Auto-Owners Insurance Co. v. Ralph Gage Contracting Inc.

Case: 16-15442 Date Filed: 04/17/2017 Page: 1 of 8

[DO NOT PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT
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No. 16-15442
Non-Argument Calendar
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D.C. Docket No. 3:14-cv-00326-MCR-CJK

AUTO-OWNERS INSURANCE COMPANY,

Plaintiff - Appellee,

versus

RALPH GAGE CONTRACTING INC., et al.,

Defendants,

RICHARD KJELLANDER,
KRESLEY KJELLANDER,

Defendants - Appellants.

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Appeal from the United States District Court
for the Northern District of Florida
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(April 17, 2017)
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Before MARCUS, FAY, and EDMONDSON, Circuit Judges.

PER CURIAM:

In this declaratory judgment action, Richard and Kresley Kjellander appeal

the district court’s grant of summary judgment in favor of Auto-Owners Insurance

Company (“Auto-Owners”). In granting summary judgment, the district court

concluded that Auto-Owners owed no duty to defend or to indemnify its insured,

Ralph Gage Contracting, Inc. (“Gage”), in the underlying lawsuit filed by the

Kjellanders. No reversible error has been shown; we affirm.

In May 2013, the Kjellanders entered a contract to purchase a home,

contingent on a satisfactory home inspection. The Kjellanders hired Gage, a

licensed home inspector, to perform the inspection. Based on Gage’s inspection

report -- which identified no major defects -- the Kjellanders proceeded with the

purchase of the home. Shortly after closing on the property, however, the

Kjellanders discovered several property defects: defects which were not readily

observable, but which materially affected the value of the property. These defects

included water and mold damage and a faulty HVAC system.

The Kjellanders filed the underlying suit against Gage in Florida state court.

They alleged that Gage performed negligently by failing to discover the defects

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that existed at the time of the home inspection. The Kjellanders said that, if they

had known about the defective conditions, they would have exercised their option

to cancel the purchase contract instead of closing on the sale of the property. The

Kjellanders sought damages of over $1.7 million for repair costs, diminution in

value, and for loss of use.

At the time of the inspection, Gage was covered under a Commercial

General Liability insurance policy issued by Auto-Owners (“Policy”). The

Kjellanders demanded payment under the Policy. Auto-Owners denied the claim,

but provided a defense under a reservation of rights. Auto-Owners then filed this

declaratory judgment action, seeking a declaration that it owed no duty to defend

or to indemnify Gage in the underlying suit. Auto-Owners and the Kjellanders

filed cross-motions for summary judgment; the district court granted summary

judgment in favor of Auto-Owners.

We review de novo a district court’s grant of summary judgment, applying

the same legal standards as the district court. Whatley v. CAN Ins. Cos., 189 F.3d

1310, 1313 (11th Cir. 1999). Summary judgment is appropriate when the

evidence, viewed in the light most favorable to the nonmoving party, presents no

genuine issue of material fact and compels judgment as a matter of law. Holloman

v. Mail-Well Corp., 443 F.3d 832, 836-37 (11th Cir. 2006).

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We are bound by the substantive law of Florida in deciding this diversity

case. See Erie R.R. Co. v. Tompkins, 58 S. Ct. 817 (1938). Under Florida law, an

insurer owes a duty to defend its insured “when the complaint alleges facts that

fairly and potentially bring the suit within policy coverage.” Jones v. Fla. Ins.

Guar. Ass’n, Inc., 908 So. 2d 435, 442-43 (Fla. 2005). “Any doubts regarding the

duty to defend must be resolved in favor of the insured.” Id. at 443. If the alleged

facts and legal theories asserted in the complaint fall outside a policy’s coverage,

no duty to defend arises. See, e.g., Chicago Title Ins. Co. v. CV Reit, Inc., 588 So.

2d 1075, 1075-76 (Fla. Dist. Ct. App. 1991). Where there exists no duty to defend,

an insurer has no duty to indemnify. Wilshire Ins. Co. v. Poinciana Grocer, Inc.,

151 So. 3d 55, 57 (Fla. Dist. Ct. App. 2014).

The interpretation of a provision in an insurance contract is a question of law

subject to de novo review. Hegel v. First Liberty Ins. Corp., 778 F.3d 1214, 1219

(11th Cir. 2015). When an insurance policy’s language is “clear and

unambiguous,” it is construed according to its plain language. Auto-Owners Ins.

Co. v. Anderson, 756 So. 2d 29, 33-34 (Fla. 2000). If the policy language is

ambiguous, however, the policy is “interpreted liberally in favor of the insured and

strictly against the drafter who prepared the policy.” Id. at 34. “[I]n construing

insurance policies, courts should read each policy as a whole, endeavoring to give

every provision its full meaning and operative effect.” Id. The insured bears the

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burden of proving that a claim is covered by the insurance policy, and the insurer

bears the burden to prove that an exclusion applies. LaFarge Corp. v. Travelers

Indem. Co., 118 F.3d 1511, 1516 (11th Cir. 1997).

Under the terms of the Policy, Auto-Owners agreed to pay “sums that the

insured becomes legally obligated to pay as damages because of ‘bodily injury’ or

‘property damage’ to which this insurance applies.” In pertinent part,1 the Policy

provided coverage for “property damage” only if it was “caused by an

‘occurrence.’” The Policy defines “property damage” this way:

a. Physical injury to tangible property, including all resulting loss of use
of that property. All such loss of use shall be deemed to occur at the
time of the physical injury that caused it; or

b. Loss of use of tangible property that is not physically injured. All
such loss of use shall be deemed to occur at the time of the
“occurrence” that caused it.

An “occurrence” is defined as “an accident, including continuous or repeated

exposure to substantially the same general harmful conditions.” In a case like this

one -- where the term “accident” is undefined by the Policy -- the Florida Supreme

Court has said that “accident” means “not only ‘accidental events,’ but also

damages or injuries that are neither expected nor intended from the viewpoint of

1
The Policy requires that the property damage be caused by an “occurrence” that took place in
the “coverage territory,” that the property damage occurred during the policy period, and that the
insured lacked knowledge of the damage before the policy period. The issues of coverage
territory, policy period, and the insured’s prior knowledge are not in dispute.
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the insured.” See State Farm Fire & Cas. Co. v. CTC Dev. Corp., 720 So. 2d 1072,

1072 (Fla. 1998).

The plain language of the Policy requires unambiguously a causal link

between the alleged “property damage” and an “occurrence.” Here, the only

asserted “occurrence” is Gage’s alleged negligent inspection. Thus, to show that

their claim is within the Policy’s coverage, the Kjellanders must demonstrate that

Gage’s negligent inspection caused “property damage” within the meaning of the

Policy.

That the defects to the property pre-existed Gage’s inspection is undisputed.

And the Kjellanders do not allege that Gage’s negligent inspection in itself caused

physical injury to the property. Instead, all physical damage to the property --

including water and mold damage and the faulty HVAC equipment -- resulted

from some prior event or series of events. 2

The Kjellanders assert, instead, that their loss of use of the property

constituted “property damage” under the Policy’s second definition. About

causation, the Kjellanders contend that, but for Gage’s negligent inspection, they

would not have purchased the home and would have suffered no loss of use of the

property.

2
Nothing evidences -- and the Kjellanders do not contend -- that these prior events occurred
during the pertinent policy period. Thus, these prior events themselves can serve as no basis for
coverage under the Policy.
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Even if we accept that Gage’s inspection induced the Kjellanders to

purchase the home and, thus, resulted in the Kjellanders’ financial losses, that

argument fails to establish coverage under the Policy. The alleged “property

damage” itself -- the loss of use -- was caused by the pre-existing property defects,

not by Gage’s failure to discover those defects. Indeed, the property defects would

have inevitably led to the loss of use of the property whether Gage had conducted

an inspection or not. That it was the Kjellanders -- and not some other homeowner

-- that ultimately experienced that loss of use does nothing to prove the requisite

causal connection between Gage’s negligence and the “property damage” for

purposes of establishing coverage under the Policy.

Because the Kjellanders have failed to establish a causal connection between

an occurrence -- Gage’s negligence -- and the alleged property damage, they have

failed to satisfy their burden of demonstrating coverage under the Policy. Thus,

the district court concluded correctly -- as a matter of Florida law -- that Auto-

Owners owed Gage no duty to defend or to indemnify in the underlying state court

action. 3

3
Notwithstanding their failure to establish causation, the Kjellanders also contend that an
exclusionary clause -- added after the pertinent events in this case and which excluded expressly
coverage for property damage resulting from inspections -- evidences that coverage in fact
existed under the original policy for damages arising from Gage’s home inspection. We reject
this argument. Florida law makes clear that “exclusionary clauses cannot be relied upon to
create coverage.” See CTC Dev. Corp., 720 So. 2d at 1075. More important, however, under
Florida law we construe the Policy according to its plain meaning and interpret the Policy as a
whole. Anderson, 756 So. 2d at 33-34. Because the Policy at issue in this appeal contains no
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AFFIRMED.

inspection endorsement, we will not consider the language of the later-added endorsement in
construing the Policy.

We also reject the Kjellanders’ public-policy-based argument that the Policy must be construed
to provide coverage for a negligent home inspection, given Florida Statute § 468.8322 -- which
requires home inspectors to maintain insurance coverage. That Gage failed to obtain the
appropriate insurance coverage as required by Florida law does not render the terms of the Policy
invalid as contrary to public policy or Florida statute.
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