Docket No. 3:05cv401, ___ F. Supp. ___
(N.D. Fla., September 22, 2009)
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.
The Moultons owned several properties that were damaged when Hurricane Ivan struck the Pensacola area in September 2004. In March of 2005, while that claim process was still underway, the Moultons’ insurance carrier dropped them, and the Moultons asked their insurance agent, Fisher-Brown, to find new coverage. Fisher-Brown enlisted the help of Peachtree Special Risk Brokers, LLC (Peachtree), an independent insurance broker, to help in procuring coverage from surplus lines carriers. There was an email discussion between Fisher-Brown and Peachtree about the damage caused by Ivan and the extent of the repairs made. Fisher-Brown volunteered information that all of the Moultons’ property had been repaired, except for cosmetic damage, and that the claims process was still underway but the carrier set up a reserve of 2.2 million. Peachtree related to Landmark and Arch that all Ivan losses had been repaired at a cost of 2.2 million.
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.