Property Insurance Coverage Law Blog : Florida Insurance Lawyer & Attorney : Merlin Law Group Law Firm : Tampa, Houston, Coral Gables, Gulfport

The facts of the Green case are not unusual. Mr. Green filed a claim with Citizens after his home was damaged during Hurricane Frances in 2004. Citizens appointed an adjuster and paid Mr. Green the damages estimated by its adjuster. Mr. Green claimed he was entitled to additional payment, and he participated in a Florida Department of Financial Services mediation program with Citizens. After the mediation, Citizens paid Mr. Green more toward his claim but less than the amount he sought.

Mr. Green then filed a lawsuit asserting that Citizens denied him coverage and refused to pay the remaining sums due under the policy. The court stayed the litigation and ordered Citizens to participate in an appraisal. Ultimately, a final appraisal award was entered, and, pursuant to the loss payment provision of the insurance policy, Citizens was required to pay the award amount to Mr. Green within sixty days of the award. Citizens paid Mr. Green the amount, and then Mr. Green then filed a motion for prejudgment interest on the funds paid. The trial court denied the motion, and Mr. Green appealed.

On appeal, Mr. Green argued that because Citizens underpaid his claim on two occasions before the appraisal award, it waived the policy provision allowing for deferred payment on the claim. Additionally, he argued that once that provision was waived, the claim became due from the date of loss and interest ran from that date. In support of his argument, he cited North Pointe Ins. Co. v. Tomas, 16 So.3d 977 (Fla. 3d DCA 2009), where the Third District Court of Appeal held that prejudgment interest from the date of the loss was applicable because once the insurer denied coverage for the claim, it was deemed to have waived the policy provision for deferred payment.

The Green Court distinguished Tomas because Citizens never formally denied coverage for Mr. Green’s claim. In Tomas, the insurer initially denied coverage for the claim, and then later reversed its position and proceeded with the appraisal process. The Fourth District also noted that:

It is the terms of a contract for insurance which determine the date from which the coverage payment is due, as well as when interest is due on the amounts payable.

In support, the Court quoted Citizens Prop. Ins. Corp. v. Mallett, 7 So.3d 552, 556 (Fla. 1st DCA 2009), which Chip discussed in Prejudgment Interest Following A Wrongful Denial.

The appellate court emphasized the fact that Citizens timely paid the appraisal award during the policy loss payment provision, but the Court did not address Florida Statute §627.70131(5)(a) in the opinion. (Similarly, in Alberto Jugo v. American Security Insurance Company, No. 3D09-3246 (Fla. 3d DCA 2011) there was no discussion of this statute). The pertinent part of §627.70131 states:

Insurer's duty to acknowledge communications regarding claims; investigation
(5) (a) Within 90 days after an insurer receives notice of a property insurance claim from a policyholder, the insurer shall pay or deny such claim or a portion of the claim unless the failure to pay such claim or a portion of the claim is caused by factors beyond the control of the insurer which reasonably prevent such payment. Any payment of a claim or portion of a claim paid 90 days after the insurer receives notice of the claim, or paid more than 15 days after there are no longer factors beyond the control of the insurer which reasonably prevented such payment, whichever is later, shall bear interest at the rate set forth in s. 55.03. Interest begins to accrue from the date the insurer receives notice of the claim. The provisions of this subsection may not be waived, voided, or nullified by the terms of the insurance policy. If there is a right to prejudgment interest, the insured shall select whether to receive prejudgment interest or interest under this subsection. Interest is payable when the claim or portion of the claim is paid. Failure to comply with this subsection constitutes a violation of this code. However, failure to comply with this subsection shall not form the sole basis for a private cause of action.

Similarly, the Court did not address whether the insurer’s refusal to pay any amount beyond its own estimates for several years after the date of loss constitutes a “wrongful refusal to pay” that would subject the insurer to liability for prejudgment interest from the time of the loss. Importantly, the Florida Supreme Court has adopted the “loss theory” of prejudgment interest as another element of “pecuniary damage.” In Argonaut Ins. Co. v. May Plumbing Co., 474 So.2d 212 (Fla. 1985) the Florida Supreme Court stated:

Under the “loss theory,” [] neither the merit of the defense nor the certainty of the amount of loss affects the award of prejudgment interest. Rather, the loss itself is a wrongful deprivation by the defendant of the plaintiff's property. Plaintiff is to be made whole from the date of the loss once a finder of fact has determined the amount of damages and defendant's liability therefor.

These issues related to prejudgment interest as an element of damage for a wrongful refusal to pay. Particularly following an appraisal award under Florida’s loss theory, these issues will likely need resolution, as it does not appear to have been discussed in recent opinions. As Chip stated in Prejudgment Interest Following A Wrongful Denial, “Insurers should not feel they are safer to delay payment on this issue and escape the payment of interest.”

The Mallett holding is fairly simple:

[T]he Malletts argue that the trial court erred in awarding prejudgment interest as of the date of the partial summary judgment rather than from the date their residence was damaged by the hurricane, September 16, 2004. ...The policy issued to the Malletts provides that Citizens was not obliged to pay a claim for debris removal or law and ordinance coverage until twenty days after it reached a written agreement with the Malletts, or sixty days after entry of a final judgment on the claim or after the filing of an appraisal award or mediation settlement with Citizens. It is the terms of a contract for insurance which determine the date from which the coverage payment is due, as well as when interest is due on the amounts payable.

The court denied the award of prejudgment interest.

Following a denial of coverage, Independent Fire Ins. Co. v. Lugassy, 593 So. 2d 570 (Fla. 3rd DCA 1992), allowed prejudgment interest upon the following grounds:

Holding the insurer liable for prejudgment interest recoverable from the time of the loss-where there is a wrongful refusal to pay-is consistent with two public policies as expressed by the Supreme Court of Florida: (1) It encourages the prompt settlement of insurance claims, see Wollard v. Lloyd's & Companies of Lloyd's, 439 So.2d 217 (Fla.1983), and (2) corrects the inequity created in contracts crafted by insurers which would deny prejudgment interest to the insured as an element of just compensation for pecuniary loss. See Argonaut Ins. Co. v. May Plumbing Co., 474 So.2d 212 (Fla.1985).

Obviously, the two cases cannot be reconciled. The issue will undoubtedly need resolution. Insurers should not feel they are safer to delay payment on this issue and escape the payment of interest. As discussed in Recent Third District Court Of Appeal Ruling Regarding Entitlement To Prejudgment Interest Following An Appraisal Award In Florida, Florida Statute §627.70131(5)(a), provides:

Insurer's duty to acknowledge communications regarding claims; investigation.

(5) (a) Within 90 days after an insurer receives notice of a property insurance claim from a policyholder, the insurer shall pay or deny such claim or a portion of the claim unless the failure to pay such claim or a portion of the claim is caused by factors beyond the control of the insurer which reasonably prevent such payment. Any payment of a claim or portion of a claim paid 90 days after the insurer receives notice of the claim, or paid more than 15 days after there are no longer factors beyond the control of the insurer which reasonably prevented such payment, whichever is later, shall bear interest at the rate set forth in s. 55.03. Interest begins to accrue from the date the insurer receives notice of the claim. The provisions of this subsection may not be waived, voided, or nullified by the terms of the insurance policy. If there is a right to prejudgment interest, the insured shall select whether to receive prejudgment interest or interest under this subsection. Interest is payable when the claim or portion of the claim is paid. Failure to comply with this subsection constitutes a violation of this code. However, failure to comply with this subsection shall not form the sole basis for a private cause of action.

In November 2006, Alberto Jugo’s residence was damaged by a fire. He filed a claim under his homeowner’s policy issued by American Security Insurance Co. After numerous inspections, the insurer issued a payment of just under $47,000 in April 2007 for damages sustained in the fire loss. Mr. Jugo asserted the amount of that payment was inadequate and requested the insurer re-evaluate its position. The Third District Court of Appeal refers to this as a “supplemental” claim. The insurer denied the “supplemental” claim on the grounds that the property had been gutted since the time the claim was initially investigated. Mr. Jugo filed a lawsuit against the insurer in June 2008.

In the litigation, the insurer invoked the appraisal provision of the policy, which resulted in an appraisal award in favor of Mr. Jugo for an additional $71,307.44 in damages related to the fire loss. The insurer paid that amount within thirty days from the date of the appraisal award (presumably within the Loss Payment period of the policy). Mr. Jugo then filed a motion for prejudgment interest (as measured from the date of the 2006 loss) on the $71,307.44 amount of the appraisal award. The trial court denied Mr. Jugo’s motion for prejudgment interest and he appealed that denial to the Third District Court of Appeal.

On appeal, Mr. Jugo cited North Pointe Ins. Co. v. Tomas, 16 So.3d 977 (Fla. 3d DCA 2009), and argued the trial court should have followed that case’s reasoning in support of his position. In North Pointe, an insurer denied coverage of a homeowner’s claim (for the complete replacement of a marble kitchen floor) from the outset, maintaining that the loss was excluded under the policy. Only after the policyholder filed a petition to compel appraisal, did the insurer admit coverage and eventually pay the appraisal award. The Third District Court of Appeal in North Pointe held that prejudgment interest from the date of the loss was applicable because the insurer denied coverage for the claim in its entirety.

The Third District Court of Appeal characterized the dispute between Mr. Jugo and his insurer as one involving a disagreement between the parties over quantification of the covered loss, rather than one involving a disagreement between parties over whether the loss is covered under the policy. However, the insurer had issued a denial letter to Mr. Jugo for the “supplemental” claim.

In Jugo, the Court stated:

In the absence of some contract provision or statute to the contrary—and none is apparent on this record—the insured is not entitled to pre-judgment interest on the supplemental amount of the appraisal award as computed from the date of the insured loss.

The Court affirmed the trial court’s denial of Mr. Jugo’s motion for prejudgment interest. Interestingly enough, there is no discussion or acknowledgement of Florida Statute §627.70131(5)(a), which provides:

Insurer's duty to acknowledge communications regarding claims; investigation.

(5) (a) Within 90 days after an insurer receives notice of a property insurance claim from a policyholder, the insurer shall pay or deny such claim or a portion of the claim unless the failure to pay such claim or a portion of the claim is caused by factors beyond the control of the insurer which reasonably prevent such payment. Any payment of a claim or portion of a claim paid 90 days after the insurer receives notice of the claim, or paid more than 15 days after there are no longer factors beyond the control of the insurer which reasonably prevented such payment, whichever is later, shall bear interest at the rate set forth in s. 55.03. Interest begins to accrue from the date the insurer receives notice of the claim. The provisions of this subsection may not be waived, voided, or nullified by the terms of the insurance policy. If there is a right to prejudgment interest, the insured shall select whether to receive prejudgment interest or interest under this subsection. Interest is payable when the claim or portion of the claim is paid. Failure to comply with this subsection constitutes a violation of this code. However, failure to comply with this subsection shall not form the sole basis for a private cause of action.

This statute took effect in July 2007, which may have been before the insurer reached its decision on Mr. Jugo’s “supplemental” claim, and it is surprising that this statutory provision was not discussed in the Court’s analysis in the opinion.

The statutory interest is typically added after a judge or jury has determined the amount of damages. Until very recently, however, many policyholders felt entitled to additional interest for the time between the verdict and actual payment of the damages. On July 22, 2010, the Fifth Circuit Court of Appeals weighed in on this issue.

In Great American Insurance Company v. AFS/IBEX Financial Services, No. 09-10262, --- F. 3d --- (5th Cir. July 22, 2010), AFS/IBEX Financial Services argued that the lower court erred in finding that the 18% statutory interest accrues only until the date of judgment. AFS argued that the 18% percent statutory interest should continue to accrue until the claim was paid by Great American Insurance Company.

The Fifth Circuit noted that while Section 542.060 of the Texas Insurance Code does not expressly state when the 18% interest stops accruing, in Republic Underwriters Ins. Co. v. Mex-Tex, Inc., 150 S.W 3d 423 (Tex. 2004), the Texas Supreme Court held that such interest only accrues until the date judgment is rendered in the trial court. Because the District Court stopped the accrual of the 18% interest on the date judgment was rendered, the Fifth Circuit affirmed the lower court's decision.

In other words, although Texas Insurance law grants policyholders an 18% statutory interest penalty against the carrier, it only accrues until judgment is rendered. This does not necessarily mean that all interest stops accruing after judgment. A non-penalty amount of interest may still apply. Policyholders can look to other codes, such as the Texas Finance Code, for any post-judgment interest that may apply to their monetary judgment.

In Tomas, the insureds made a claim with North Pointe, their homeowners' insurance carrier, for a complete replacement of a marble kitchen floor. North Pointe first concluded the loss was excluded under the policy and denied coverage. The Tomases filed a petition compel appraisal pursuant to the terms of their policy, and North Pointe withdrew its previous denial of the claim, admitted coverage and stipulated to attorney's fees up to that date. The claim went to appraisal, and North Pointe paid. A month later, an appraisal award was entered in the amount of $115,899.52, including pre-judgment interest from the date of the loss. The lower court confirmed the appraisal award and entered final judgment.

On appeal, North Pointe argued that the trial court erred in confirming the arbitration award before the contractual sixty-day period to make payment expired and that prejudgment interest should have been awarded from the date of payment, which it had already made. Citing long-standing authority in the Third District, Independent Fire Insurance Co. v. Lugassy, 593 So. 2d 570 (Fla. 3d DCA 1992), the Court disagreed.

Generally, interest on a loss payable under an insurance policy is recoverable from the date the policy provides that payment is due. Lugassy carved out an exception to that rule: when the insurer denies coverage but later admits coverage or coverage is later awarded through litigation, the insurer is liable for prejudgment interest from the date of the loss. “Once the insurer denies coverage, it is deemed to have waived the policy provision for deferred payment and, should it pay, becomes responsible for prejudgment interest from the date of loss.” Tomas, at * 2.

Because North Point first denied coverage for the claim, it was deemed to have waived the policy provision allowing deferred payment and was responsible for prejudgment interest from the date of the loss, even though it later agreed to pay the claim within the time period provided in the policy.

Had North Pointe not denied the claim at first but instead engaged in tactics to delay or reduce that payment owed for the loss, the issue of prejudgment interest would not have been so clear. Without the denial, the policy would have determined when payment was due—60 days after the appraisal award or the date of final judgment, and the Tomases may not have been entitled to the nearly two and a half years of prejudgment interest they ultimately received. See Liberty Mut. Ins. Co. v. Alvarez, 785 So. 2d 700 (Fla. 3d DCA 2001) (making distinction that, where there is no denial of coverage, prejudgment interest is payable from date of appraisal as opposed to date of the loss); Aries Insurance Co. v. Hercas Corp., 781 So. 2d 429 (Fla. 3d DCA 2001).

A recent Florida case that was resolved through appraisal still resulted in an award of prejudgment interest in North Pointe Ins. Co. vs. Tomas, No. 3D08-2245.(Fla. App. 3rd DCA, August 26, 2009). The facts set indicated the following:

The Tomases made a claim with their homeowners' insurance carrier, North Pointe, for a complete replacement of a marble kitchen floor damaged as a result of dropping a pot on October 23, 2005. After investigating the claim, North Pointe determined that the loss was excluded under the policy and denied coverage. The Tomases filed a petition to compel appraisal under the terms of the homeowners' policy. In a letter dated September 5, 2007, North Pointe withdrew its previous denial of the claim, admitting coverage and stipulating to attorney's fees up to the date of receipt of the letter. The claim went to appraisal and North Pointe paid the claim on May 14, 2008. On June 10, 2008, an appraisal award was entered in the amount of $115,899.52, including prejudgment interest from the date of the loss. The Tomases moved to confirm the appraisal award and for entry of final judgment. The trial court granted the motion to confirm the appraisal award, including attorney's fees and prejudgment interest from the date of the loss.

The Court upheld the award of prejudgment interest reasoning the following:

In Lugassy, the question was from what date prejudgment interest starts to run where the insurer denies coverage and is later held liable for the claim…The general rule is that interest on a loss payable under an insurance policy is recoverable from the date payment is due pursuant to the provisions of that policy. Lugassy carved out an exception to that rule where the insured denies coverage and later admits coverage or coverage is later determined through litigation. Once the insurer denies coverage, it is deemed to have waived the policy provision for deferred payment and, should it pay, becomes responsible for prejudgment interest from the date of loss. "[I]f the insurer denies liability, interest begins to run from the date of the loss, even where the policy provides for payment at a later date." Lugassy, 593 So. 2d at 572.

North Point denied coverage for the claim. Even though it later agreed to appraisal and paid the appraisal award, it is deemed to have waived the policy provision allowing deferred payment and is responsible for prejudgment interest from the date of the loss. See Lugassy; accord State Farm Fire & Cas. Co. v. Albert, 618 So. 2d 278 (Fla. 3d DCA 1993) (holding that prejudgment interest is payable from the date of the loss); see also Liberty Mut. Ins. Co. v. Alvarez, 785 So. 2d 700 (Fla. 3d DCA 2001) (making distinction that, where there is no denial of coverage, prejudgment interest is payable from date of appraisal as opposed to date of the loss). We affirm the trial court's order confirming the appraisal award and awarding prejudgment interest from the date of loss.

The appellate briefs of the parties are available here.

In the summer and early fall of 2005, Arthur Davide’s home was damaged by Hurricanes Katrina and Wilma. Davide filed a claim with his insurer, Sunshine State Insurance Company, a dispute arose regarding the amount to be paid for damage to Davide’s roof, and the parties went to appraisal. More than one year after Wilma, the appraisers awarded David $246,491.94, with the caveat:

"This appraisal award is in total, and money previously paid by the carrier to its insured on the subject claim, if any, should be deducted from this award. This appraisal award is subject to the terms and conditions of the policy of insurance (e.g., deductible) and the laws of the State of Florida."

Claiming to be unsure as to whether this language meant that the appraisal award had already taken into account a deduction for depreciation or whether this language authorized Sunshine to take such a deduction, Sunshine asked the umpire many times for clarification. Twenty six days later, without an answer from the umpire, Sunshine paid the award minus an amount it attributed to depreciation. Three months later, Davide brought suit to confirm the appraisal award. That same day, Davide's counsel obtained a letter from the umpire which confirmed David’s position that the award was an actual cash value award which took depreciation into account. David told Sunshine on March 8, 2007, and the amount previously withheld by Sunshine was paid to Davide on April 4, 2007.

Davide sought an award of pre-judgment interest on the amount held back from the date on which his home was damaged rather than within the time frame authorized by the policy (within sixty days of the filing of an appraisal award). The trial court gave it to him; the Third District Court of Appeal reversed.

Basically, the Third District held the parties to the terms of the policy. The policy stated that Sunshine was not obligated to pay a covered claim until sixty days after the filing of an appraisal award. Relying on substantial precedent, the Court noted that prejudgment interest should be computed from the date payment of a covered claim is due. Therefore, Davide was entitled to pre-judgment interest on the portion of the appraisal award not timely paid within sixty days of the filing of the appraisal award with Sunshine.

As noted above, Davide would have faired better if the hurricanes occurred in 2007 rather than 2005. Florida Statute 627.70131, which was effective on July 11, 2007, provides:

§ 627.70131. Insurer's duty to acknowledge communications regarding claims; investigation

(5) (a) Within 90 days after an insurer receives notice of a property insurance claim from a policyholder, the insurer shall pay or deny such claim or a portion of the claim unless the failure to pay such claim or a portion of the claim is caused by factors beyond the control of the insurer which reasonably prevent such payment. Any payment of a claim or portion of a claim paid 90 days after the insurer receives notice of the claim, or paid more than 15 days after there are no longer factors beyond the control of the insurer which reasonably prevented such payment, whichever is later, shall bear interest at the rate set forth in s. 55.03. Interest begins to accrue from the date the insurer receives notice of the claim. The provisions of this subsection may not be waived, voided, or nullified by the terms of the insurance policy. If there is a right to prejudgment interest, the insured shall select whether to receive prejudgment interest or interest under this subsection. Interest is payable when the claim or portion of the claim is paid. Failure to comply with this subsection constitutes a violation of this code. However, failure to comply with this subsection shall not form the sole basis for a private cause of action.

(b) Notwithstanding subsection (4), for purposes of this subsection, the term "claim" means any of the following:

1. A claim under an insurance policy providing residential coverage as defined in s. 627.4025(1);
2. A claim for structural or contents coverage under a commercial property insurance policy if the insured structure is 10,000 square feet or less; or
3. A claim for contents coverage under a commercial tenants policy if the insured premises is 10,000 square feet or less.

Had this Statute been in effect at the time Davide suffered his loss, he would have been entitled to a year and a half of interest, not just a few months.

Jablonski v. St. Paul Fire and Marine Insurance Co., No. 07-386-CIV, 2009 U.S. Dist. LEXIS 59401 (M.D. Fla. July 13, 2009), has a great discussion of prejudgment interest in Florida, but most interesting is how the United States District Court decided that Jablonski was not entitled to prejudgment interest on his bad faith claim. The difficulty with the issue in this case, was that there was no factual finding as to when the (bad faith) loss occurred. Indeed, Jablonski could not even pinpoint a specific date. Noting that "[p]rejudgment interest is generally not awarded in tort cases, because damages are generally too speculative to liquidate before final judgment," the Court found that, based on the record before it, it could not award prejudgment interest:

"Jablonski's entitlement to payment of the loss caused by Hurricane Charley pursuant to the terms of the insurance contract entered into by and between him and St. Paul was a property right that vested at the time St. Paul's obligation to pay the loss ripened, as discussed above. Jablonski's statutory bad-faith claim, however, is more readily characterized as a tort claim than a claim involving property damage. Moreover, beside the fact that the value of Jablonski's claim was not readily ascertainable until the jury rendered its verdict in this case, even now there is no way to pinpoint the specific time at which its value would have been ascertainable. Cf. Underhill Fancy Veal, 677 So. 2d at 1380. In theory, Jablonski could have asked the jury to determine a date on which his loss became ascertainable. In the absence of such a factual finding, it is inappropriate for this Court to substitute its own best estimate as to what that date might be."

The Court did not preclude the possibility of prejudgment interest in every case, it just denied it in this case. It is important to note that this is merely a trial court decision, not an appellate court decision.