In May of 2019, a decision made by a panel of Florida’s Fifth District Court of Appeals sparked an important debate that could have consequences for policyholders and their insurers throughout the state of Florida. The Florida Supreme Court will soon end that debate, and its decision could impact how attorneys choose to approach advocating for policyholders when delays in payment directly result in lost income for insureds.

The two parties to the action are Citizens Insurance Corp. (Insurer) and Manor House (Policyholder). Manor House was unable to make necessary repairs due to Citizens’ delay in payment, giving rise to a breach of contract action to recover lost income. In the decision, the appellate panel overruled the trial court’s grant of summary judgement in favor of Citizens Insurance Corp. and against Manor House, which held that Manor House’s bid for consequential damages due to lost rental income under a breach of contract theory was not covered under the policy.

The panel’s decision relied primarily on the well-established principle that the injured party in a breach of contract action is entitled damages that would put him or her in the same position had the breaching party fully performed. The panel reasoned that the trial court’s decision ignored this “more general proposition,” concluding that Manor House’s demand for consequential damages was “based squarely on breach of contract claims requiring no allegation or proof that Citizen acted in bad faith.”1

Citizens contends that allowing policyholders to pursue consequential damages due to delay in payment under a breach of contract theory would “drastically” increase first-party litigation and lead to “unfair leverage” in favor of policyholders in settlement decisions. Citizens will attempt to persuade the Florida Supreme Court to find that pursuing consequential damages resulting from a delay in payment may only be brought under a bad faith action, subjecting policyholders to the more stringent prerequisites within the bad faith statutory framework. Despite the trial courts finding and the arguments that such damages are not covered under the policy, Citizens has now attempted to avoid this very situation by specifically excluding consequential damages (including lost income) in future policies, suggesting that Citizens is aware that such damages are typical remedies in breach of contract actions.

Manor House’s response to these assertions has been simple and effective: The action is based on three separate breaches of the insurance policy, and Florida has long recognized the right to recover consequential damages in a breach of contract suit. As stated by Manor House’s representatives, “absent a consequential damage waiver, Florida’s rules of policy interpretation preclude Citizens from limiting Manor House’s breach of contract remedies.” Based on Citizens recent attempts to exclude these very types of actions in the future, it seems as though they may agree. Within the coming weeks, we shall see if the Florida Supreme Court agrees as well.
1 Manor House et al. v. Citizens Property Ins. Corp., Case No. 5D17-2841 (Fla. 5th DCA 2019).