In addition to raising the cost of insurance premiums, insurers appear to be issuing more policies which include “right to repair” provisions. Considering the rising cost of insurance premiums, a policy with a right to repair provision or endorsement might initially seem appealing to homeowners as such policies often come with a “premium discount.” The unfortunate fact is that right to repair provisions and endorsements significantly alter policyholders’ rights under the policy. I wrote recently about how insurance carriers use this “premium discount” against policyholders in my recent post, Right to Repair: How People’s Trust Insurance Company’s Preferred Contractor Endorsement Leaves Policyholders Over a Barrel. We have also written recently about the unfortunate and oftentimes, unforeseen, effects of right to repair provisions. In our recent post, Right to Repair: The Intersection of the Managed Repair Program and the Faulty Workmanship Exclusion, we discuss how an insurer can use its own preferred contractor’s shoddy work to deny future claims.
Perhaps the issue of most concern, and one that has been highly litigated, is how the right to repair affects a policyholder’s ability to pursue a breach of contract action against an insurance carrier once the carrier has invoked the right to repair. Generally, when an insurance carrier fails to pay the amount necessary to restore a policyholder’s home to its pre-loss condition, the policyholder can sue for breach of contract. The issue with cases in which an insurance carrier has invoked its right to repair the property, however, is that the carrier technically does not ever issue a “loss payment.” In other words, the policyholder never sees the funds. For this reason, right to repair provisions make it difficult for policyholders to retain an attorney to represent them in a disputed claim.
Now for the good news—although it may be more difficult to pursue a breach of contract action against an insurance carrier that has invoked its right to repair, the right to pursue the breach of contract action is not completely lost. Florida’s Fourth District Court of Appeal recently addressed this issue in People’s Trust Insurance Company v. Chen.1
In Chen, the policyholder had filed suit for breach of contract against People’s Trust Insurance Company after receiving two letters—the first advising the policyholder that People’s Trust was invoking its right to repair, the second limiting the scope of covered damages. Both letters noted that, pursuant to the policy, any disagreement as to the scope of repairs would be addressed through the appraisal process. People’s Trust filed a motion to compel appraisal and motion to compel its right to repair. The policyholder then filed a motion for summary judgment alleging that People’s Trust had breached the policy by initially proposing to perform repairs that would not have restored the property to its pre-loss condition. The parties subsequently attended appraisal, which resulted in an award consistent with the policyholder’s position. After a hearing on both parties’ motions, the circuit court granted the policyholder’s amended summary judgment motion and denied People’s Trust’s motion to compel the right to repair, reasoning that People’s Trust had breached the policy with its initial estimate and forfeited its contractual right to repair the property.
On appeal, the court took issue with the fact that that the policyholder filed suit before participating in the appraisal process pursuant to the policy. The court noted that, had the policyholder participated in the policy-designated appraisal process, People’s Trust would have been given “the opportunity to continue forward with repairs based upon the scope outlined in the appraisal award.” For this reason, the appellate court ultimately reversed the trial court’s order granting the policyholder’s amended summary judgment motion and denying People’s Trust’s motion to compel its right to repair.
Despite ruling against the policyholder, the appellate court pointed out that its decision was based on the particular set of facts at hand. In fact, the court seemingly showed future litigants the path to recovery by reciting certain sets of facts under which a policyholder could pursue a breach of contract action. The court explained:
Our conclusion as expressed in this opinion should not be construed to suggest the insureds may never be able to pursue a breach of contract action against the insurer. For example, if the insurer fails to continue forward with repairs based upon the scope outlined in the appraisal award, or if the repairs are defective, then the insureds’ ability to pursue a breach of contract action may ripen, provided the insureds have complied with all other required conditions precedent under the contract before filing suit. See Vainberg v. Avatar Prop. & Cas. Ins. Co., 321 So. 3d 231, 235 (Fla. 4th DCA 2021) (‘[I]n a situation where the option to repair has been invoked . . . the insurer is obligated to perform repairs which will adequately return the insured property to its pre-loss condition.’); Drew v. Mobile USA Ins. Co., 920 So. 2d 832, 835 (Fla. 4th DCA 2006) (‘[W]hen the insurer makes its election to repair, that election is binding upon the insured and . . . the insurer is bound to [perform repairs] within a reasonable time.’).
The Fourth District Court of Appeal’s decision is good for two reasons: (1) rather than simply reversing the circuit court’s order and ruling against the policyholder, the appellate court took the extra step of clarifying policyholders’ rights and duties under an insurance policy once the right to repair has been invoked; (2) the decision clarifies that “right to repair” provisions do not render insurance carriers immune from breach of contract actions.
If your insurance carrier has invoked its right to repair and has not covered your entire claim, reach out to an attorney at Merlin Law Group to take a look.
1 People’s Trust Ins. Co. v. Chen, No. 4D21-1060, 2022 Fla. App. LEXIS 203 (Fla. 4th DCA Jan. 12, 2022).