(Note: This Guest Blog is by Ruck DeMinico, Knowledge Manager with Merlin Law Group). 

The recent case of North Pointe Insurance Company v. Tomas, No. 3D08-2245, 2009 Fla. App. LEXIS 12505 (Fla. 3d DCA August 26, 2009), illustrates why many insurers who wrongfully fail to pay a claim choose to unnecessarily delay payment rather than out right deny them.

In Tomas, the insureds made a claim with North Pointe, their homeowners’ insurance carrier, for a complete replacement of a marble kitchen floor. North Pointe first concluded the loss was excluded under the policy and denied coverage. The Tomases filed a petition compel appraisal pursuant to the terms of their policy, and North Pointe withdrew its previous denial of the claim, admitted coverage and stipulated to attorney’s fees up to that date. The claim went to appraisal, and North Pointe paid. A month later, an appraisal award was entered in the amount of $115,899.52, including pre-judgment interest from the date of the loss. The lower court confirmed the appraisal award and entered final judgment.

On appeal, North Pointe argued that the trial court erred in confirming the arbitration award before the contractual sixty-day period to make payment expired and that prejudgment interest should have been awarded from the date of payment, which it had already made. Citing long-standing authority in the Third District, Independent Fire Insurance Co. v. Lugassy, 593 So. 2d 570 (Fla. 3d DCA 1992), the Court disagreed.

Generally, interest on a loss payable under an insurance policy is recoverable from the date the policy provides that payment is due. Lugassy carved out an exception to that rule: when the insurer denies coverage but later admits coverage or coverage is later awarded through litigation, the insurer is liable for prejudgment interest from the date of the loss. “Once the insurer denies coverage, it is deemed to have waived the policy provision for deferred payment and, should it pay, becomes responsible for prejudgment interest from the date of loss.” Tomas, at * 2.

Because North Point first denied coverage for the claim, it was deemed to have waived the policy provision allowing deferred payment and was responsible for prejudgment interest from the date of the loss, even though it later agreed to pay the claim within the time period provided in the policy.

Had North Pointe not denied the claim at first but instead engaged in tactics to delay or reduce that payment owed for the loss, the issue of prejudgment interest would not have been so clear. Without the denial, the policy would have determined when payment was due—60 days after the appraisal award or the date of final judgment, and the Tomases may not have been entitled to the nearly two and a half years of prejudgment interest they ultimately received. See Liberty Mut. Ins. Co. v. Alvarez, 785 So. 2d 700 (Fla. 3d DCA 2001) (making distinction that, where there is no denial of coverage, prejudgment interest is payable from date of appraisal as opposed to date of the loss); Aries Insurance Co. v. Hercas Corp., 781 So. 2d 429 (Fla. 3d DCA 2001).