Starting July 1, Florida law will require builders of newly constructed homes to provide a mandatory 1-year warranty against material construction defects. The new statute, Section 553.837, Florida Statutes, establishes minimum warranty standards and remedies, and will have significant implications for residential builders, developers, and real estate professionals operating in Florida. Learn more about what the warranty does and does not cover here.
How the New Statutory Warranty Interacts with CGL
Coverage for Contractors
The new law does not change the rules governing standard
commercial general liability (CGL) policies for contractors. CGL
policies typically provide coverage for:
- "Bodily injury" and "property damage" caused by an "occurrence"
- That occurs during the policy period
- And is not excluded by specific policy language
Importantly, CGL insurance is not a warranty or performance bond. Historically in Florida, courts have debated whether construction defects constitute a covered "occurrence." Florida courts will not look solely to the title of a cause of action but rather will consider the actual claim allegations in determining whether there is an "occurrence." As a result, faulty work allegations brought under a breach of warranty cause of action can–but won't always–meet the definition of an "occurrence."
Florida case law has evolved to provide some limited coverage for construction defects when the defect or faulty work results in damage to property other than the contractor's own work or where the policy contains an applicable exception to standard "faulty work" exclusions.
Key Practical Impacts for Contractors and Risk
Managers
Florida's new statutory warranty might trigger the
following:
- Gap in Coverage
Builders now face mandatory liability for warranty repairs, but CGL insurance typically will not cover many of those claims unless there is resulting property damage. This creates a risk exposure gap between the builder's statutory obligations and what the CGL insurer is contractually obligated to cover.
- Increased Claims Pressure on Subcontractor Endorsements
Builders may look to indemnity clauses or subcontractor warranties as alternate avenues to shift liability for defects or warranty items that are not covered by the builder's CGL insurance.
- Potential Increase in Builder Demand for Broader Coverage
Builders may look buy separate warranty insurance, such as home warranty coverage (under Chapter 634). Or they may explore manuscript endorsements or specialty products for latent defects or statutory compliance.
With the new law in place, we recommend thatcontractors and risk advisors:
- Review existing CGL policies carefully. Determine how "property damage," "your work," "contractual liability," and "occurrence" are defined and limited.
- Coordinate with insurance brokers to assess whether supplemental policies (like builder's warranty insurance) are needed to cover the statutory repair obligation.
- Update contracts with subcontractors to ensure flow-down of responsibilities for defect-related repairs that may now fall under the builder's statutory duty.
- Consult legal counsel when drafting or updating express written warranties, to ensure compliance with § 553.837 and proper risk allocation.
Conclusion
Florida Statute § 553.837 imposes a new baseline warranty requirement on builders, but it does not alter the fundamental contours of CGL coverage. Builders should not assume that standard insurance policies will cover these statutory warranty claims – in many cases, they won't.
To mitigate risk, builders should explore supplemental warranty coverage, strengthen subcontractor agreements, and stay closely aligned with legal and insurance professionals as they navigate these new rules.
Insurers should expect to see more single-family home claims based on the new warranty and should continue to evaluate whether coverage is applicable to damages arising out of the allegedly defective work.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
