In my previous blog post, I gave shared an overview of the facts surrounding Florida Insurance Guaranty Association v. De La Fuente,1 which lead Florida’s Second District Court of Appeal (2nd DCA) to certify two unique questions involving FIGA’s liability in sinkhole claims as being "of great public importance." Part 2 of this blog series examines the parties’ arguments regarding the first question: whether the new definition of a "covered claim" under the FIGA Act applies to a sinkhole loss where the homeowner’s policy was issued before the effective date of the new definition (May 17, 2011) but the insurer was adjudicated to be insolvent after this effective date.
When the now-insolvent insurer HomeWise Preferred Insurance Company issued the subject homeowner’s insurance policy to the insureds in May of 2009, the FIGA Act defined a "covered claim" as follows:2
"Covered claim" means an unpaid claim, including one of unearned premiums, which arises out of, and is within the coverage, and not in excess of, the applicable limits of an insurance policy to which this part applies, issued by an insurer, if such insurer becomes an insolvent insurer and the claimant or insured is a resident of this state at the time of the insured event or the property from which the claim arises is permanently located in this state. For entities other than individuals, the residence of a claimant, insured, or policyholder is the state in which the entity’s principal place of business is located at the time of the insured event. "Covered claim" shall not include:
(a) Any amount due . . . as subrogation, contribution, indemnification, or otherwise; or
(b) Any claim that would otherwise be a covered claim under this part that has been rejected by any other state guaranty fund . . . .
The legislature later amended this provision of the FIGA Act to address the subject of claims for sinkhole losses by adding a new subsection, paragraph (c), which states:3
(c) Any amount payable for a sinkhole loss other than testing deemed appropriate by the association or payable for the actual repair of the loss, except that the association may not pay for attorney’s fees or public adjuster’s fees in connection with a sinkhole loss or pay the policyholder. The association may pay for actual repairs to the property but is not liable for amounts in excess of policy limits.
The central issue, as framed by the 2nd DCA, was whether the statutory definition of "covered claim" in effect at the time a homeowners’ insurance policy is issued or a more restrictive definition in effect at the time the insurer is adjudicated insolvent governs the scope of FIGA’s liability under the FIGA Act.
FIGA argued this new definition of "covered claim" applied and therefore FIGA was prohibited from paying the insureds directly for their sinkhole loss. Instead, FIGA argued it was only obligated to pay a contractor for the "actual repairs to the property" for the insureds’ sinkhole loss up to the policy limits and the statutory limits on FIGA’s obligations to pay, whichever is less. As the 2nd DCA noted:
[T]he 2011 amendment to the definition of ‘covered claim’ is not a mere technical change; instead, the amendment substantially changes the method by which sinkhole losses will be handled and paid by FIGA . . . , i.e., whether the insureds can compel FIGA to pay them directly for the amount of their sinkhole loss as determined by the appraisal, or whether FIGA is only obligated to pay a contractor or contractors for the cost of repairs to the property that are actually made.
In their Answer Brief, the insureds highlighted several flaws in FIGA’S argument. First, the insureds noted the absence of any Florida case law or statute that connects FIGA’s responsibility for handling a failed insurer’s claims based on the insolvency date. The FIGA Act deems FIGA to be the insurer for purposes of handling “covered claims,” imposing upon FIGA all of the obligations of the insolvent insurer, HomeWise Preferred, “as if the insurer had not become insolvent.” The insureds argued, "the policy date controls. The insolvency date is irrelevant."
The insured also noted how the Florida Supreme Court has consistently held the statute in effect when an insurance contract is entered governs substantive issues arising from that policy. Because the version of the FIGA Act in effect at the time the policy was issued did not prohibit FIGA from paying the insureds directly for their loss or limit payment to contractors for the "actual repairs for the loss," the trial court did not err in refusing to impose such a restriction in this claim. The insureds explained the trial court’s ruling followed the Florida Supreme Court’s mandate that courts should not "divine an intent that a new law be applied to disturb existing contractual rights or duties when there is no express indication that such is the legislature’s intent.”
Unfortunately, the 2nd DCA did not agree with the insured and reversed the trial court’s ruling. The 2nd DCA’s decision was based on a recent opinion issued by Florida’s First District Court of Appeal, Florida Insurance Guaranty Ass’n v. Bernard. I will examine the 2nd DCA’s opinion on this issue and the 1st DCA’s analysis in Bernard, as well as the second question "of great public importance," in the next parts of this blog series.
1 Florida Ins. Guar. Ass’n v. de la Fuente, 2D13-3543, 2015 WL 72273 (Fla. 2d DCA Jan. 7, 2015).
2 §631.54(3), Fla. Stat. (2008).
3 § 631.54(3)(c), Fla. Stat. (2011).