I can hear readers thinking, “of course not, Chip! How can you produce something that does not exist?” That is what I have taught in seminars for 35 years. As a matter of fact, I often warn policyholders not to make up documents when the insurance company is threatening not to pay a claim because documents do not exist.

Yet, this is precisely what an insurance company argued in a recent case. From its appellate brief, Heritage Property & Casualty Insurance Company argued:

In this first-party Hurricane Irma property insurance lawsuit, the trial court erred by compelling appraisal because Plaintiff failed to comply with its post-loss conditions precedent to appraisal. Specifically, despite repeated requests by Heritage, Plaintiff (a condominium association) failed to submit its board meeting minutes to Heritage. Plaintiff had an obligation under Florida law to keep such records and an obligation under the Heritage policy to submit them to Heritage upon request.

Plaintiffs failure to comply with Florida law by failing to keep board meeting minutes (allegedly due to a lack of a quorum for the meetings) was a violation of the policy’s post-loss conditions precedent to appraisal. Therefore, the order compelling appraisal must be reversed.

Where is the School of Delay, Deny, and Defend1 that these clever insurance company attorneys go to help claims managers frustrate the purpose of insurance after a loss occurs? Yet, these and other arguments are repetitively made in the first party claims context to prevent or reduce the amounts paid.

The relevant policy language is very standard:

3. Duties in the Event of Loss or Damages
a. You must see that the following are done in the event of loss or damage to Covered Property:

(6) As often as may be reasonably required, permit us to … examine your books and records … and permit us to make copies from your books and records.

The court had to address the legal argument raised by Heritage:

Under the instant policy, the insured is contractually obligated to allow the inspection and copying of its existing books and records. The plain language requires no more. Heritage contends, however, that because the words ‘books and records’ are undefined in the policy and the insured operates under a statutory duty to preserve meeting minutes, the policy provision implies such minutes must be produced as a precondition to coverage. In support of its position, it relies upon section 718.111(12)(a)(6), Florida Statutes, which requires a condominium association to maintain ‘[a] book or books that contain the minutes of all meetings’ as part of its official records within the state for at least seven years.

Although the policy does not expressly reference the Act, under Florida law, ‘insurance policies are deemed to incorporate applicable statutes, and conflicting policy provisions must give way.’ Fla. Farm Bureau Cas. Ins. Co. v. Cox, 943 So. 2d 823, 832 (Fla. 1st DCA 2006), quashed on other grounds, 967 So. 2d 815 (Fla. 2007)…. Pursuant to ‘this presumption of incorporation, valid applicable laws existing at the time of the making of a contract enter into and form a part of the contract as fully as if expressly incorporated in the contract.’ 11 Richard A. Lord, Williston on Contracts § 30:19 (4th ed. 2021)…. Contractual language is therefore interpreted in view of existing statutes, irrespective ‘of whether the agreement refers to the governing law.’….

This line of authority does not, however, displace the well-established principle that ‘[w]hen a policy provision remains undefined, common everyday usage determines its meaning.’ Sec. Ins. Co. of Hartford v. Com. Credit Equip. Corp., 399 So. 2d 31, 34 (Fla. 3d DCA 1981)…. Hence, the incorporation presumption ‘is generally applied in connection with contract ‘construction’ (determining the legal effect of a contract) rather than contract ‘interpretation’ (determining the meaning of words used in a contract),’ and Heritage offers no support for the proposition that an undefined term should be construed against the insured based on a statutory ‘definition’ that is neither incorporated into the policy nor found in any applicable insurance statute. 11 Lord, supra (footnote omitted); see also Container Corp. of Am. v. Maryland Cas. Co., 707 So. 2d 733, 736 (Fla. 1998) (Where ‘policy language is susceptible to differing interpretations, it … should be construed in favor of the insured.’)2

And concluded:

[O]ur analysis yields a single conclusion. Had Heritage wished to require the Association to record meeting minutes as a condition of coverage, it could have easily so provided.3

This final conclusion will lead some insurance companies to redraft policy language where this buried clause will undoubtedly come into play with future losses. Unfortunately, most departments of insurance currently lack the people power or will to drill into these subtly significant policy changes.

Until then, my past teaching is still accurate—the insurance company cannot require you to produce a document to avoid paying a claim where the document does not exist. The only caveat is that for post-loss replacement cost purposes, the policyholder has an obligation to prove the replacement cost with receipts and cost documents to receive replacement cost payment. As part of post-loss best practices, adjusters and public adjusters should instruct policyholders that they have to keep replacement costs receipts and records of purchase.

Thought For The Day

Society produces rogues, and education makes one rogue cleverer than another.
—Oscar Wilde
1 Jay M. Feinman. Delay, Deny, Defend. Delden Press. 2010.
2 Heritage Prop. & Cas. Ins. Co. v. Condo. Ass’n of Gateway House Apts., No 3D20-4561, — So. 3d —, 2021 WL 3640520 (Fla. 3d DCA Aug. 18, 2021).
3 Id.