A federal appeals court has overturned a lower court ruling and held an insurer is not exempt from defending a contractor in a dispute with a homeowner under a “products-completed” policy exclusion.

Naples, Florida-based MAC Contractors of Florida LLC had contracted with Paul and Deborah Doppelt to serve as the general contractor on a custom-built residence in Marco Island, Florida, according to Thursday’s ruling by the 11th U.S. Circuit Court of Appeals in Atlanta in Southern-Owners Insurance Co. v. MAC Contractors of Florida LLC; Paul S. Doppelt.

But problems arose between the firm and the Doppelts after construction began, and MAC eventually left the job site before completing the project and issuing a certificate of occupancy, according to the ruling.

The Doppelts sued MAC in state court, alleging “myriad” construction defects and damages at the project, according to the ruling.

MAC’s commercial general liability insurer, Lansing, Michigan-based Southern-Owners Insurance Co., initially agreed to defend MAC against the lawsuit, but later withdrew its defense and filed an action for declaratory relief in U.S. District Court in Fort Myers, Florida. Defendants countersued.

The District Court ruled in the insurer’s favor, concluding that a policy exclusion that excluded coverage for property damage for work included in the “products-completed operations hazard” applied.

The court said the exclusion “unambiguously denies coverage for property damage in the event that the insured abandons or does not complete its work, which is what is alleged to have occurred in this case,” said the appeals court ruling, in quoting the District Court.

The ruling was unanimously overturned by a three-judge appeals court panel.

In MACs view, “property damage occurring before the work is ‘completed’ or ‘abandoned’ is not included in the ‘products-completed operations hazard’ and, as a result falls outside” the exclusion, said the ruling. That is because the exclusion applies only to property damage “included in the ‘products-completed operations hazard.’”

The ruling said Southern-Owners agrees with the construction firm that the exclusion does not apply to property damage caused during ongoing operations.

“We do too,” said the ruling, adding that while Southern-Owners believes summary judgment is still appropriate, its reasons are not “persuasive.”

The panel vacated the district court’s judgment and remanded the case for further proceedings.

MAC attorney Molly Chafe Brockmeyer, a principal with Boyle & Leonard PA in Fort Myers, Florida, said in a statement: “We are happy with the ruling and believe the Court got it right.”

Other attorneys in the case could not immediately be reached for comment.  

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