Segal v. Hartford Ins. Co.,
No. 09-10588, 2009 U.S. Dist. LEXIS 13215
(11th Cir. June 18, 2009)

Most insurance policies contain a liberalization clause. Always look for them because a liberalization clause means that any change in the law broadening coverage would benefit the policyholder, even if the change happened in the middle of a policy period. One Florida court, however, recently took a narrower view on a liberalization clause’s applicability.

The Segals’ Boca Raton home was damaged by Hurricane Wilma in October 2005. The Segals duly filed a claim under their homeowner’s insurance policy with Harford. Hartford accepted liability for the claim. However, Hartford held back the depreciation in value of the damaged property that was covered. The Segals felt Hartford’s depreciation holdback breached the insurance policy, and sued. Hartford moved to dismiss the Segals’ Complaint with prejudice for failure to state a claim.

The United States District Court for the Southern District of Florida granted Hartford’s motion to dismiss because the Segals’ insurance policy with Hartford included a depreciation holdback clause. Thus, the district court concluded that Hartford’s depreciation holdback pursuant to that clause was not a breach. The Segals appealed.

The 11th Circuit affirmed the district court’s dismissal and held that the Segals’ Complaint failed to state a claim. On appeal, the Segals had two arguments. First, the Segals argued that Florida Statute § 627.7011(3), which prohibited insurers from holding back the depreciation in value of damaged property covered by a policy, was incorporated into the Segals’ policy. Unfortunately for the Segals, the statute went into effect after the Segals’ policy was signed. The parties even agreed the statute did not apply retroactively to the Segals’ existing policy. However, the Segals argued that the statute prohibiting depreciation holdback was incorporated into their policy through the policy’s liberalization clause. The liberalization clause stated,

"If we make a change which broadens coverage under this edition of our policy without any additional premium charge, that change will automatically apply to your insurance as of the date we implement the change in your state . . . "

The court, however, disagreed with the Segals, and explained that in Florida, contracts for insurance "are construed in accordance with the plain language of the policies as bargained for by the parties." Segal, 2009 U.S. Dist. LEXIS 13215 at *1. So, the court analyzed the liberalization clause pursuant to its plain language. The liberalization clause stated, "[I]f we make a change . . . ." Id. Section 627.7011(3)’s change prohibiting depreciation holdback, however, was made by the Florida Legislature, not by Hartford. Thus, the court took a narrow view of the liberalization clause and held that pursuant to the policy’s plain language the liberalization clause did not incorporate the statute’s provision prohibiting depreciation holdback.

Second, the Segals argued that the same liberalization clause also incorporated Hartford’s changed practices to no longer holdback depreciation to their insureds. The court, however, rejected this claim because the Segals did not allege Hartford’s changed practices in their Complaint. Accordingly, the court affirmed the district court’s dismissal of the Segals’ Complaint with prejudice for failure to state a claim.

Click here to read the full opinion. Please understand that I am not in agreement with this decision as it applies to most policies that also indicate that they will conform to the state law. Read together, a change in state law should be iberalized because the form policies issued would have to provide coverage. In this case, it may be that no liberalizatin took place until after the loss happened.

There are some lessons to remember from this case.  Always ask for the most recent forms and endorsements being issued which reflect the statutory changes. Always ask for a certified copy of the policy with endorsements. Check the Department of Insurance for requests by the carrier for approved endorsements which may prove the liberalization of coverage.