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

The policyholder sought a declaratory judgment establishing the following three things, which were asserted in separate counts of the Complaint:

1. that glass windows and sliding glass doors providing access to a single condominium unit are covered under the QBE Policy;
2. that the policyholder is entitled to have the dispute concerning the amount of its Hurricane Wilma loss resolved through the appraisal process described in the Policy; and
3. that the hurricane deductible in the QBE Policy is void pursuant to Florida Statute 627.701(4).

The Complaint alleged that QBE frequently takes the position that windows and sliding glass doors are not covered under its policies. The association alleged that QBE’s frequent denial of coverage for windows and sliding glass doors in other claims, coupled with the fact that QBE did not include the windows and doors in its initial evaluation of this claim, indicates that the association was entitled to have any doubt regarding coverage for the hurricane damage to its windows and doors determined by the Court.

The Court refused to consider QBE’s conduct in other actions as indicating its position on the windows and sliding glass doors in this particular claim. In dismissing Count I of the Complaint, the Court ruled that “speculation based on QBE’s dealings with other insureds does not present a concrete case or controversy” as to this action. The Court ruled that dismissal of Count II regarding appraisal was warranted since QBE had not taken a formal position in the claim, so there was not a disagreement over the amount of loss. It held that Count II regarding appraisal was premature. Lastly, the Court stayed Count III of the Complaint, pending the Florida Supreme Court’s decision in QBE Ins. Corp. v. Chalfonte Condo. Apartment Ass'n, Inc., No. SC09–441 (Fla.), on the specific issue of the applicability of QBE’s large hurricane deductibles.

The District Court, in reaching its decision to dismiss Counts I and II, noted that while the policyholder notified QBE generally of its Hurricane Wilma loss in 2005, the facts were clear that it did not notify QBE of any disagreement with QBE’s adjustment and apparent closure of the claim until after filing the lawsuit. It appeared that QBE was under the impression that the association’s president had withdrawn the Hurricane Wilma claim before QBE reached any conclusion, and there were no allegations that the policyholder communicated anything to the contrary to QBE before filing the lawsuit. The Court also noted that the facts of this case are different from a situation where a policyholder claims that QBE or another insurer failed to act on their particular claim submitted and actively pursued.

Following the Court ruling, QBE will presumably “investigate” the policyholder’s claim for Hurricane Wilma damages and reach a determination on coverage for the specific facts of that claim.

As Tyler noted,

…the 11th Circuit Court of Appeals did not agree that the doctrine of prevention of performance should be applied to replacement cost value provisions in insurance contracts when an insurer fails to pay at least actual cash value. The 11th Circuit recognized that it would have been costly, inconvenient, and most certainly a hardship for the association to pay for millions of dollars in repairs without the assistance of insurance benefits, but held that the hardship would not excuse the contractual requirement to actually repair the property before replacement cost value damages could be awarded. The appeals court reversed the trial court’s award for replacement cost value, but affirmed the trial court’s award for actual cash value damages, finding that they had been sufficiently proven.

The practical impact of such legal reasoning is that insurers, absent consumer protection statutes requiring payment of replacement costs, can now underpay losses and get away with it. If this unpublished is followed, federal courts will not award the full amount of replacement cost benefits until the insured actually does the work. This seems like a pretty illogical result from the policyholders view, as a replacement cost policy should pay for replacement of the property to a new condition. Where an insurer underpays a loss and refuses to acknowledge a proper amount of value for replacement, how are policyholders supposed to do the replacement? Tyler noted this in his comment:

This decision leaves many unanswered questions for policyholders. For starters, where is one who suffers a large loss supposed to get money to make repairs in order to get replacement cost value? Other issues are equally unsettling in the case, including the supposed election of remedies between ACV and RCV when making an insurance claim that the 11th Circuit discusses.

Adjusters and policyholders should pay attention to the election provisions under the replacement cost portion of the policy. These are rarely discussed or elected. However, in this case, the provisions were specifically discussed in the opinion:

…In the first place, the insurance contract unambiguously requires the insured to repair its property before receiving RCV damages. The insurance contract specifically provides that QBE “will not pay on a replacement cost basis for any loss or damage (1) Until the lost or damaged property is actually repaired or replaced; and (2) Unless the repairs or replacement are made as soon as reasonably possible after the loss or damage.” Condominium Association Coverage Form, provision G(3)(d). [DX-1, p. 13-14 out of 14] The insurance contract contains no allowances for advance payments to fund repairs. Both parties agree, and the record undeniably establishes, that Buckley Towers never completed repairs and, thus, would be barred from recovering RCV damages under the plain terms of the contract. We must accept the unambiguous terms of this contract because “[i]nsurance contracts are construed in accordance with the plain language of the policies as bargained for by the parties.” Prudential Prop. & Cas. Ins. Co. v. Swindal, 622 So.2d 467, 470 (Fla.1993).

 Applying the doctrine of prevention of performance in this case would impermissibly rewrite the insurance contract on the equitable theory that it would be too costly for Buckley Towers to comply with the terms of the agreement. Under Florida's binding law, however, courts are not free to rewrite the terms of an insurance contract and where a policy provision “is clear and unambiguous, it should be enforced according to its terms.” Acosta, Inc. v. Nat'l Union Fire Ins. Co., 39 So.3d 565, 573 (Fla.Dist.Ct.App.2010)... Allowing Buckley Towers to claim RCV damages without repairing or replacing entirely removes the plaintiff's obligations under the Replacement Cost Value section of the contract. The parties freely negotiated for that contractual provision and it is not the place of a court to red-line that obligation from the contract.

 Nor is it a defense to say that it would be costly for Buckley Towers to comply with the insurance contract as written. “Inconvenience or the cost of compliance [with contractual terms], though they might make compliance a hardship, cannot excuse a party from the performance of an absolute and unqualified undertaking to do a thing that is possible and lawful.” N. Am. Van Lines v. Collyer, 616 So.2d 177, 179 (Fla.Dist.Ct.App.1993). Although Buckley Towers may be unable to receive the full range of benefits of their contract without an advance payment under Florida law, that cost and inconvenience may not relieve them of repairing the building prior to claiming RCV damages.

 Indeed, the Florida courts have upheld similar contracts that expressly require repair before claiming RCV damages. The Florida Supreme Court has explained that, with contracts such as the one in this case, replacement cost damages do not “arise until the repair or replacement has been completed.” Ceballo v. Citizens Prop. Ins. Corp., 967 So.2d 811, 815 (Fla.2007) (citation and quotation marks omitted). See also State Farm Fire and Cas. Co. v. Patrick, 647 So.2d 983, 983 (Fla.Dist.Ct.App.1994) (per curiam). And, by example, the First District Court of Appeal recently held that a trial court had erred by allowing an insured homeowner who had chosen to sell his property rather than repair the structures appurtenant to the house to claim RCV damages instead of ACV damages for the structures. Citizens Prop. Ins. Corp. v. Hamilton, --- So.3d ----, No. 1D09-4128, 2010 WL 2671808, *8 (Fla.Dist.Ct.App. July 7, 2010).

Absent a statute, insurance adjusters are generally taught that replacement dollars are owed as soon a bona fide contract for replacement is entered into with a contractor, not when the replacement or repair is complete. Some state departments of insurance are permitting policies which require replacement before benefits are owed.  This is problematic for the policyholder, who usually needs the benefits to pay for the replacement.  Perhaps agents and insurers should be prevented from selling replacement cost insurance that operates this way. Certainly, this case proves the need for consumer protection legislation and that Replacement Cost Coverage is illusory under many forms of insurance.

On appeal, QBE argues that it is entitled to a new trial because the district court abused its discretion in excluding the minutes of a condominium board meeting, which QBE claims were relevant to its defense that the policy had been voided by the submission of a fraudulent claim. QBE also argues that it is entitled to judgment as a matter of law because, under its policy, it is liable for damage to the windows and the doors only if Vantage View actually completed all repairs or replacements prior to submitting its claim, which Vantage View did not do.

We have considered the record, the briefs of the parties and the oral argument of counsel, and affirm the judgment. We find no merit in QBE's contention that the district court erred in excluding the minutes of Vantage View's special board meeting. The district court's determinations that the minutes were protected by the attorney-client privilege, which had not been waived, and that the minutes did not suggest fraud to exempt them from the privilege did not amount to an abuse of discretion.

We also reject QBE's argument that it is entitled to a judgment as a matter of law because Vantage View did not actually repair or replace the windows and doors at issue.

QBE has some of the best insurance defense attorneys in the business representing it in these cases. Otherwise, this business practice of claiming fraud as a defense would be much more problematic and costly. I am certain that next time QBE claims fraud following a drawn out investigation, it will be the subject of intense scrutiny during the subsequent bad faith case.

On Wednesday, I will write about another QBE opinion issued on the same date and from the same three-judge panel as Vantage View. Jeremy Tyler will also be writing on an aspect of that case tomorrow, in our Condominium Insurance Law Blog.

The Question: When does an insurance company actually anticipate litigation?

The Answer: It depends.

In Royal Bahamian Ass’n, Inc. v. QBE Ins. Corp., No. 10-21511, 2010 WL 3452368 (S.D. Fla. September 3, 2010), the court ordered QBE Insurance Company to produce all documents previously withheld under the work-product privilege that were prepared before it anticipated litigation. The Court also specifically indicated when it determined the insurer, QBE, could claim certain documents were protected by the work-product privilege.

In this particular case, Royal Bahamian Association Inc. filed suit against itsr property insurance carrier, QBE, for damage to the property caused by Hurricane Wilma. The policyholders asked the insurance company for documents in a formal discovery request and QBE filed objections. QBE argued the documents were protected by the work-product doctrine because they were prepared in anticipation of litigation,which QBE anticipated as early as June, 2006.

According to the order, QBE anticipated litigation in June, 2006,for two reasons. First, QBE argued that prior to June 24, 2006, a board member of the roof committee for Royal Bahamian allegedly threatened litigation to the adjuster assigned to the claim by QBE. Dodd filed a report with QBE which said “some members feel they are not being treated fairly and at least one of them has recommended filing suit.” The second reason was because of Royal Bahamian’s alleged failure to respond to information requests, which QBE argued was a breach of the contract.

The Court held that because QBE routinely offers insureds the opportunity to cure technical breaches of contracts by complying with their obligations to produce claim related information, it could not rely on the alleged breach as a basis to anticipate litigation.

With respect to the threat of litigation, the Court held that a single threat of litigation “on an unknown date by an unidentified roof committee member…does not constitute specific proof that QBE reasonably anticipated litigation as of that date.”

The judge explained that the threat was not enough to meet the standard because the report relaying the threat was not written until nearly a month after the adjuster's meeting with the roof committee. Further, the report did not pinpoint the date of the threat, specifically identity the person who made it, or identity the person as a member of Royal Bahamian’s board. The judge also explained that decision to file a lawsuit would have likely have required a consensus of the association board, so legal action could not be truly anticipated at the point of the alleged threat.

The basis of the Court’s decision seems to be extensively fact driven. Because QBE continued to actively evaluate Royal Bahamian’s claim and suit was not filed until almost four years after the single threat of litigation, QBE could not claim the work-product privilege for documents prepared prior to April 2, 2010 (the date suit was filed).

The decision of this case is a good result for the policyholders; they are now entitled to four years' of documents that the insurance company had not previously provided.

I decided to share this case during my Saturday series of posts because I think is important to see how carefully the pre-suit actions of the parties were evaluated by the judge. The policyholders were successful in their quest for documents related to the insurance company’s investigation of the claim because the insurance company could not reasonably have anticipated litigation based on a vague threat nearly four years before suit was filed. Had the insureds sent a letter or held a vote in 2006 regarding potential litigation, however, the judge might have agreed with the QBE and allowed documents to be withheld.

Royal Marco is a corporation that operates condominiums and related properties on Marco Island, Florida. Royal Marco had insured its properties with QBE when Hurricane Wilma hit in October of 2005. Royal Marco immediately submitted a claim to QBE and QBE’s adjuster initially estimated over $1 million in damage from Wilma. In February 2006, QBE’s adjuster submitted a request for almost $500,000 in undisputed benefits to be paid, but QBE responded by paying only $250,000. By April of 2006, repair expenses exceeded $4 million and Royal Marco had expended its entire maintenance reserve account, levied its residents, and was forced to borrow on a line of credit to pay mounting repair expenses. In November of 2006, Royal Marco filed a Civil Remedy Notice (CRN) against QBE, and eventually filed suit against QBE in January of 2007 after rejecting QBE’s settlement offer that was roughly half of what was needed for repairs. QBE invoked appraisal and the parties finally agreed to enter appraisal in December of 2007. An appraisal award was issued in June of 2008, which was in turn paid by QBE in August of 2008. Royal Marco then filed suit for bad faith, and QBE filed its motion for summary judgment.

QBE argued that the appraisal award had a res judicata and collateral estoppel effect on Royal Marco’s bad faith lawsuit, essentially arguing that the appraisal award had already decided the issue of bad faith in favor of QBE. The Court did not agree, responding:

But the appraisal award was based on Royal Marco's breach of contract claim, not its bad faith claim, and it is well-settled that "[a] claim arising from bad faith is grounded upon a legal duty to act in good faith, and is thus separate and independent of the claim arising from the contractual obligation to perform." Blanchard v. State Farm Mutual Automobile Ins. Co., 575 So. 2d 1289, 1291 (Fla. 1991); see also Dadeland Depot, Inc., 483 F.3d at 1271-1272 (11th Cir. 2007) (holding that insured was not barred from asserting separate bad faith action against insurer despite the fact that insured could have brought bad faith claim in its earlier arbitration proceeding). Because Royal Marco seeks recovery at present for damages allegedly caused by QBE's bad faith, and not breach of contract, its claims are not barred by res judicata or collateral estoppel. [FN1]

FN1. For similar reasons, the Court declines to dismiss Royal Marco's claims for its appraisal costs, despite the contractual language indicating that such fees would be split. Because Royal Marco alleges that it would not have had to undergo appraisal but for QBE's bad-faith delay in settlement, such costs would appear to be consequential damages authorized by the statute.

QBE then argued that a bad faith lawsuit was precluded because QBE had timely paid the appraisal award. The Court was unpersuaded by QBE’s argument and provided a concise lesson in bad faith to the insurer:

Florida's bad faith statute obligates an insurer to act "fairly and honestly toward its insured," and "with due regard for her or his interests." Fla. Stat. § 624.155. This statutory duty "is grounded in the common law obligation of good faith that was traditionally imposed on insurers, which obligated insurers to `refrain from acting solely on the basis of their own interests' rather than those of the insured party." Dadeland Depot, Inc. v. St. Paul Fire and Marine Ins. Co., 483 F.3d 1265, 1276 (11th Cir. 2007) (quoting Farinas v. Fla. Farm Bureau Gen. Ins. Co., 850 So.2d 555, 558 (Fla. 4th DCA 2003)). Thus, a bad faith claim "is founded upon the obligation of the insurer to pay when all conditions under the policy would require an insurer exercising good faith and fair dealing towards its insured to pay", an obligation which "requires the insurer to timely evaluate and pay benefits owed on the insurance policy." Vest, 753 So. 2d at 1275 (Fla. 2000). The determination of whether the insurer has acted in good faith is fact-intensive and thus typically for the jury. See Dadeland Depot, 483 F.3d at 1278 n. 10 (collecting cases).

In the end, the Middle District Court held that neither QBE’s participation in the appraisal process, nor its timely payment of the appraisal award, was sufficient to preclude Royal Marco’s bad faith suit as a matter of law.

The National Law Journal picked up on this in Florida Insurance Case Could Set Precedent for Hurricane Claims when it noted:

The case came before the justices when the 11th U.S. Circuit Court of Appeals certified five questions of state law to the Florida court.

The biggest issue: Does Florida recognize a claim for breach of implied warranty of good faith and fair dealing? If so, must the claim be brought after the fact like a bad faith claim?

The justices did not seem convinced that lack of good faith and bad faith were separate issues. Justice Charles Canady, who replaced Cantero on the court, said, "What I'm hearing is a distinction without a difference."

Justice Barbara Pariente told Rogow that it's "a little disingenuous" to say it's not a bad faith claim but a lack of good faith claim. (emphasis added)

I agree with the justices. And, it didn't have to be argued that way. We filed an Amicus brief on behalf of United Policyholders in the case. As indicated in A Common Law Remedy For Lack Of Good Faith And Fair Dealing Is Before The Florida Supreme Court, the simple argument is:

Nowhere is the contractual concept of an "implied warranty of good faith and fair dealing" more important than in the insurance setting, due to the unique nature of the product and the disparate circumstances of the parties to the contract. Although Florida courts have previously and explicitly recognized a common law claim arising from the nature of an insurer's obligation to its insured in the third party setting, Florida should join the majority of states that recognize a common law remedy for damages caused by first party insurers breaching their recognized obligations of good faith and fair dealing.

Legislation passed in Florida recognizes the obligation of insurers to act in the utmost of good faith and fair dealing to their insureds. § 624.155, Fla. Stat., and § 626.9541, Fla. Stat. These obligations are further evidenced by pertinent portions of the Florida Administrative Code, requiring claims adjusters to provide ethical and good faith treatment to policyholders. The insurance industry recognizes its obligation to act in the utmost of good faith and fair dealing as evidenced in the training and reference textbooks for claims handlers and in internal claims handling documents prepared by individual insurance companies. Since Florida public policy, demonstrated in legislation and regulation, recognize a duty of good faith, and even the insurance industry recognizes such a duty, it would be a strange quirk in Florida common law for it to not to recognize what everybody else is requiring insurers to do-act in accordance of a duty of good faith and fair dealing to its own customers.

Florida should align itself with that majority of states, and allow this important alternative remedy to stand.

Here is the link to the Oral Argument. The relevant argument starts at 1:39.

Here is QBE's Brief.

Here is Chalfonte's Brief.

This is not the first time that Berk's firm has obtained a zero verdict for QBE. Yesterday, I noted a number of case decisions involving QBE in my post, QBE Lawsuits are Unilaterally Redefining Property Insurance Law Coverage Cases in Florida. Berk also noted that QBE may have not obtained zero verdicts in other lawsuits but still offered more than what was obtained through trial. Sometimes, newspapers only report that a party won a civil lawsuit without reporting that the winner may have lost because it turned down a better pre-trial settlement.

Being Fair And Balanced, I am reporting this result because it represents a significant win for QBE against a trial attorney for whom I have a great deal of respect. As I learn more about this case, I will report on it.

My suggested thought for those not certain if a settlement offer is fair:

PIGS GET FAT, HOGS GET SLAUGHTERED!

Wall's very brief blog post noted that:

In King Cole Condominium Ass'n v. QBE Insurance Corp., (S.D. Fla. Opinion Filed January 5, 2010), a Federal Judge held that the collateral source rule does not preclude evidence regarding an Other Insurance Policy, issued by one USPlate Glass Insurance. Defendant QBE Insurance Corporation argued in that case "that the USPlate policy goes directly to the issue of whether Defendant breached its obligations to Plaintiff under the insurance contract." The Federal Court denied the Plaintiff's Motion in Limine to Preclude Evidence of the USPlate Policy:

“The Court agrees with Defendant. Defendant shall be permitted to introduce evidence relating to the USPlate Glass Insurance Policy as it relates to its obligations to Plaintiff and whether it breached the contract.”

The practice pointer for all insurance coverage attorneys is to follow up on the "plate glass coverage." Yet, the more interesting part of the decision, and the reason for my interest in this post, has to do with the recurrent theme that QBE hires the same experts and attorneys that claim the policyholder, usually a Condominium Association, is guilty of fraud. In almost every case that I know of where QBE has disputed the amount of the damage, QBE has hired the same set of experts and its attorneys argue that the condominium association is guilty of fraud because, in part, the association asks for amounts of damage higher than the amounts QBE’s experts estimated. Wall's blog failed to raise or note this issue which many policyholders would question.

QBE retains the same set of alleged expert witnesses in virtually every case, including engineer, Dan Laverich. In the same case Wall referenced, he made no mention of this or of the Court's opinion that such practice may be explained to a jury in order to question whether Laverich has an outcome oriented bias towards QBE. In his brief summary, Walls neglected to note that the Court ruled that the dollar amount paid to Laverich by QBE was clearly relevant to establish his "prejudice and bias" to provide opinions on behalf of QBE. I wonder why Wall did not comment on that part of the case?

QBE has been a subject of recent blog posts. Michelle Claverol noted a QBE decision worth reading in her post, Replacement Cost Value Coverage After a Claim Denial: Florida Valuation Issues, Part 6:

Likewise, in Vantage View v. QBE Ins. Corp., 2009 WL 536546 (S.D. Fla. March 3, 2009), the insurer denied the claim. The court, relying on Bailey, held that it is not “reasonably possible” for the insured to make repairs without receipt of the funds from the insurer and that the insured was therefore relieved from its obligation of repairing or replacing the damaged property before demanding replacement cost value.

The point of that blog is that QBE denied coverage and then has its attorneys argue that it would never be responsible for replacement cost coverage even if the insured prevails. Since the policy contemplates prompt payment of actual cash value benefits, how does an insured fully replace at replacement cost values without the insurer first paying the full amount of the actual cash value of the loss promptly? QBE was trying to get out of paying the replacement cost, even if it lost on the actual cash value coverage issue.

QBE may even significantly change longstanding Florida law to allow insurance lawsuits to be brought for the breach of good faith obligations at common law. As I noted in Common Law Good Faith Duty Before Florida Supreme Court, QBE has now placed the most important insurance consumer protection question before the Florida Supreme Court--I can imagine QBE’s insurance competitors and attorneys are wondering why. In that post, I noted:

QBE Insurance Corp. v. Chalfonte Condominium Apartment Ass'n., will be a landmark case in Florida. Mary Fortson and I have been working on an amicus brief on behalf of United Policyholders. My opinion is that it would not make sense for Florida law to not recognize the duty of good faith when every adjuster is trained from day one that insurers have such a duty. The duty of good faith and fair dealing is accepted as the most basic principal of an insurance company's primary obligation in the insurance industry.

Why in the world would a judge say that a good faith duty does not exist? To do so would not only be legally wrong, it would be factually wrong as well.

In A Common Law Remedy For Lack Of Good Faith And Fair Dealing Is Before The Florida Supreme Court, we uploaded our amicus brief on behalf of United Policyholders. There I argued:

Making an insurer accountable for causing additional damages that naturally flow from the breach of its mandated obligation of utmost good faith is good public policy and logically required if accountability is important to the law. Without accountability for breaches of these insurance good faith duties that most recognize as involving the public trust, the law would minimize these concepts and the importance of personal responsibility for insurers to do what they are obligated to do.

Does anybody, even Dennis Wall, disagree?

The first case, Patrick v. State Farm, 647 So.2d 983 (Fla. 3d DCA 1994), involved a situation where the unit owner repaired and replaced his property through his own efforts. He did not pay somebody else to do much of the work. The Court denied replacement cost coverage stating the following:

Replacement cost insurance is designed to cover the difference between what property is actually worth and what it would cost to rebuild or repair that property. It is insurance on a property's depreciation. Leo L. Jordan, What Price Rebuilding?, 19 ABA Fall Brief 17 (1990). Courts have almost uniformly held that an insurance company's liability for replacement cost does not arise until the repair or replacement has been completed. Id.; see, e.g., Tamco Corp. v. Federal Ins. Co. of New York, 216 F.Supp. 767 (N.D.Ill.1963). Patrick's contract provides that State Farm “will not pay for any loss on a replacement cost basis until the lost or damaged property is actually repaired or replaced....”
…
Patrick also argues that State Farm should pay the total amount the insurance company estimated it would cost to repair or replace his property, despite the completion of the work for a lesser amount. However, the contract plainly provides that State Farm “will not pay more for loss in any one occurrence on a replacement cost basis than ... the amount you actually spend that is necessary to repair or replace the lost or damaged property.” The issue also was squarely addressed in Kolls v. Aetna Casualty and Surety Co., 378 F.Supp. 392 (S.D.Iowa), aff'd, 503 F.2d 569 (8th Cir.1974). There, the insureds were paid $631,955 for the actual value of a destroyed shopping center. Depreciation was figured at $54,920. The insureds then scaled back the rebuilding and only spent $510,759.88. The court refused to order the payment of the withheld amount because the insureds had not spent more on the rebuilding effort than they received in payment for the actual value of the shopping center. “[T]he Replacement Cost Endorsement is not of value to the plaintiffs until they have expended an amount greater than what they could recover under the basic policy coverage....” Kolls, 378 F.Supp. at 400.

The practical pointer here is that had the policyholder’s counsel been aware of State Farm operational guidelines, the case could have been won. State Farm has an internal guideline for just about every claims situation. There was one in existence that provided that State Farm would pay for its policyholder’s time and effort in repairing or replacing the damaged structure. My practice tip is to hire claims experts who have these claims guidelines or simply ask for them. Many companies have these claims guides for use by adjusters. This case is an example of State Farm allowing its attorneys to argue something it did not even believe-- as proven by its operational guides.

Vantage View vs. QBE Insurance, No. 07-60138, 2009 WL 536546 (S.D. Fla., March 3, 2009) is significant because it is a recurrent situation where a denial is made and then the insurer does not want to pay full replacement cost benefits. In some situations, it could provide an unscrupulous insurer a motive to avoid paying the full benefits owed under a policy, knowing a poor insured could never raise monies to rebuild. The Court stated:

Here, the jury found that Defendant breached the insurance contract by failing to pay Plaintiff for the damages it sustained. The jury also found that Plaintiff sustained $910,500.00 of replacement cost damage. Despite that damage, Defendant failed to provide Plaintiff any funds to allow it to make repairs. By so doing, Defendant frustrated Plaintiff's efforts to make any repairs and prevented Plaintiff's compliance with the replacement cost provision in the policy. See e.g., State Farm Fire & Casualty Ins. Co. v. Miceli, 164 Ill.App.3d 874, 115 Ill.Dec. 832, 518 N.E.2d 357, 362 (Ill.App.Ct.1987) (when insurer made compliance with a condition precedent impossible by failing to provide any funds, the insureds were not prevented from recovery of replacement cost); Bailey v. Farmers Union Cooperative Ins. Co. of Nebraska, 1 Neb.App. 408, 498 N.W.2d 591, 598-99 (Neb.Ct.App.1992) (awarding replacement cost coverage despite the plaintiff's failure to comply with the policy condition to rebuild when the plaintiff did not have funds to rebuild); McCahill v. Commercial Union Insurance Co., 179 Mich.App. 761, 446 N.W.2d 579, 585 (Mich.Ct.App.1989)) (awarding recovery for replacement costs because the failure of the insurer to advance funds meant there was “little likelihood of being able to secure financing to repair or replace” property). Florida law is clear that “a party, who, by his own acts, prevents performance of a contract provision cannot take advantage of his own wrong.” North Am. Van Lines v. Collyer, 616 So.2d 177, 179 (Fla.Dist.Ct.1993); see Paparone v. Lake Placid Holding Co., 438 So.2d 155, 157 (Fla.Dist.Ct.App.1983); Ward v. Branch, 429 So.2d 71, 74 (Fla.Dist.Ct.App.1983); see also Restatement (Second) of Contracts § 245 (“Where a party's breach by non-performance contributes materially to the non-occurrence of a condition of one of his duties, the non-occurrence is excused”). Indeed, any other outcome would result in an insurer “profit[ing] from its own breach of the agreement.” Zaitchick v. American Motorists Ins. Co., 554 F.Supp. 209, 216 (S.D.N.Y.1982) (quoting and incorporating the insured's argument that the insurer's conduct made it impossible for the insured to fulfill the condition precedent).

This conclusion is buttressed by the language of the policy. Specifically, the policy provides that replacement cost value will not be paid unless the repairs are made “as soon as reasonably possible.” Clearly, it is not “reasonably possible” for the insured to make repairs without receipt of the funds from the insurer. Indeed, Ceballo and Patrick support this interpretation, given that the insurer in those cases advanced funds making it possible for the repairs to occur. Lastly, the Court finds that any other result would provide insurers with an incentive not to pay legitimate claims in cases where payment on a replacement cost basis is likely to be more than payment based on an actual cash value. Thus, the Court denies Defendant's motion for judgment as a matter of law. (emphasis added)

A footnote written by the Court is also significant:

The Court disagrees with Defendant's contention that this finding creates or extends insurance coverage not in the policy.... To the contrary, the Court finds that coverage exists in the policy. It is Defendant's actions in breaching the contract that give rise to Plaintiff's ability to avail itself of the replacement cost provision of the policy. The fact that the policy also provides for actual cash value has no bearing on the Court's interpretation of the policy as to replacement cost in view of Defendant's breach. (emphasis added)

I wish Judge Senter would have followed these lines of cases and reasoning in the Mississippi Katrina litigation. The replacement cost policy contemplates that the insured will have some partial payments immediately on an actual cash value basis to start the repair and replacement. When there is a wrongful denial, the policy stops working in the manner contemplated. The insurer should not benefit from its own wrong action.

Finally, after my post regarding the disappearing appraisal clause in While State Farm May Stay in Florida, Appraisals May Go, the decision in State Farm Florida Ins. Co. v. Nichols,--- So.3d ----, 2009 WL 3674569 (Fla. 5th DCA, November 6, 2009), was released. I believe this opinion will probably accelerate that exodus. By chance, I ran into the very capable policyholder’s attorney, Craig LaValley, in Fort Myers several weeks ago. He won this case and one similar on appeal. He told me that his reasoning was quite simple—if the policy values are determined by appraisal, the insurer decided to go down “the will” street and no longer was on the “may street.”

This is exactly the reasoning followed by the appellate Court:

The homeowners' policies clearly require State Farm to pay the full amount of an appraisal award within sixty days of the award.

…

This statute provides in pertinent part:

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.

…

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.

I suggest that the practical impact of this case is to force many insurers to pay for replacement cost if the value is determined by appraisal. The long term impact may be that the appraisal clause will be written out of many property insurance policies if insurers want to avoid this result.

"The first question presented is whether an insured may prosecute a common law claim for breach of the covenant of good faith and fair dealing by an insurer based on the alleged failure of the insurer to investigate and assess the insured's claim within a reasonable time. Such a claim is alleged by the homeowners to be an independent basis for recovery, one distinguishable from a statutory bad faith claim under Section 624.155(1)(b), Florida Statutes (2008). Citizens maintains that the “breach of the covenant of good faith and fair dealing” claim is merely a “disguised” statutory bad faith claim and that no such common law claim is recognized in Florida."

Later in the opinion, the Court noted the issues raised are currently before the Florida Supreme Court in another matter:

"[T]he United States Court of Appeals for the Eleventh Circuit has certified these questions to the Supreme Court of Florida pursuant to Florida Rule of Appellate Procedure 9.150(a). See Chalfonte Condo. Apartment Ass'n. v. QBE Ins. Corp., No. 08-10009, 2009 WL 580775, at *7 (11th Cir. Mar. 9, 2009) [21 Fla. L. Weekly Fed. C1627a]. The Supreme Court has docketed the certified questions as QBE Insurance Corp. v. Chalfonte Condominium Apartment Ass'n., Case No. SC09-441."

QBE Insurance Corp. v. Chalfonte Condominium Apartment Ass'n., will be a landmark case in Florida. Mary Fortson and I have been working on an amicus brief on behalf of United Policyholders. My opinion is that it would not make sense for Florida law to not recognize the duty of good faith when every adjuster is trained from day one that insurers have such a duty. The duty of good faith and fair dealing is accepted as the most basic principal of an insurance company's primary obligation in the insurance industry.

Why in the world would a judge say that a good faith duty does not exist? To do so would not only be legally wrong, it would be factually wrong as well.

We will file our amicus brief and post in here in a couple of weeks. The decision in this case and the Corban case in Mississsippi are going to be very significant to the rights of policyholders.