Following the devastating damages from Hurricanes Harvey, Maria, and Irma, homeowners and businesses alike examined their insurance coverages to assist their recovery. For most people that have never needed to use insurance benefits, or had only small claims, these policies may have seemed like just another large expense every year that mostly protected the bank on its lending. However, when a loss happens each insurance policy should be recognized as the asset it has always been, available to provide funding for large, unanticipated expenses. The case I discuss next illustrates why understanding insurance principles is so crucial to gathering all available policy benefits.

For those who live in coastal areas especially, lending institutions have generally required not only property and casualty insurance policies, but also flood insurance policies sold under the federal National Flood Insurance Program (“NFIP”). And in many cases of catastrophic total loss, both policies may be required to pay benefits. In most states, the “collateral source rule” prevents setting off benefits of separate insurance policies paid for by the policyholder, covering distinct losses. In a total loss claim where the insured has purchased both a property policy with wind loss coverage and a flood policy, it is possible that both polices could be required to respond with policy limits.

In Citizens Property Insurance Corporation v. Hamilton,1 the insureds suffered total loss of their home from Hurricane Ivan. The insureds had purchased a named peril policy from Citizens covering loss from windstorm, and because they resided in a flood zone, bought a policy from the National Flood Insurance Program insuring against flood loss. Damage from both wind and flood occurred from Ivan. The NFIP flood adjuster inspected and recommended that NFIP pay policy limits for the loss. NFIP accepted the recommendation and paid for the dwelling and contents.

The Hamiltons also made a total loss claim under the Citizens policy, which excluded loss caused “directly or indirectly” by flood. The Hamiltons contended that under the Florida Valued Policy Law, Fla. Stat. § 627.702(1)(a), “the insurer’s liability under the policy for such total loss, if caused by a covered peril, shall be in the amount of money for which such property was so insured as specified in the policy and for which a premium has been charged and paid.” Citizens argued that the amount of benefits paid under the flood policy should be admissible and set off against any liability Citizens may have. The trial court disagreed, applying the “collateral source” rule. The appellate court agreed, holding “the common law collateral source rule militates against evidence of the dollar amount of flood insurance payments, disbursed by an entity wholly independent of appellant, under a plainly distinct contractual obligation, and paid for entirely by premiums remitted by the Hamiltons.”2

Citizens argued next that it should only have to pay previously uncompensated losses, based on indemnity principles, and that the Hamiltons had been fully compensated by NFIP under the flood policy. The appellate court disagreed, finding that Florida had never actually adopted the “total loss recovery” rule argued by Citizens, and that other decisions by Florida courts indicated these insureds were entitled to the full benefits of each policy under the circumstances.3

Most people would not expect the outcomes authorized in this case. Clearly, it pays to investigate the extent of all “insurance assets” in the event of catastrophic losses.

The Hamilton case dealt with other issues of concurrent causation which I will explain in a future blog.
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1 Citizens Property Ins. Corp. v. Hamilton, 43 So.3d 746, 751-52 (Fla. 1st DCA 2010).
2 Id. at 751.
3 See Florida Farm Bureau Cas. Ins. Co. v. Mathis, 33 So.3d 94 (Fla. 1st DCA 2010) (approving recovery for wind damage of full limits on homeowner’s policy, pursuant to VPL, where plaintiffs were also paid limits less deductible on flood insurance policy); Springfield Fire & Marine Ins. Co. v. Boswell, 167 So.2d 780, 784 (Fla. 1st DCA 1964) (holding “[e]ach insurer is liable for the full amount of his policy” “[w]hen there are several permissible concurrent policies of fire insurance and there is a total destruction by fire of the insured premises”).

  • David Thompson, CPCU

    A “pet peeve” of mine after 32+ years in the industry is this statement in your blog:

    “The insureds had purchased a named peril policy from Citizens covering loss from windstorm, and because they resided in a flood zone, bought a policy from the National Flood Insurance Program insuring against flood loss.”
    EVERYONE lives in a flood zone; the only question is do you live in a low risk or high risk zone. Consumers are told by many people such as lenders, “You aren’t in a flood zone.” That equates to, “I don’t need flood insurance.”
    NFIP statistics have shown, for decades, that about 25% of covered flood losses are paid to those in a low risk zone where lenders typically do not require flood insurance. Those who say, “I am not in a flood zone” often find themselves knee deep in flood water inside there home or commercial building.