We anticipate that the 2012 Atlantic basin hurricane season will have reduced activity compared with the 1981-2010 climatology. The tropical Atlantic has anomalously cooled over the past several months, and it appears that the chances of an El Niño event this summer and fall are relatively high. We anticipate a below-average probability for major hurricanes making landfall along the United States coastline and in the Caribbean. However, coastal residents are reminded that it only takes one hurricane making landfall to make it an active season for them, and they need to prepare the same for every season, regardless of how much activity is predicted.

Their detailed analysis, past forecasts and verifications are available at http://hurricane.atmos.colostate.edu/Forecasts.
 

Universal asked the trial court to determine that Florida Statute section 90.304 allowed a jury instruction based on section 627.7073(1)(c) as a rebuttable presumption affecting the burden of proof. Florida Statute section 90.304 provided:

In civil actions, all rebuttable presumptions which are not defined in s. 90.303 are presumptions affecting the burden of proof.

Section 627.7073(1)(c) provided:

The respective findings, opinions, and recommendations of the professional engineer or professional geologist as to the cause of distress to the property and the findings, opinions, and recommendations of the professional engineer as to land and building stabilization and foundation repair shall be presumed correct.

Universal argued that its expert report findings were presumptively correct, and the presumption shifted the burden of proof to Mr. Warfel to prove that the damage was caused by a sinkhole. Mr. Warfel argued that the section 627.7073(1)(c) presumption was a “vanishing” presumption, which affected the burden of producing evidence but did not shift the burden of proof to him. The trial court agreed with Universal and instructed the jury:

You must presume that the opinions, findings, and conclusion in the SD II report as to the cause of damage and whether or not a sinkhole loss has occurred are correct. This presumption is rebuttable. The Plaintiff has the burden of proving by a preponderance of the evidence that the findings, opinions, and conclusions of the report are not correct.

On appeal, Florida’s Second District Court of Appeal sided with Warfel. The Court explained that in enacting the statutes relating to the expert reports, the Legislature did not clearly state that public policy requires a homeowner to bear the burden to disprove the findings and recommendations of the insurer's engineers and geologists. The Court also noted that all-risk policies traditionally give the insurer the burden to prove that a claimed loss is not covered. The Court then noted, it “must assume that the legislature was aware of this fact when it enacted section 627.7073(1)(c),” and that the Legislature “knows how to create burden-shifting presumptions under section 90.304.” Warfel v. Universal, 2009 WL 4640882 at *2 (Fla. 2d DCA 2009). In the absence of clear Legislative intent otherwise, the Court concluded the presumption under section 627.7073(1)(c) was a “vanishing” or “bursting bubble” presumption that affected only Mr. Warfel's burden of producing evidence. As Mr. Warfel produced credible evidence contradicting the presumption, the presumption vanished and the issue should have been determined on the evidence as though no presumption ever existed.

Because the trial court misapplied the presumption and gave the jury an instruction that improperly shifted the burden of proof, the Court awarded Mr. Warfel a new trial. But the District Court also certified the following question as one of great public importance to the Florida Supreme Court:

DOES THE LANGUAGE OF SECTION 627.7073(1)(C) CREATE A PRESUMPTION AFFECTING THE BURDEN OF PROOF UNDER SECTION 90.304 OR DOES THE LANGUAGE CREATE A PRESUMPTION AFFECTING THE BURDEN OF PRODUCING EVIDENCE UNDER SECTION 90.303?

Finding the application of a specific provision within Chapter 627, the Insurance Code, to the evidentiary context is “both misguided and inappropriate,” the Court answered no; section 627.7073(1)(c) has no application in litigation. The Court noted that “nothing in the sinkhole claim process statutory scheme, as it appeared in 2005, applies that scheme in the litigation context,” and that Chapter 627 was designed to provide a framework for insurance companies to follow in the claim adjustment process. After analyzing all of the 2005 changes to the sinkhole claims process, the Court concluded, “[i]f anything, the presumption of correctness attached to the report appears to be aimed at shielding the engineer or professional geologist from liability for title defects and the insurance companies from claims of improper denials of claims.”

The Court further explained that “even if this Court were to hold that section 627.7073(1)(c) is applicable in the context of other litigation, the plain language of the statute precludes the application of section 90.304 to the presumption created in section 627.7073(1)(c),” as “[t]his language follows sections of legislation that establish the requirement that such a report be obtained as a condition precedent to a denial of benefits.” For a court to find that the Legislature “intended” to incorporate section 90.304 into a statutory presumption, the statute must explicitly provide for the incorporation or provide a clear expression of such intent.

The Court also rejected Universal’s argument that section 627.7073(1)(c) is an expression of public policy and should be governed by section 90.304. Universal argued that applying the presumption in litigation would reduce the number of disputed sinkhole claims and the overall costs associated with sinkhole losses. Finding that Universal’s justifications are not social policies, the Court held that the intent of the sinkhole legislation was “specifically designed to protect the public during the claims process,” and Universal’s purported social policies were not advanced by or included in the statutes.

Lastly, a review of the bill that enacted the statute (chapter 2005-111) and the staff analyses associated with that bill reveal that nothing in any of those documents indicates that the presumption articulated in section 627.7073(1)(c) is an expression of any social policy, let alone one that favors insurance companies. If at all, the statutory plan is designed to require that insurance companies have expert reports in the claims process before denying a request for benefits.

The Court found that the jury instruction was fundamental error, a rare conclusion by the Court. The instruction ordered the jury to presume that Universal’s report was correct and removed the critical factual issue from the jury’s consideration. The instruction was tantamount to a directed verdict. Accordingly, the Court approved the Second District Court of Appeal’s decision and remanded the case for a new trial. 

Note:  Michelle Claverol's series, Business Interruption Claims, will continue next Sunday.

Regarding the wind vs. water coverage problem that came to the forefront during Hurricane Katrina litigation, the bill allows insureds to gain access to the engineering reports relied on by the NFIP in determining whether damage was caused by wind or water:

(d) Information Regarding Multiple Perils Claims-

(1) IN GENERAL- Subject to paragraph (2), if an insured having flood insurance coverage under a policy issued under the program under this title by the Administrator or a company, insurer, or entity offering flood insurance coverage under such program (in this subsection referred to as a `participating company') has wind or other homeowners coverage from any company, insurer, or other entity covering property covered by such flood insurance, in the case of damage to such property that may have been caused by flood or by wind, the Administrator and the participating company, upon the request of the insured, shall provide to the insured, within 30 days of such request—

(A) a copy of the estimate of structure damage;

(B) proofs of loss;

(C) any expert or engineering reports or documents commissioned by or relied upon by the Administrator or participating company in determining whether the damage was caused by flood or any other peril; and

(D) the Administrator's or the participating company's final determination on the claim.

The bill now moves on the U.S. Senate for a vote. We will keep you posted on the progress of the legislation as it works its way through Congress.

The financial fallout from the March 2011 Japan earthquake and tsunami will continue to impact companies worldwide which rely on Japanese suppliers. Contingent business interruption (CBI) insurance, which indemnifies an insured for financial loss caused by damage to its suppliers' property, will be the focus of UK and US companies seeking to recoup losses arising out of Japanese supply chain interruptions.

This webinar will focus on the complex causation issues likely to impact coverage of CBI claims, including the interplay between covered, non-covered and excluded perils, as well as how anti-concurrent causation clauses may limit coverage of CBI cliams.

To register for the webinar, click here.

Everest recognizes that public insurance adjusting can be a different job each day and with the new wellness system he hopes to provide the necessary information public adjusters need to stay healthy. Everest’s guide to safety and wellness will address daily ways to minimize the risk and the accidents that can incur in connection with claims inspections. In a recent podcast with Gene Veno, President of the American Association of Public Insurance Adjusters (AAPIA), Everest announced his reasons for the book and shared why adjusters need an interactive lifestyle management system. Everest explained that to live happier, longer lives, adjusters need to actively work to improve their health, and be aware of the risks of injury. Everest explains that our work environment affects our well being and the kind of work performed takes a toll on the body. To listen to the recent interview with AAPIA, click here. Everest's system, due out this summer, will help public adjusters with life style management.

Awareness of health and safety is very important, especially for public adjusters who often find themselves out of the office and in the field. I highlighted safety information in my post, Safety Instructions for Public Adjusters.

The public adjuster who inspired my previous post on safety, Charles “Dick” Tutwiler, is scheduled to present a live webinar addressing public adjuster safety on Thursday, April 21, 2011. More information about the webinar and safety of public adjusters is available at AAPIA.com. Also, stay tuned, as we will provide new information about Everest's lifestyle system as it becomes available.

a. Misrepresenting their ability to procure coverage for Plaintiffs by, for example, failing to advise Plaintiffs that they did not have the authority to seek appointments with insurance carriers, thereby precluding them from the ability to directly procure coverage;

b. Illegally issuing certificates of insurance without appointments;

c. Charging Plaintiffs premiums for insurance never procured and/or charging Plaintiffs more than the quoted premium for coverage procured;

d. Binding unnecessarily duplicative insurance coverage; and

e. Covering up their predatory embezzlement scheme through manipulation and deceit.

The amount of damages Hanks and Wilson are requesting has not yet been determined, but the complaint states that they believe the broker’s wrongful conduct and failure to perform his duties, as well his fraud, theft and embezzlement, has cost Hanks and Wilson “hundreds of thousands, if not millions, of dollars.”

An example of life mimicking art:
 

• (2)(b)1: “Acting in gross disregard of the insured's interest by failing to accept a good faith written demand to settle claims within the policy limits if, under all the circumstances existing at the relevant time, it could and should have done so, had it acted fairly and honestly toward its insured."

• Under (2)(b)1., the current statute wording is manipulated to eliminate insurer's duty of good faith. "Good faith" wording is left in the section, however it would now apply to the insured, not the insurer ("...good faith written demand...").

• Adds a new proof standard of "acting in gross disregard of the insured's interest." (Currently "fairly and honestly toward its insured").

• In effect, eliminates insurer's affirmative duty of good faith and replaces it with anything less than gross disregard is ok.

• Action brought under (2)(b)1. -- Insurer has an affirmative defense if the insured fails to fully cooperate in providing all relevant information and in presenting the claim.

2.  Insurer is not liable in excess of policy limits or the appraisal award, whichever is less, if it makes timely payment of the appraisal award.

• However, if the insurer does not make a timely payment of appraisal award, there is no presumption that the insurer acted in bad faith.

3.  §624.155(10):

• Insurer does not owe a fiduciary duty to the insured.

• Insurer retains the right to protect privileged work-product. Claim file is considered work-product. In order to obtain the claim file, the insured would be required to show the material is needed to prepare the case and cannot obtain the equivalent by other means without undue hardship.

• Adds for the insurer that "the attorney-client privilege remains absolute."

4.  §624.155(11): Attorneys fees and costs may not include any multiplier or enhancement for taking on difficult or risky cases on a contingent fee.

5.  Eliminates common-law bad faith cause of action. As to first-party claims, this language preempts any decision by the Florida Supreme Court on this issue currently pending before them in QBE Insurance Corp. v. Chalfonte Condominium Apartment Association as discussed in Common Law Good Faith Duty Before Florida Supreme Court.

The bill guts consumer protections that have been in place for nearly thirty years. Strangely, the Civil Remedy law was first passed because Florida Courts would not recognize a first-party cause of action for bad faith conduct causing injury to policyholders. This proposed law takes away policyholders’ statutory protections and, unlike the majority of other states, prevents Florida common-law from recognizing a breach of the good faith duty.

This bill should not be taken lightly as it just passed the Senate Committee this morning by a 4-3 vote.

In Florida Farm Bureau, the insurer, as a Write-Your-Own Program Carrier participating in the National Flood Insurance Program (“NFIP”), issued a Standard Flood Insurance Policy (“SFIP”) covering the defendant’s property. The insured’s home was destroyed during Hurricane Ivan, and Farm Bureau tendered policy limits for the dwelling and contents. Farm Bureau also issued the insured a separate homeowner’s policy for $138,500 in coverage for damage due to a covered peril, which included wind but excluded flood. After receiving the policy limits from the SFIP, the insured filed a claim under the homeowners policy. That claim went to trial, the jury found the property was a total loss as a result of wind damage, and the insured was awarded the policy limits.

As Farm Bureau sought to recover funds paid under a SFIP, the U.S. District Court for the Northern District of Florida concluded that any remedy was limited to those set forth by FEMA in the federal flood insurance regulations and the NFIA, as interpreted under federal common law insurance principles. As there was no provision for the relief requested by Farm Bureau in the above mentioned law and the Court could not create federal common law cause of action, the Court concluded there was no cause of action for which Farm Bureau could recover.

Without the program in place, it is doubtful that people who reside in areas of the country prone to flooding would be able to purchase insurance to safeguard against that risk. The program is several decades old and requires private property and casualty insurers to offer policies that include coverage against flood insurance.

The Property Casualty Insurers Association of America, a group that represents the property insurance industry, welcomed the Senate action, but urged the House to act quickly to take up the extension.

"Absent House action, this vital program that protects 5.5 million Americans will expire at the end of the month," said Marguerite Tortorello, senior vice president at the association.

The Blanchards owned a trailer and an apartment, located at 7529 Ling Road in Lake Charles. They lived in the trailer and rented the apartment. On April 11, 2006, Wesley Blanchard applied for a Standard Flood Insurance Policy (SFIP) on the buildings with Fidelity, listing the mailing address for the trailer as 7529A Ling Road and the mailing address for the apartment as 7529B Ling Road. Even though the two structures had separate mailing addresses, there was only one mailbox at the property. Fidelity issued two separate SFIPs for the properties.

On November 30, 2006, the Blanchards contacted Fidelity to have and additional mortgagee added to the SFIP for the apartment with a mailing address of 7529B Ling Rd. Fidelity mailed the Notice of Revised Declar-tions was mailed to the 7529B Ling Rd. address and received no correspondence from the Post Office that the mail was undeliverable.

On February 12, 2007, Fidelity mailed a renewal notice for the apartment to the 7529B Ling Road address, and again, Fidelity received no correspondence that the notice was undeliverable. On April 5, 2007, Fidelity mailed the declaration's page for the apartment to the 7529B Ling Road address, and, again, the correspondence was not returned to Fidelity as undeliverable.
On February 14, 2008, Fidelity mailed a copy of a renewal notice for the apartment to 7529B Ling Road. It was not returned as undeliverable. On March 26, 2008, Fidelity mailed a copy of a Renewal Reminder Notice to the 7529B Ling Road address and, again, there was no indication that it was not delivered.

On April 10, 2008, Fidelity mailed an Expiration Notice to 7529B Ling Road. No document was returned as undeliverable. The SFIP for 7529B Ling Road lapsed on April 10, 2008 because Fidelity did not receive the premium.

On September 18, 2008, the apartment was flooded as a result of Hurricane Ike. Two months later, the Blanchards sent a premium payment to Fidelity, in an attempt to retroactively pay the premium on the lapsed policy. Fidelity cashed the check, but then attempted to refund it. The Blanchards refused to accept the refund and demanded that the SFIP be retroactively renewed. Fidelity refused, and the Blanchards filed suit.

Standard Flood Insurance policies are strictly construed and enforced. The SFIP requires that the insured furnish accurate information. Therefore, Fidelity argued it was the Blanchard’s duty to notify Fidelity of any inaccuracy or any change of address listed on the application and subsequent declaration pages. The Blanchards argued that Fidelity received notice from the U.S. Post Office of a request of change of address for 7529 Ling Road on February 19, 2008, and that had Fidelity used due diligence, the Blanchards would have received the notices and paid their premiums.

The Court sided with Fidelity. While Fidelity received notice of the change of address for the 7529 Ling Road property, it did not receive notice of a change of address for the 7529B Ling Road property. The application listed 7529B Ling Road as the proper address, and none of the correspondence Fidelity sent to that address was returned as undeliverable. Because the Blanchards failed to pay the premium on the property, the policy lapsed, and it was not covered.

Read the full opinion here.

Florida Farm Bureau Casualty Insurance Company appealed a final judgment in favor of the Mathises, awarding them their homeowners policy limits. Hurricane Ivan caused substantial wind and flood damage to the Mathises’ home. The home was insured with a flood insurance policy with policy limits of $250,000, issued pursuant to the National Flood Insurance, and with a Florida Farm homeowners policy with policy limits of $295,600, which covered windstorm damage but excluded flood.

Mathis recovered the full $250,000, less the deductible, under their flood policy, and Florida Farm paid $102,000 for wind damages under the homeowners policy. The Mathises filed suit, arguing they were entitled to recover the full policy limits under Florida's Valued Policy Law (VPL), section 627.702(1), Florida Statutes (2004). Florida Farm argued: the Mathis home was not a total loss; even if it was, the loss was caused by flood; and allowing the Mathises to recover the limits of the wind insurance would constitute unjust enrichment. Notably, Florida Farm did not assert set-off as a defense.

On appeal, Florida Farm argued that the Mathises were impermissibly allowed a double recovery for their loss because they had been paid policy limits under their separate flood insurance policy. In response, the Mathises argued that the jury accepted their evidence that the wind damage caused a total loss or constructive total loss of their home, so that under Florida's VPL, they were entitled to recover their policy limits.

At trial, the court granted the Mathises’ motion in limine to prohibit Florida Farm from introducing any evidence of flood payments, though the court did allow evidence of flood damage. Mr. Mathis’ expert contractor testified that the cost to repair the wind damage above ten feet of the first floor was $325,548.10. Florida Farm argued that the house was not a total loss and that the second floor could have been repaired.

The jury returned a verdict answering “yes” to the question “[d]id the wind damages in this case amount to a constructive total loss of the property or to a total loss because the cost to repair exceeds the pre-loss market value of the building so that it is not economically feasible to repair the building.”

On appeal, Florida Farm argued that the trial court committed fundamental error in failing to set off the amount paid under the flood insurance policy against the damages awarded under the homeowners policy, because an award of damages which are not authorized by law is fundamental error. The Mathises argued set off is an affirmative defense that must be specifically pled, or it is waived.

The First District Court of Appeal rejected First Florida’s argument, noting that even if Florida Farm had properly raised the defense of set-off to the trial court below, there was no evidence in the record of an actual duplication of benefits. The Court distinguished Florida Farm Bureau Casualty Insurance Company v. Cox, 967 So. 2d 815 (Fla. 2007). Cox was limited in its holding “to only those cases in which a covered peril did not cause a total loss or constructive total loss.” Thus, Cox did not apply in this case. At trial below, the jury accepted the Mathises’ evidence that wind caused a total or a constructive total loss of their home.

The Court further explained that even if it accepted Florida Farm's argument that Cox required apportionment of cause when there is damage caused by both wind and flood, the record was not sufficient to decide this issue. There was no evidence in the record as to the amount of flood damage and the jury was not asked to allocate what portion of the damage was caused by flood. Moreover, there was no evidence in the record that supported Florida Farm's argument that it should be allowed to set off the full $250,000 payment made pursuant to the flood policy against payment of policy limits under the homeowners policy, as the evidence of the value of the property varied from $295,000 to $500,000.

Click here to read the entire slip opinion.

In this case, the Shoopmans’ home was substantially damaged by fire. After they filed a claim, Allstate investigated the causes of the fire and suspected the fire was the result of arson and that an “insured person” was involved in the arson and/or concealed or misrepresented material facts relating to the loss. Allstate filed an action, asking the Court to declare that the Shoopmans are not entitled to coverage under their homeowners policy. The Shoopmans filed a counterclaim, alleging violations of the Unfair Claims Settlement Practices Act (“UCSPA”) and the Kentucky Consumer Protection Act (“KCPA”), for bad faith in handling their claim. At issue in this opinion was Allstate’s motion for summary judgment. 

Allstate also alleged that Michael misrepresented facts and concealed pertinent information about his father's mandolin, his criminal background and his activities on the day of the fire which were “material” to the investigation. As the jury could find Michael was not an “insured person,” the Court declined to consider that argument.

Allstate also argued that the Shoopmans included a Gibson mandolin on the Proof of Loss but did not tell Allstate that the mandolin had been pawned and did not notify Allstate that the mandolin had been recovered until months later. The Shoopmans argued that Michael pawned the mandolin and they did not know of it until after Michael was arrested, well after they filed the Proof of Loss. The Shoopmans further contended that any alleged “misstatements” on the Proof of Loss related to the mandolin did not affect Allstate's investigation. The Court held that whether the Shoopmans actually misrepresented or concealed information, and whether that information was material to the investigation, are questions for a jury and denied summary judgment.

As for the Shoopmans’ bad faith claim, the Court granted summary judgment in favor of Allstate. The Shoopmans argued that Allstate’s predisposition to blame Michael for setting the fire, failure to comply with its corporate adjusting requirements, and rude behavior towards them constituted more than “mere negligence” and were deliberate acts and reckless disregard for their rights as insured persons. The Court disagreed. “The Shoopmans' assertions simply do not amount to outrageous conduct absent some affirmative act of harassment or deception.” The Court held that to prove a bad faith claim regarding a delay in claims handling, there must be proof or a reasonable inference that that the purpose of the delay was to extort a more favorable settlement or to deceive the insured regarding coverage. Allstate’s adjuster’s and investigator’s bad manners or errors in judgment were not sufficient to support a bad faith claim, nor were its technical violations of its procedures and rules.

Read the full opinion here.

The issue in this case was whether the amended sections of Florida Statute sections 627.7065, 627.7072, and 627.7073 (2005), which affected database information, testing standards, and reporting requirements for sinkhole claims, created a presumption that shifted the burden of proof to the homeowner to disprove an insurer’s expert’s opinion that damage was not caused by a sinkhole or whether it created a presumption that vanished once a homeowner produced evidence that a sinkhole damaged his or her property.

Universal asked the trial court to determine that Florida Statute section 90.304 allowed a jury instruction based on section 627.7073(1)(c) as a rebuttable presumption affecting the burden of proof. Florida Statute section 90.304 provided:

In civil actions, all rebuttable presumptions which are not defined in s. 90.303 are presumptions affecting the burden of proof.

Section 627.7073(1)(c) provided:

The respective findings, opinions, and recommendations of the professional engineer or professional geologist as to the cause of distress to the property and the findings, opinions, and recommendations of the professional engineer as to land and building stabilization and foundation repair shall be presumed correct.

Universal argued that its expert report findings were presumptively correct, and the presumption shifted the burden of proof to Mr. Warfel to prove that the damage was caused by a sinkhole. Mr. Warfel argued that the section 627.7073(1)(c) presumption was a “vanishing” presumption, which affected the burden of producing evidence but did not shift the burden of proof to him. The trial court agreed with Universal and instructed the jury:

You must presume that the opinions, findings, and conclusion in the SD II report as to the cause of damage and whether or not a sinkhole loss has occurred are correct. This presumption is rebuttable. The Plaintiff has the burden of proving by a preponderance of the evidence that the findings, opinions, and conclusions of the report are not correct.

Florida’s Second District Court of Appeal, however, sided with Warfel. The Court explained that in enacting the statutes relating to the expert reports, the Legislature did not clearly state that public policy requires a homeowner to bear the burden to disprove the findings and recommendations of the insurer's engineers and geologists. The Court also noted that all-risk policies traditionally give the insurer the burden to prove that a claimed loss is not covered. The Court then noted, it “must assume that the legislature was aware of this fact when it enacted section 627.7073(1)(c),” and that the Legislature “knows how to create burden-shifting presumptions under section 90.304.” Warfel v. Universal, 2009 WL 4640882 at *2 (Fla. 2d DCA 2009). In the absence of clear Legislative intent otherwise, the Court concluded the presumption under section 627.7073(1)(c) was a “vanishing” or “bursting bubble” presumption that affected only Mr. Warfel's burden of producing evidence. As Mr. Warfel produced credible evidence contradicting the presumption, the presumption vanished and the issue should have been determined on the evidence as though no presumption ever existed.

Because the trial court misapplied the presumption and gave the jury an instruction that improperly shifted the burden of proof, the Court awarded Mr. Warfel a new trial.

Justice Villanti dissented, writing that Florida Statute section 90.303 and the public policy behind Florida Statute sections 627.7065, 627 .7072, and 627.7073 support a burden shifting instruction.

You can read the entire court slip opinion here.

In this case, several policyholders brought suit after State Farm refused to pay damages awarded for subsurface sinkhole repairs. The policyholders each received appraisal awards that separately listed the amount of above ground and subsurface damages caused by sinkholes. State Farm promptly paid the amounts designated for above ground damage but withheld the amounts designated for subsurface damage, arguing that Florida Statute 627.707(5)(b) (2007) authorized it to withhold the funds until the homeowners had contracted for the repairs.

The insurer may limit its payment to the actual cash value of the sinkhole loss, not including underpinning or grouting or any other repair technique performed below the existing foundation of the building, until the policyholder enters into a contract for the performance of building stabilization or foundation repairs. After the policyholder enters into the contract, the insurer shall pay the amounts necessary to begin and perform such repairs as the work is performed and the expenses are incurred. The insurer may not require the policyholder to advance payment for such repairs.

The insureds argued that that the language in their homeowners’ policies, which required payment within sixty days after the amount of the loss is settled by appraisal, controlled.

Finding that the language of Florida Statute 627.707(5)(b) was permissive and not mandatory, Florida’s Fifth District Court of Appeal agreed with the insureds and held State Farm to the terms of the policy it wrote.

We construe this language as permissive, not mandatory. Because it is permissive, the policy language that requires payment of subsurface repairs within sixty days after the appraisal award is not in conflict with the statute and is binding on the parties to the insurance contract.

You can read the slip opinion here.

This case came before the United States District Court for the Northern District of Florida on a motion for summary judgment on the pleadings. Therefore, the Court did not weigh the evidence to determine the truth of the matter; the Court simply determined whether there were genuine issues of fact for trial. This decision was fact-specific, so a detailed explanation of the facts is necessary.

On June 14, 2005, Landmark submitted a written quote to Peachtree for the Moulton properties which stated, “our quote is subject to all damage from Ivan being completed and subject to no damage from Arlene,” [emphasis added] and Arch sent Fisher-Brown a quote for its surplus lines policy, adopting the limiting language used by Landmark. The Moultons purchased the primary policy offered by Landmark and the excess policy offered by Arch. Landmark's binder for coverage reiterated “our quote is subject to all damage from Ivan being completed and subject to no damage from Arlene.” The policy issued by Landmark included “Endorsement No. 1” which stated: “In consideration of the premium charged, it is hereby agreed coverage from this policy is subject to all damage from Hurricane Ivan being completed prior to inception of policy. It is further agreed that coverage from this policy is subject to no damage from the Named Storm Arlene.” Arch adopted the endorsement.

Ten days after the policies took effect, Hurricane Dennis struck the Pensacola area, and the Moultons reported damage from Hurricane Dennis at some of the properties covered by the Landmark and Arch policies. The insurance companies’ adjuster inspected the damaged property and reported that he observed unrepaired damages from Hurricane Ivan. After further investigation, Landmark and Arch determined that the properties were either temporarily repaired or not completely repaired from Hurricane Ivan, and that the losses from Ivan far exceeded 2.2 million. Landmark and Arch believed this was a breach of the insurance policy and a misrepresentation or concealment of material facts during the underwriting process. The Moultons denied Landmark's contentions regarding the Ivan repairs.

Landmark and Arch decided to rescind the insurance policies based upon their determination that the property repairs were not completed prior to the effective date of the policies and that the Moultons had misrepresented that all damages from Hurricane Ivan had been fully repaired and the total amount of loss to the properties from Ivan. Landmark then filed suit, seeking a declaratory judgment as to its right to rescind the insurance policy, and Arch intervened, seeking similar declaratory relief. The Moultons filed a counterclaim for breach of contract, based on Landmark’s and Arch's failures to provide coverage under the policy.

Relying on the endorsement which stated: “In consideration of the premium charged, it is hereby agreed coverage from this policy is subject to all damage from Hurricane Ivan being completed prior to inception of policy,” Landmark and Arch argued the Moultons failed to meet a condition precedent of the insurance contract by failing to fully repair the damage to their properties from Hurricane Ivan prior to the inception of the Landmark and Arch policies. The Moultons disagreed, as the endorsement did not mention repairs. Both parties’ arguments centered on the word “damage.” Landmark and Arch argued the word actually meant that “repairs” needed to be completed. The Moultons argued “damage” and “repairs” have different and distinct meanings. In response, Landmark and Arch argued the idea of requiring damages to be completed was absurd or nonsensical because damages caused by a storm are completed once the storm has passed through, and the endorsement should be interpreted to avoid this absurd result.

Applying Florida’s standard rule of contract interpretation that policies are interpreted according to the plain meaning of the words, the Court ruled in favor of the Moultons. The Court noted that interpretation according to the plain meaning would not lead to an absurd result because, “there are types of damage that may accrue after a storm passes. For example, molds may later grow in areas that have been dampened by the storm, or structures may get weakened in a manner that may not even be detected but nevertheless accelerate the deterioration of the integrity of the structure.” Moulton, 2009 WL 3087266 at *5. The Court rejected Landmark’s and Arch’s argument in whole, noting “In essence, they ask to be rewarded with a construction of the provision most meaningful to them simply because they drafted what they now conclude to be a facially absurd provision.” Id. at *6.

The Court also declined to rule in favor of Landmark and Arch in their claims that the Moultons committed misrepresentation and fraud when obtaining the policies. Regarding the repairs, the Court concluded that because Fisher-Brown’s voluntary statements to Peachtree were not made in response to specific questions, Florida Statutes, Section 627.409, which governs rescission of an insurance policy based on the insured's misstatement or omission during the procurement process, did not apply. Likewise, regarding the damage, the Court concluded that although the ultimate amount of the settlement was significantly higher than the 2.2 million dollar figure Fisher-Brown conveyed, that statement could not be deemed a misrepresentation because Fisher-Brown also stated they did not have “any specific figures,” that the parties were still “working it out,” and that St. Paul had a “reserve set up of 2.2 million” dollars. Thus, Fisher-Brown’s statement clearly indicated that the claims had not been resolved. “Amidst this uncertainty, it cannot be said that Smith was misrepresenting the damage situation at the time, much less intentionally so.” In both cases, the Court noted the messages Peachtree conveyed to Landmark and Arch were different from the messages sent from Fisher-Brown to Peachtree. Peachtree’s statements did not accurately relate the information provided by Fisher-Brown, and the insurers may have changed the policies offered, had they received accurate information.

In sum, the Court ruled for the Moultons in that it held Landmark and Arch responsible for insurance contract as they drafted it, even though it did not reflect their intent in entering into the contract. The Court also refused to hold the Moultons responsible for statements made by Peachtree-an independent insurance agent, and refused to hold the Moultons responsible for inaccurate and incomplete statements from their agent when not made in response to specific inquiries. However, the Court essentially denied the Moultons’ counterclaims, finding that the issues of breach of contract, the amount of damage, and the insurers’ responsibility to pay were issues for trial.

Read the Court Slip Opinion here.

Nancy and Anthony Podorski hired On Target, Inc., a leak detection service, to locate a leak under the floor of their home. The On Target technician who responded presented Mr. Podorski with a two-page form titled “Customer Information Card and authorization to proceed with the work.” The Customer Information Card authorized On Target to find the leak, provided general information about the nature and extent of the services provided by On Target, and the indemnification provision at issue in this case:

In the process of locating your leak, furniture may need to be moved; carpet may need to be cut and rolled back; tiles or linoleum may need to be lifted and/or other non-tech tasks performed including excavations. If requested and attempted, On Target Technicians will use due care to accomplish these chores, HOWEVER On Target Inc and On Target Technicians shall not be responsible for any damage whatsoever, actual or perceived, which may result from any locating procedures. If the first locate is incorrect, the Technician will return for a relocate. Property owner, tenant and/or guardian hereby agrees to hold harmless On Target Inc and On Target Technicians absolutely in this regard and to defend same in any action which may develop pursuant to any of these activities.

(Bolding in original.)

Mr. Podorski signed the Customer Information Card to authorize the work, and left. The On Target technician found the leak, made a hole through a single floor tile (in the foyer) and into the slab, and performed a temporary repair. A plumber repaired the pipe permanently. The Podorskis could not find a matching tile to replace the tile the On Target technician damaged in locating and temporarily fixing the leak, so they filed a claim with their homeowner's insurance carrier, Allstate. Allstate approved the replacement of all the tile in the Podorski’s home, costing $17,290. Allstate then demanded reimbursement from On Target, and On Target denied liability.

Allstate, as subrogee of Mr. and Mrs. Podorski, filed an action against On Target for breach of contract. On Target filed a third-party complaint against Mr. Podorski for indemnification. After the circuit court denied Mr. Podorski's motion to dismiss On Target’s complaint against him, Allstate filed a notice dismissing its action against On Target.

On Target then sought recovery of the attorney fees and costs incurred in defending Allstate's subrogation action from Mr. Podorski, pursuant to the indemnification provision in the Customer Information Card. The trial court refused to award On Target its attorney's fees and costs, finding that “the vague and ambiguous language on the Customer Information Card renders any intended indemnification unenforceable.” The court relied on the Florida Supreme Court’s decision in Cox Cable Corp. v. Gulf Power Co., 591 So. 2d 627 (Fla. 1992).

Florida’s Second District Court of Appeal reversed the lower court’s decision. In Cox, the Florida Supreme Court held, “that indemnity contracts which attempt to indemnify a party against its own wrongful conduct will be enforced ‘only if they express an intent to indemnify against the indemnitee's own wrongful acts in clear and unequivocal terms.” On Target, 2009 WL 3489396 at * 3 citing Cox, 591 So. 2d at 629. The Second District explained that Cox and the other cases Allstate relied upon applied only when a party wants to be indemnified for a loss caused by its own wrongful acts. The Court noted that in this case, there was no finding or clear allegation that On Target acted in a wrongful manner. Allstate’s complaint against On Target alleged breach of contract for breaking the tile without Mr. Podorski’s express authorization, not negligence. Further, Allstate dismissed the complaint, so there was never a determination of whether On Target acted wrongfully.

Even assuming that the On Target Technician acted wrongfully, the indemnification provision at issue in the Customer Service Card was distinguishable from the provision at issue in Cox because it was much more specific. The final sentence included the phrase “in this regard” and identified On Target and its technicians as the indemnitees. “Thus the owner agrees to hold harmless On Target and its technicians only to the extent that “any locating procedures” undertaken by them cause damage to the owner's property.” On Target, 2009 WL 3489396 at * 5. This provision clearly put Mr. Podorski on notice that the locating procedure may cause limited damage to the property for which On Target could not be held liable. The indemnification provision applied only to the scope of the work, not all possible wrongful acts like the provision at issue in Cox.

As Allstate's complaint sought damages caused by the locating procedures, the indemnity clause applied to On Target's defense of the lawsuit, and On Target was entitled to recover reasonable attorney fees and legal costs from the Podorskis. 

Read the complete Court Slip Opinion here.

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In State Farm Florida Ins. Co. v. Seville Place Condominium Ass'n, Inc., No. 3D08-2538, ___ So. 3d ___ (Fla. 3rd DCA, October 14, 2009) Florida’s Third District Court of Appeal held that an insured could amend their complaint to add a bad faith claim after coverage was admitted by the insurer and an appraisal award had been entered, but before final judgment. 

The Facts

On October 24, 2005, Hurricane Wilma caused substantial damage to the forty five roofs covering the Seville Place residential condominiums. Seville Place filed a claim with State Farm under its condominium association insurance policy, which specifically covered direct physical loss or damage to property caused by a hurricane. The policy specified that any dispute between the insurer and insured regarding the loss amount would be resolved by appraisal:

If we [State Farm] and you [the Association] disagree on the value of the property or the amount of loss, either may make written demand for an appraisal of the loss. In this event, each party will select a competent and impartial appraiser. Each party will notify the other of the selected appraiser's identity within 20 days after receipt of the written demand for an appraisal. The two appraisers will select an umpire. If the appraisers cannot agree upon an umpire within 15 days, either may request that selection be made by a judge of a court having jurisdiction. The appraisers will state separately the value of the property and amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will be binding. . . . If we submit to an appraisal, we will still retain our right to deny the claim.

In January 2006, State Farm made two payments on the claim which totaled $90,564.62. Seville Place’s estimate of the damage exceeded $4.6 million. By October 2006 (a year after the loss), Seville Place concluded that further negotiation would be fruitless and made a written demand for appraisal.

State Farm claimed there was “no clear disagreement” between the parties because it had not yet been allowed access to all the damaged condominium units and declared it would agree to appraisal only if Seville Place agreed to two conditions: 1) any appraisal award “must be a line item document, broken down by building and unit number, including the pricing that establishes the award of that item;” and 2) State Farm required a sworn “proof of loss” form.

In February 2007, Seville Place filed suit against State Farm for breach of the insurance contract and sought declaratory relief regarding coverage and State Farm's waiver of policy defenses. Seville Place also asked the court to enforce the appraisal provision without State Farm's required conditions. State Farm claimed that it agreed to appraisal, but renewed its request for the special conditions.

The trial court granted Seville Place’s motion for partial summary judgment on the policy condition defenses, based on the facts that State Farm acknowledged the loss was covered by making the January 2006 payments and then denied the balance of Seville Place’s claim. The circuit court also ordered appraisal, without the conditions sought by State Farm, and allowed sixty days for the completion of the process. State Farm moved for an additional sixty days in order to inspect the interior of several of the condominium units. The trial court granted the extension, directed Seville Place to assist State Farm in accessing the units, and set a final appraisal hearing for June 28, 2008.

Seville Place’s appraiser and the umpire signed a final appraisal award, fixing the insured loss at $2,960,405. The award excluded any interest, costs, and attorney's fees that might be determined by the court, and noted it should be reduced by amounts State Farm previously paid and any applicable deductible.

The day before that hearing, State Farm filed an emergency motion and affidavit seeking removal of the neutral umpire appointed by the court. State Farm later supplemented this motion with a request for an “entirely new panel to conduct a new appraisal,” asserting that otherwise it would “require many weeks, months, and possibly even years to sort through the multiple issues related only to this highly problematic and invalid appraisal gone wrong.”

The trial court confirmed the award, denied State Farm's emergency motion for removal of the neutral umpire, and granted the Seville Place's motions to amend the complaint to add a statutory bad faith claim and a demand for punitive damages. The court also reaffirmed that State Farm's affirmative defenses had been subsumed in the confirmation order “and/or such defenses were waived by State Farm.” State Farm then filed the petition for certiorari at issue, arguing that the trial court erred in allowing the complaint to be amended with the bad faith claim.

Whether the bad faith claim was ripe

The Third District explained that two conditions must be met before a statutory first-party bad faith action is ripe. First, the insurer raises no defense which would defeat coverage, or any such defense has been adjudicated adversely to the insurer. Second, the actual extent of the insured's loss must have been determined.

The Court rejected State Farm’s argument that a trial was required on certain affirmative defenses it believed were still pending and all appellate remedies regarding that judgment must be exhausted before a bad faith claim may proceed. No affirmative defenses remained pending; State Farm waived most or all defenses to coverage by acknowledging and paying Seville Place for the loss after the claim was made. In dismissing State Farm’s argument, the Court explained:

 [T]he procedural trenches and hurdles proposed by State Farm would contravene the express objectives of the bad faith statute and the Florida Insurance Code: the fair and prompt investigation and adjustment of claims by insurers.

The Court found no authority to support State Farm’s contention that Seville Place must obtain a final judgment from a jury before it may proceed with its bad faith and punitive damages claim. To the contrary, the Florida Supreme Court has held that an arbitration award determining liability and extent of loss is sufficient for a bad faith claim. The Court further noted that State Farm bargained for the binding nature of the appraisal award in the policy it drafted. The Third District held the remaining calculations to the award, including subtraction of the three percent hurricane deductible and prior payments and the computation of prejudgment interest, were ministerial acts which did not affect the final nature of the award. The Court further held that Seville Place’s reserved motion for attorney's fees and costs allowed that issue to be determined at the conclusion of the entire case.

The Court also rejected State Farm’s argument that a bad faith claim is premature until the insurer exhausts all appellate remedies regarding liability and loss amount, noting no “decision by this Court or the Florida Supreme Court has held that liability and the extent of damages must also be “finally final,” surviving any appellate remedies sought by an insurer, before the insured's bad faith claim is ripe.”

The Court concluded with the following observation regarding State Farm’s conduct:

State Farm originally estimated the Association's covered loss at $324,017. This is less than eleven percent of the amount determined by the appraisal process. State Farm will have an opportunity to explain this fact, to explain the extraordinary length of time it has taken to resolve the Association's claim, and to defend State Farm's aggressive legal tactics (including the unfounded imposition of conditions on the contractually-stipulated appraisal provision and the last-minute attempt to remove the neutral umpire). For now, however, we find no basis in this record to quash the orders below as requested by State Farm.

Justice Shepherd dissented, writing that the majority’s decision to deny State Farm’s petition for certiorari conflicted with North Pointe Ins. Co. v. Tomas, 999 So. 2d 728 (Fla. 3d DCA 2008), and XL Specialty Ins. Co. v. Skystream, Inc., 988 So. 2d 96 (Fla. 3d DCA 2008). Shepherd took issue with the fact that no judgment had been entered in the case. According to Shepherd, it is prejudicial to allow issues of bad faith into a coverage case, with expanded bad faith discovery, before the underlying claim for damages has been determined.

As noted above, State Farm’s seemingly bad faith conduct in handling the claim was not relevant to the sole issue before the court-whether, by law, the bad faith action was ripe. Yet Justice Salter took care to detail the abusive tactics and even commented upon them in concluding his opinion. In this case, bad facts made good law.