standard
GCL policy. The exclusion states, in pertinent part, that “this insurance does not apply to...
‘property damage’ included in the ‘products-completed operations hazard’ and arising out
of ‘your work’ shown in the Schedule.” The Schedule defines “your work” as “all
construction operations pertaining to apartment to condominium conversion.”
Avalon argues that the exclusion does not apply to Paramount’s construction repair
work because: (1) the construction repair work did not “pertain to” the “apartment to
condominium conversion,” and; (2) even assuming that the construction repair work did
pertain to the conversion, the exclusion should not bar coverage as the construction work was
performed by Paramount, a sub-contractor of the Developer.
i.

Did the Construction Repair Work “Pertain to” the
“Apartment to Condominium Conversion?”

Avalon argues that the construction repair work performed by Paramount in 2005 did
not “pertain to” the Developer’s “apartment to condominium conversion.” Avalon contends
that, at the very least, the terms “apartment to condominium conversion” and “pertain to” are
ambiguous. As a result, Avalon asks this Court to declare the entire exclusion to be
ambiguous, and to accordingly rule in favor of the insured in accordance with the contra
proferentem rule of contract construction.

Page 22 of 33

First, Avalon asserts that as the term “apartment to condominium conversion” is not
defined in the policy, it should be given a narrow construction, and be held to refer to merely
the legal process of condominium conversion. Second, Avalon argues that the term “pertain
to” is ambiguous and should be accordingly read narrowly as “necessary to.” In short,
Avalon alleges that the clause should be read as “all construction operations necessary to the
legal process of condominium conversion.”
Avalon further argues that since it is undisputed that all of the construction repair
work took place after the filing of the Declaration of Condominium (and thus after the
completion of the legal process of conversion) it follows that the Designated Work Exclusion
can not apply to the construction repair work performed by Paramount.8
This Court disagrees. First, this Court concludes that the “construction operations”
need not be “necessary” to the “apartment to condominium conversion,” but need only to
“concern” or “relate” to the conversion process in order to be within the exclusion. While
Avalon argues that the exclusion should be read as only covering construction operations
necessary to the process of condominium conversion, this interpretation is simply not
supported by the plain language of the exclusion.
As an initial matter, it is worth noting that no construction operations are necessary
to the legal apartment to condominium conversion process, any more than such operations

8

While Avalon concedes that some types of construction work, such as the construction of common
elements or “the construction of walls to create unit boundaries” would fall under the aegis of the exclusion,
it maintains that Paramount’s construction repair work decidedly does not qualify as construction work
“pertaining to” the conversion.
Page 23 of 33

are necessary to the filing of a legal brief. If the Court were to hold that covered construction
operations must be necessary to the legal process of condominium conversion, this Court
would sanction an absurd result.
Moreover, the plain language belies such an interpretation. Despite Avalon’s
contentions, the term “pertain” is not ambiguous. Indeed, Avalon itself points out that the
term is defined by Black’s Law Dictionary as “to relate; to concern.” Such a construction
of the term “pertain” decidedly does not connote any notion of necessity; if it did, the term
“necessary relationship” would be redundant. On the contrary, the term “pertain,” meaning
“to relate” or “to concern” is unambiguous.
In sum, Avalon’s interpretation that covered construction operations must be
necessary to the apartment to condominium conversion is simply not supported by the plain
language of the contract. On the contrary, the plain language makes it clear that the
construction operations merely have to relate to or concern the “apartment to condominium
conversion.”
Second, Avalon’s contention that Paramount’s construction repair work cannot
“pertain to” or “relate to” the conversion because it took place after the filing of the
Declaration of Condominium is unavailing. It is clear that an event happening at time B can
“relate back” to or “concern” an event that happened at an earlier time A. There is simply
no requirement that two events must be contemporaneously conjoined in order “to relate” or
“to pertain” to each other.

Page 24 of 33

Thus, even assuming Avalon’s controversial proposition that the filing of the
Declaration of Condominium consummated the “apartment to condominium conversion,”
(with the result that all of the construction work took place after the conversion) it would
simply not follow that the construction work therefore did not relate to or concern the
conversion. To hold otherwise would allow a Developer to escape a bargained-for exclusion
of construction-related work simply by filing the Declaration early. Sound public policy
advises against such a holding.
In short, this Court rejects Avalon’s contention that construction operations were not
covered under the exclusion if they were not necessary to the legal process of condominium
conversion, and/or if such operations were performed after the filing of the Declaration of
Condominium. Instead, in accordance with the plain language of the exclusion, this Court
holds that covered “construction operations” merely need to “relate to” or “concern” the
“apartment to condominium conversion.”
Although this Court concludes that covered construction operations must merely
relate to the condominium conversion process, it still must decide whether Paramount’s
repair operations did in fact so relate. In doing so, the Court must determine what types of
construction operations might relate to an “apartment to condominium conversion.”
Whether or not the term “apartment to condominium conversion” refers merely to the
legal process of conversion (as contended by Avalon), the plain language of the exclusion
makes it clear that it is meant to encompass some type of “construction operations;” to rule

Page 25 of 33

otherwise would be to delete by judicial fiat the bargained-for term “construction operations”
from the exclusion, going against the exclusion’s plain language.
Indeed, Avalon concedes that some types of construction operations would find
protection under the exclusion; for example, the construction of common areas and “the
construction of walls to create unit boundaries.” Avalon thus argues that these types of
construction operations should be included, while repair operations relating to the marketing
and selling of new condominium units should not. Such a construction is belied by the plain
language of the exclusion, for the exclusion does not bar some construction operations
pertaining to the conversion; on the contrary, it bars all such operations.
Moreover, the word “all” is not ambiguous. When used as a modifier, it connotes the
total set of the modified. Thus, “all construction operations” refers to every kind, or every
sort of construction operation. Hence, all, or every kind of construction operation related to
the condominium conversion should be covered. The list of such operations should not be
artificially limited.
Avalon ignores this inclusive language, and also fails to explain why some types of
construction operations such as the construction of common areas should be covered, while
Paramount’s work should not. None of these hypothetical construction projects are necessary
to the legal process of conversion, and neither the construction of common areas nor the
construction of partition walls appear to be somehow more intimately related to the process
of condominium conversion than the undertaking of repairs.

Page 26 of 33

Here, it is undisputed that the construction repair operations that took place were
related to the Developer’s efforts to market and sell the condominiums. A reasonable person
would believe that the selling of condos is an essential part of any condominium conversion
project and the repair work was clearly done in the furtherance of this goal. In addition, the
fact that the repair work was to be completed before the Developer handed over control of
the Association to the individual unit owners further shows that the work “pertained to” the
apartment to condominium conversion.
For all of the above-stated reasons, this Court concludes that the “Designated Work
Exclusion” is unambiguous. Thus, the Court concludes that the construction repair work
performed by Paramount “pertained to” the “apartment to condominium conversion.”9
ii.

Is the Exclusion Inapplicable Since the Work was
Performed by a Sub-Contractor?

The “Designated Work Exclusion” excludes from coverage “your work” “shown in
the Schedule” which is defined as “all construction operations pertaining to apartment to
condominium conversion.” Avalon argues that work performed by a sub-contractor is an
exception to this exclusion; thus, because the repair work was performed by a sub-contractor,
the exclusion should not apply.
9

As the Court has concluded that the exclusion is unambiguous, it has not considered extrinsic
evidence. Notably, however, the extrinsic evidence in this case makes it clear that the parties to the insurance
contract believed that the construction repair work was related to the apartment to condominium conversion.
For example, the AASI “Final Disclosure of Building Conditions” Report states in the introduction that: “The
Developer intends to convert the project from rental to condominium under the name of Avalon at Clearwater,
a Condominium. Prior to conversion, the Developer intends to make, at its own expense, certain
improvements.” (AASI, 2) Moreover, the report, and other materials contain additional statements making
it clear that the construction repair work undertaken by Paramount was thought to be related to the
conversion.
Page 27 of 33

This argument simply misreads the contract, relying on the standard “damage to your
work,” “l,” exclusion. This standard provision excludes from coverage “‘property damage’
to ‘your work’ arising out of it or any part of it and included in the ‘products-completed
operations hazard.’” Importantly, however, this standard “l” exclusion contains an exception
if the work was performed by a sub-contractor.
Here, the applicability of the exclusion is simply beside the point as Colony does not
rely on this standard “l” exclusion. On the contrary, Colony relies on an endorsement to the
policy containing a bargained-for specific exclusion to the policy. This exclusion states that
“your work” (for purposes of this specific exclusion) refers to “all construction operations
pertaining to apartment to condominium conversion.” Moreover, in the definition section
“your work” is explicitly defined to include “work or operations performed by you or on
your behalf” (emphasis added). Subcontractor Paramount is therefore included in the
definition of “your work” as it is undisputed that it performed the work on the Developer’s
behalf. Thus, the Designated Work Exclusion applies to work performed by both the
Developer and by the Developer’s sub-contractor Paramount.
In sum, for all of the above reasons the Designated Work Exclusion applies to the
construction repair work performed by Paramount. Accordingly, Count XIV for waste,
which relates to this construction repair work, is not potentially covered by the Colony
policy.10
10

Technically, the Designated Work Exclusion only excludes property damage to property that the
Developer does not own; however, to the extent that the construction work caused damage to property that
it did own, such damage would be excluded by the j(1) “property you own” exclusion discussed earlier.
Page 28 of 33

XV.

Count XV

Count XV of the RTAC alleges that the Developer breached various warranties as a
result of the allegedly defective construction repair work performed by Paramount. As
discussed in detail above, damages arising from such work are excluded by the “Designated
Work Exclusion.” Thus, Count XV is not potentially covered by the Colony policy.
XVI. Count XVI
Count XVI alleges that the Developer (and Paramount) negligently performed the
construction repair work. As discussed in detail above, damages arising from such work are
excluded by the “Designated Work Exclusion.” Thus, Count XVI is not potentially covered
by the Colony policy.
B.

Colony’s Duty to Defend Counts I-XVI

The duty of an insurer to defend its insured “depends solely on the allegations in the
complaint filed against the insured.” Tropical Park v. United States Fid. & Guar. Co., 357
So.2d 253, 256 (Fla. 3rd DCA 1978). If the Complaint alleges facts that fairly and
potentially bring the case within coverage, the duty to defend arises. McCreary v. Fla.
Residential Prop. & Cas. Joint Underwriting Ass’n, 758 So.2d 692, 695 (Fla. 4th DCA
1999).
An insurer’s duty to defend is broader than its duty to indemnify for the duty to defend
depends only upon the allegations of the complaint, not on proven facts. See, e.g., Allstate
Ins. Co. v. RJT Enterprises, Inc., 692 So.2d 142, 144 (Fla. 1997). Moreover, if an insurer
has a duty to defend at least one count in the underlying complaint, it follows that the insurer
Page 29 of 33

has the duty to defend the entire action. Travelers Co. Of Ill. V. Royal Oak Enterprises, Inc.,
344 F.Supp.2d 1358, 1365 (M.D. Fla. 2004).
The Court determines the duty to defend by deciding whether the alleged facts in the
complaint are potentially covered by the policy. McCreary, 758 So.2d at 695. If the court
has doubts as to coverage, it must decide these doubts in favor of the insured, and conclude
that the insurer has a duty to defend. Jones v. Florida Ins. Guar. Ass’n, Inc., 908 So.2d 435,
443 (Fla. 2005).
In Florida, at least where the declaratory judgment action will not decide facts that
will be decided in the underlying case, courts should decide an insurer’s duty to defend
before the resolution of the underlying case as it is “irreparable injury” for an insurer to
defend a case when no duty to defend exists. Indemnity Ins. Co. Of N. America v. Ridenour,
629 So.2d 1053, 1054 (Fla. 2nd DCA 1993).
Here, it is appropriate for the Court to decide the issue of Colony’s duty to defend its
insureds. First, the Complaint and Answer have both been filed in the underlying state court
action, making the issue ripe for review. Second, this Court has not needed to decide any
factual issues in this declaratory judgment action, let alone those that might be at issue in the
state case.11 Third, under Florida law, Colony would suffer “irreparable injury” if the
decision on its duty to defend were delayed.12

11

On the contrary, this Court has solely decided legal issues concerning the interpretation and
construction of the Colony insurance contract.
12

Notably, both Colony and Avalon concede that the issue is ripe for review.
Page 30 of 33

For all of these reasons, the Court concludes that it is appropriate to decide the issue
of Colony’s duty to defend at this time. As none of the various counts alleged in the RTAC
are potentially covered by Colony’s insurance policy, the Court concludes that Colony has
no duty to defend any of its insureds in the underlying state action for any of the counts in
the RTAC.
C.

Colony’s Duty to Indemnify Counts I-XVI

The duty to indemnify is narrower than the duty to defend as “[t]he duty to
indemnify, unlike the duty to defend, turns on the actual facts, not the facts alleged in the
complaint.” Colony Ins. Co. v. Nicholson, 2010 WL 2844802, *3 (S.D. Fla. 2010) (quoting
Colony Ins. Co. v. Barnes, 410 F.Supp.2d 1137, 1143 (N.D. Fla. 2005)).
In Florida, the issue of indemnity should sometimes be stayed until the resolution of
the underlying insurance action. Specifically, a Court should not decide the indemnity issue
before the resolution of the underlying action if: (1) deciding the declaratory judgment action
on the issue of indemnity would necessitate the Court deciding factual matters at issue in the
underlying case, and/or; (2) deciding the issue of indemnity would raise “the possibility of
inconsistent adjudications which may result where the plaintiff in the underlying case has not
been joined in the declaratory action.” Home Ins. Co. v. Gephart, 639 So.2d 179, 180 (4th
DCA 1994).
Where such concerns do not exist, it is appropriate for the Court to determine the issue
of coverage prior to the resolution of the underlying suit. Id.; See also, Higgins v. State
Page 31 of 33

Farm Fire & Casualty Co., 894 So.2d 5, 17 (Fla. 2004); Britamco Underwriters, Inc. v.
Central Jersey Investments, Inc., 632 So.2d 138, 141 (4th DCA 1994) (“Generally, an
insurance carrier should be entitled to an expeditious resolution of coverage where there are
no significant, countervailing considerations.

A prompt determination of coverage

potentially benefits the insured, the insurer and the injured party.”)
Here, the Court concludes that summary judgment is appropriate on the issue of
indemnity. In making such a determination, this court notes that it has not needed to decide
any factual issues, let alone those which might be at issue in the underlying suit. On the
contrary, this Court has merely decided the legal issues of contract interpretation and
construction. Moreover, these legal issues relate purely to the issue of coverage and do not
reach the issue of liability; thus, the Court has not needed to decide any dispositive legal
issues in the underlying action.
In addition, as Avalon, the Plaintiff in the underlying case, is joined as a Defendant
in this action, “the possibility of inconsistent adjudications which may result where the
plaintiff in the underlying case has not been joined in the declaratory action” is simply
inapposite here. See Gephart, 639 So.2d at 180.
For all of these reasons, it is appropriate for this Court to rule on the indemnity issue
at this time. Such a ruling will fully settle the legal disputes of the parties to this declaratory
judgment action, possibly promote settlement between the parties in the underlying state

Page 32 of 33

court action,13 and bring about an “expeditious resolution of coverage...potentially
benefit[ing]” all involved. Britamco, 632 So.2d at 141. Accordingly, the Court concludes
that Colony has no duty to indemnify any of its insureds for any of the counts as plead in the
RTAC as none of these counts are potentially covered by the Colony policy.
It is therefore ORDERED AND ADJUDGED that:
1.

Plaintiff Colony Insurance Company’s Second Motion for Summary Judgment

(Dkt. 48) is hereby GRANTED.
2.

Defendant The Avalon at Clearwater Condominium Association, Inc.’s Second

Motion for Summary Judgment (Dkt. 97) is hereby DENIED.
3.

The Clerk is directed to enter final summary judgment in favor of Plaintiff

Colony Insurance Company and against Defendants MONTECITO RENAISSANCE, INC.,
MONTECITO RENAISSANCE, LLP, WILLIAM S. ROGERS, JR., DEBBIE CLARK,
EDWARD W. CONK, and AVALON AT CLEARWATER ASSOCIATION, INC.
4.

The Clerk is directed to terminate any pending motions as moot, and to close

this case.
DONE and ORDERED in Tampa, Florida on September 30, 2011.

Copies furnished to:
Counsel/Parties of Record
S:\Odd\2009\09-cv-1469.msj48.wpd

13

The Supreme Court of Florida has stated that “all parties are in a better position to enter into
settlement negotiations when the decision as to coverage has been put to rest,” and has therefore found that
the promotion of settlement is one reason in favor of resolving the indemnity issue before the resolution of
the underlying case. Higgins, 894 So.2d at 16-17.
Page 33 of 33