Floridians are very lucky. They have great weather, beautiful beaches and a Valued Policy Law (VPL) that requires insurers to pay the face value of a policy in the event of a total loss, without regard to the value of the property at the time of the loss. Only a third of the States have VPLs in effect, and many of those VPLs are only applicable to fire losses. In Florida, the provisions of its Valued Policy Law will be triggered in the event of a total loss caused by any covered peril, including hurricanes.
It is not surprising that in the aftermath of the 2004-2005 hurricane seasons, Florida’s VPL became the subject of heated litigation, academic discussions and legislative debate. The application of Florida’s VPL in cases where the total loss is caused by a covered peril(s) is fairly simple. The plot thickens in multiple causation losses and a solid understanding of the current applicability of Florida’s VPL is an essential requirement for insurance claim professionals.
Florida’s Valued Policy Law is codified under §627.702 of the Florida Statutes. The statute was significantly amended after the controversial decision in Mierzwa v. Florida Windstorm Underwriting Ass’n, 877 So.2d 774 (Fla. 4th DCA 2004). In Mierzwa, the insured’s home was damaged in part by hurricane winds, a covered peril under the policy, and partly by flood waters, an excluded peril. The Court held that pursuant to Florida’s VPL, an insurer was required to pay policy limits even if the total loss was caused in part by an excluded peril. The decision was based on a reading of the Florida’s 2004 VPL. If anyone had a problem with the ruling, they were to take it up with their favorite legislator in Tallahassee, and they did. A litigation frenzy ensued. Eventually, Mierzwa was disapproved by the Florida Supreme Court.
In Florida Farm Bureau Casualty Ins. Co. v. Cox, 967 So.2d 815 (Fla. 2007), the Supreme Court held that pursuant to Florida’s VPL, if a covered peril did not cause a total loss or a constructive total loss, an insurer will only be responsible for the percentage attributable to the covered peril.
In essence, today’s VPL, as amended, requires a causation analysis. Percentages will be allocated among perils, and the policy will govern the coverage and causation questions. However, it may still be argued under Cox, that if a covered peril causes a “constructive total loss” where demolition of the property is required by law, or the cost of repairs exceed more than 50% of the existing value of the building, a policyholder is entitled policy limits and should not be limited to the percentage attributed to the covered peril. This, of course, is the subject of heated litigation and coverage disputes. Luckily, I enjoy these tiffs.
Tune in next week when I will discuss “constructive total losses” under Florida’s VPL and more.