Bad Faith in Florida: When Insurance Companies Fail Contractors

You pay your premiums.

You follow the contract.

You get sued anyway.

Then the letter arrives from your insurance company — not the one promising protection, but the one “reserving rights,” questioning coverage, or worse, denying a defense outright.

For Florida contractors facing construction defect litigation, the lawsuit isn’t always the biggest threat. Sometimes the real danger is when your insurer refuses to defend or indemnify you properly under your Commercial General Liability (CGL) policy.

Here’s what many contractors don’t realize: under Florida law, insurers have powerful duties. And when they violate those duties, they can be held accountable for bad faith.

Your Insurer’s First Job: Defend You

In Florida, an insurer’s duty to defend is broad — broader than many carriers would like to admit.

The rule is simple in theory: if the allegations in the complaint potentially fall within the policy’s coverage, the insurer must provide a defense. Courts compare the complaint to the policy language — what’s often called the “eight corners rule.”

If there’s any reasonable potential for coverage, the insurer must step in.

That matters in construction defect cases, where complaints often allege:

• Property damage to completed structures
• Water intrusion affecting non-defective components
• Damage caused by subcontractor work

Even if the facts are disputed, even if liability is unclear, even if the claim later proves uncovered — if the allegations potentially trigger coverage, the insurer must defend.

A wrongful refusal to defend is not a minor issue. It is a breach of the policy.

Indemnity: When the Carrier Must Actually Pay

The duty to indemnify — meaning the obligation to pay a covered settlement or judgment — is narrower than the duty to defend. It depends on the actual facts, not just the allegations.

Florida courts have spent years addressing whether construction defects qualify as an “occurrence” under a CGL policy.

Here’s the key takeaway: while faulty workmanship itself may not be covered, unexpected property damage caused by defective subcontractor work often is.

Florida’s Supreme Court has recognized that damage caused by a subcontractor’s defective work can constitute an “occurrence” under a CGL policy. That distinction is critical for general contractors.

When insurers ignore that nuance and deny coverage wholesale, they may be setting themselves up for exposure.

What “Bad Faith” Actually Means in Florida

Bad faith is not just about getting the law wrong. It’s about failing to treat the insured fairly and honestly.

Under Florida Statute § 624.155, insurers can be held liable if they fail to attempt, in good faith, to settle claims when they could and should have done so — had they acted fairly toward their insured. In practical terms, insurers must:

• Conduct reasonable investigations
• Evaluate claims objectively
• Avoid exposing the insured to unnecessary excess judgments
• Attempt to resolve covered claims within policy limits when appropriate

When a carrier delays, stonewalls, or refuses to settle within limits and the contractor is hit with an excess judgment, Florida law may allow recovery beyond policy limits.

That is not theoretical leverage. It is real financial exposure.

Why Coverage Fights Escalate in Construction Defect Cases

Construction defect litigation is expensive. Defense costs alone can be substantial. Insurers sometimes issue reservation of rights letters, meaning they will defend but reserve the right to deny coverage later.

Other times, carriers deny coverage outright, arguing:

• The claim is purely for defective work
• There is no “occurrence”
• An exclusion applies
• Notice was late

Some of these arguments are legitimate. Some are overreaching.

The difference matters — because a wrongful denial can transform a coverage dispute into a bad faith claim.

Reservation of Rights: What It Really Means

When you receive a reservation of rights letter, it does not mean you are uncovered.

It means the insurer is defending you while preserving certain coverage arguments. That can create conflicts — especially if the insurer later claims the damages fall outside coverage.

Contractors should never ignore a reservation of rights. It is often the first sign that coverage may become contested.

How Contractors Protect Their Rights Under a CGL Policy

The protection begins early.

First, provide prompt notice of any claim or lawsuit. Delayed notice can complicate coverage arguments.

Second, keep thorough documentation of communications with the insurer. Request coverage positions in writing.

Third, understand your policy. Know what is covered, what exclusions apply, and whether subcontractor endorsements are in place.

And perhaps most importantly, do not assume that a denial is final. Coverage disputes in Florida are often litigated — and carriers do not always win.

When the Insurance Company Becomes Part of the Case

In some construction defect cases, the dispute expands. Contractors may file declaratory judgment actions to establish coverage. If the insurer’s conduct crosses the line, statutory bad faith claims may follow.

That dynamic changes leverage.

A contractor facing a $2 million claim with a $1 million policy limit is in a very different position if the insurer refuses to settle reasonably. In Florida, that refusal can expose the carrier to the full excess judgment.

Insurers know this. And so should contractors.

The Bottom Line: Insurance Is a Contract — Not a Favor

CGL policies are contracts. Contractors pay for protection against risk. When insurers fail to defend, fail to indemnify, or fail to act in good faith, Florida law provides remedies.

The key is recognizing when a coverage dispute crosses into bad faith — and acting strategically before exposure escalates.

At DuFault Law, we represent Florida contractors navigating construction defect litigation and insurance coverage disputes. Whether you are fighting for a defense, challenging a denial, or evaluating potential bad faith exposure, we help ensure your insurer meets its legal obligations.

Because when you’re sued, your insurance company should be your shield — not your next legal opponent.

Wondering Whether Your Insurer Is Acting in Good Faith? Let’s Find Out.

Florida law gives contractors powerful protections when insurers fail to defend or settle properly. A strategic review of your policy and the carrier’s response can change the trajectory of your case. Contact DuFault Law to protect your rights before the exposure grows.

• Call us at (239) 422-6400
• Email us at contact@dufaultlaw.com
• Or Visit our Contact Page to schedule a consultation