My last hurricane post on November 22, 2010, involved a discussion on the Other Insurance clause often found in property insurance policies, specifically as it was misapplied in Citizens Property Ins. Corp. v. Ashe, No. 1D09-1546, 2010 WL 4628915 (Fla. 1st DCA Nov. 17, 2010). The Ashe decision included more issues than the Other Insurance clause, and I promised to discuss the other issues as well.
The Total Loss Recovery Rule was another point of law that was argued in Ashe. The court described the rule:
The total loss recovery rule limits the insured to recover the lesser of either the pre-storm value of the insured property or the total policy limit for perils that led to the property’s destruction.
In the Ashe case, a Florida homeowner suffered a hurricane loss and was paid policy limits by his flood insurer, but the amount of damage caused by wind was still in dispute with his wind insurer, Citizens. Citizens relied on unreported federal court decisions that applied Louisiana and Mississippi law to support its assertion that the total loss recovery rule should limit the homeowner’s recovery to the amount he was paid by his flood insurer, which happened to be more than the pre-storm value of the property. Citizens also argued that the total loss recovery rule was consistent with the indemnity theory of insurance, which limits compensation to cover only the losses actually suffered.
The homeowner responded to Citizens’ indemnity theory argument by contending that Florida’s valued policy law (VPL) is an exception based on “calculated risk,” not indemnity. The court stated:
A calculated risk value policy is present when “parties … ascertain and agree in advance what the value is and in the case of total loss by the insured peril this amount shall be paid as liquidated damages.
The Florida First District Court of Appeal agreed that Florida’s VPL is based on “calculated risk,” but cited the Florida Supreme Court case of Florida Farm Bureau Cas. Ins. Co. v. Cox, 967 So. 2d 815 (Fla. 2007) for the proposition that indemnity principles are not abandoned in VPL cases:
Specifically, the court determined that the VPL establishes the value of the property when there is a total loss, but it does not impose liability on the insurer for a loss caused by an uncovered peril for which no premium has been paid. . . . , While the insurer cannot contest the value of the property, the insurer can contest “whether it is liable for the entire loss when the covered peril alone did not cause a total loss but was only responsible for a relatively small amount of the damage.” . . . . The court recognized, however, that the VPL applies if a covered peril causes a total loss or constructive total loss. (Citations omitted).
Based on this legal reasoning, the court declined to apply the total loss recovery rule to this loss, and stated that the homeowner would be able to recover under his wind policy if he could prove wind damage, even though he had already collected more than the pre-loss value under his flood insurance policy. Citizens argued that this would result in a windfall to the insured, granting him double recovery for his loss, but the court rejected that argument because the homeowner’s flood policy included a subrogation clause, which would effectively require the homeowner to pay the flood insurer back for any money it received for the same damage.
The last major legal point the court analyzed in the Ashe decision was the Collateral Source Rule, which we will discuss in detail in an upcoming post.