Can an insured recover costs to prevent a loss under a property insurance policy? If a loss occurs, can an insured recover the costs to reduce or mitigate damage from further damage?
The answer is to read the full policy terms to make this determination. Generally, property insurance policies have terms that follow maritime and inland marine forms, which require the policyholder to take steps to reduce or mitigate a previous loss and usually pay costs to do so. It is much less likely that a policy will reimburse fully for the costs to prevent a loss from occurring—but read the policy carefully.
The Florida Supreme Court discussed this issue involving a sue and labor provision.1 Following prior case precedent interpreting the sue and labor clause, the court explained that:
An insured has the duty to exercise the care of a prudent, uninsured owner to protect insured property so as to minimize or prevent the loss for which the insurer would be liable. The purpose of the sue and labor clause is to reimburse the insured for those expenditures which are made primarily for the benefit of the insurer to reduce or eliminate a covered loss.
Did the sue and labor also pay for costs to prevent a loss? Not in that policy:
…Zurich correctly contends that the Sue and Labor clause in the Swire-Zurich policy is specifically applicable only after an actual loss has occurred or is occurring. Because Swire was acting to prevent a potential collapse of the building, and no actual loss had occurred, the $ 4.5 million expended by Swire is not recoverable under the policy’s Sue and Labor clause.
…the policy’s Sue and Labor clause applies only in the case of an actual, covered loss. Any other conclusion would result in the Sue and Labor clause becoming the primary coverage provision of this contract without regard to the content of the contract or the coverage it was designed to provide.
The reasoning suggested by Swire is certainly logical, to the effect that the preventive measures may have conferred a benefit upon the insurance company. If the Sue and Labor clause had been worded differently or if it had included language concerning the prevention of loss, the conclusion may have been different.
Hurricane Ian victims should be aware of property insurance provisions that require a policyholder to repair and take action to prevent further loss or damage. With soon-to-be Hurricane Nicole about to strike Florida, these provisions are important duties. Policies may also provide benefits to take these emergency and temporary repairs before the winds and rains of Hurricane Nicole cause further damage.
Thought For The Day
You can never protect yourself 100%. What you do is protect yourself as much as possible and mitigate risk to an acceptable degree. You can never remove all risk.
1 Swire Pac. Holdings, Inc. v. Zurich Ins. Co., 845 So. 2d 161 (Fla. 2003).