Understanding Lienholder Protection: Open Loss Payable & Standard Mortgagee Clauses
Although nearly every year-end housing report revealed that the housing market is making a come-back, foreclosures remain a sad reality in the mortgage banking world. Thus, it is critical that lienholders understand the protection afforded to them under the loss payable clause of the homeowner’s insurance policy covering their collateral.
Generally, there are two distinct types of loss payable clauses:
1. the “open” loss payable clause (sometimes referred to as the “simple” or “ordinary” loss payable clause); and,
2. the “standard,” “standard union,” or “New York” clause.
So, how much protection does the open loss payable clause provide to lienholders? It solely identifies the person who may collect the proceeds. As set forth by the Court in Secured Realty Inv. Fund v. Highlands Ins. Co., 678 So. 2d 852 (Fla. Dist. Ct. App. 3d Dist. 1996), an “open loss payable clause simply states that ‘loss, if any, is payable to B, as his interest shall appear’ or uses equivalent words, merely identifying the person who may collect the proceeds.” Furthermore, a lienholder may only collect if the insured can collect. According to the Court in Demay v. Dependable Ins. Co., 638 So. 2d 96, 97 (Fla. Dist. Ct. App. 2d Dist. 1994),
“…a clause without language to the effect that the interest of the lienholder shall not be invalidated by any act or neglect of the mortgagor, does not create a contract between the insurer and the loss payee and does not give the loss payee any rights greater than those to which the insured is entitled.”
In contrast, a standard mortgagee clause provides much greater protection. As discussed by the Court in Independent Fire Ins. Co. v. NCNB Nat’l Bank, 517 So. 2d 59 (Fla. Dist. Ct. App. 1st Dist. 1987), “…the mortgagee’s coverage will not be invalidated by a foreclosure, a change in ownership, a more hazardous use of the property, or a loss caused by the neglect of the owner, provided that the mortgagee pays any premium demanded should the mortgagor fail to do so.”
Hence, the distinction between these two clauses is that whereas the open loss payable clause exposes the lienholder to the defenses and limitations the insurance company has against the mortgagor, the lienholder’s rights are not invalidated by the acts or neglect of the mortgagor under the standard mortgagee clause. Thus, the
protections afforded by the standard mortgagee clause are significantly greater insofar as the lienholder will still be able to collect even in those cases where the owner has destroyed the property.
Understanding Lienholder Protection: Open Loss Payable & Standard Mortgagee Clauses
Secured Realty Inv. Fund v. Highlands Ins. Co., 678 So. 2d 852 (Fla. Dist. Ct. App. 3d Dist. 1996)
Demay v. Dependable Ins. Co., 638 So. 2d 96, 97 (Fla. Dist. Ct. App. 2d Dist. 1994)
Independent Fire Ins. Co. v. NCNB Nat’l Bank, 517 So. 2d 59 (Fla. Dist. Ct. App. 1st Dist. 1987)
Claim File Documents Are Protected While Coverage Issues Are Pending
In the case of State Farm Fla. Ins. Co. v. Ramirez, 86 So. 3d 1198 (Fla. 3rd DCA 2012), the Third DCA reaffirmed well settled case law involving discovery disputes in first party property insurance breach of contract actions. This Third District Court of Appeal opinion favors insurers and the work product protection of claim file documents during discovery. While the opinion is brief, it made note that the case involved issues of disputed coverage, which remained unresolved. The issue came before the Third DCA on an interlocutory appeal, i.e. while the underlying case was still pending.
In Ramirez, the trial court granted an order compelling the insurer to produce its entire claim file to the insured. The Third District reversed the lower court’s decision and held that to compel an insurer to produce its entire claim file, while an issue of coverage was still pending, would depart from the essential requirements of the law and cause irreparable harm to the insurer which could not be remedied on appeal following final judgment.
This case affirms what we have always argued, that the claim file, or any documents contained therein, are protected from discovery. In its opinion, the Third District relies on Nationwide Ins. Co. of Fla. v. Demmo, 57 So. 3d 982 (Fla. 2nd DCA 2011).
In Nationwide, the plaintiff filed a claim against the insurer after her residence sustained damage reportedly due to a sinkhole. The claim was paid and the plaintiff later filed a subsequent water damage claim, allegedly caused by the sinkhole. The water damage claim was denied and the plaintiff filed suit alleging breach of contract. The plaintiff sought discovery of claim file documents that defendant objected to as protected. At the hearing on plaintiff’s motion to compel, the lower court held that any documents created prior to the defendant’s denial of the plaintiff’s claim were not work product, as they were not in anticipation of litigation. The Court ordered defendant to produce claim notes, activity logs, and other file materials.
Nationwide appealed the nonfinal order asserting the trial court’s order departed from the essential requirements of the law and would result in irreparable harm with no adequate remedy on appeal following final judgment. The Second District agreed with Nationwide, and quashed the discovery order holding that a trial court departs from the essential requirements of the law by compelling the disclosure of the contents of an insurer’s claim file when the issue of coverage is in dispute and has not been resolved (emphasis in original). Citing to Seminole Cas. Ins. Co. v. Mastrominas, 6 So. 3d 1256 (Fla. 2nd DCA 2009). The Second District went on to say; that requiring the disclosure of claim file materials during the litigation of coverage issues would cause irreparable harm to an insurer that cannot be adequately addressed on appeal.
In Nationwide, the Second District held that work product protection is not always implicated by the nature of the documents sought. The court held that the question of whether documents are protected as work product hinges on the types of action a given plaintiff brings. Like Ramirez, in Nationwide the plaintiff brought a breach of contract action with a dispute as to coverage with no bad faith claim pending.
Plaintiffs’ attorneys routinely request the entire claim file or documents contained in the claim file during discovery. Citing Ramirez and Nationwide in objections and responses to discovery may educate opposing counsel on the rule of law and deflect costly discovery disputes.
State Farm Fla. Ins. Co. v. Ramirez, 86 So. 3d 1198 (Fla. 3rd DCA 2012)
Nationwide Ins. Co. of Fla. v. Demmo, 57 So. 3d 982 (Fla. 2nd DCA 2011)
Seminole Cas. Ins. Co. v. Mastrominas, 6 So. 3d 1256 (Fla. 2nd DCA 2009)
Mr. Remy is an attorney with DLD Lawyers who works out of our Miami office at 150 Alhambra Circle, Penthouse, Coral Gables, Florida 33134.
May 26, 2013
Chipped Tile Claims: “Our option” may be the best option
You insure a property under an all risk policy, and receive notice of a loss caused by a dropped object. Much to your surprise, the insured’s claim seeks to replace the entire continuous floor in the insured property. After the insured property is inspected, your independent adjuster finds an old flooring system; sometimes with several chipped and/or cracked floor tiles that are unrelated to the loss alleged. Based upon the independent adjuster’s findings, you deny the claim pursuant to the policy’s “marring, wear and tear, and deterioration” exclusion to coverage. Invariably, the insured files a suit for breach of contract, or seeks to have coverage declared so that she may invoke appraisal.
If this scenario sounds familiar, you must also be familiar with the decision handed down by Third District Court of Appeal in Avatar Property & Casualty Ins. Co. v. Lorenzo, 72 So.3d 758 (Fla. 3rd DCA 2011). In Lorenzo the Third District issued a per curiam affirmation of the trial court’s holding that the “marring, wear and tear, and deterioration” exclusion did not exclude a loss caused by a dropped object resulting in a chipped or cracked floor. Id.
After the holding in Lorenzo insurance companies are left in a very difficult position. These “chipped tile” claims are inherently ripe grounds to perpetuate a fraud because the very nature of the claim makes it difficult to successfully question whether a true, sudden loss occurred. Despite the fact that these types of claims do not pass the “sniff test”, if they do not fall within the exclusion for “marring, wear and tear, and deterioration” they must be covered (some policies have specific “dropped object” exclusions).
As with challenges faced by any industry, insurers must reform their practices to make sure that true “losses” are covered, and that those losses that are fraudulent or excessive are not. In the now all too frequent “chipped tile” claims, the best option available to insurers may be to invoke the policy’s reasonable repair option.
A. Our Option
Most insurance policies contain the following language: “Our Option. If we give you written notice within 30 days after we receive your signed, sworn proof of loss, we may repair or replace any part of the damaged property with like property.”
This language should allow an insurer to accept coverage for a “chipped tile” claim, and to limit the amount paid to the amount necessary to actually repair or replace the affected tile.
B. How to Perfect the Option
Perfecting the option requires that an insurer retain a tile expert skilled in matching floor tiles, or in making repairs to chipped or cracked floor tiles. As a matter of course, before making a coverage decision, every insurer ought to assign a skilled tile expert to conduct a property inspection. Some of the better experts in this area are able to either find a matching tile, or they are able to successfully complete one of a number of different repair options. Once the tile expert concludes he is able to match or repair the affected tile, the insurer should advise the insured in writing that it intends to exercis its repair option to remedy the only tile that suffered damage.
Once an insurer obtains an opinion that a chipped tile can be repaired or replaced, the next step is to avoid denying coverage, but rather accept coverage for the damaged tile followed by a written invocation of the insurer’s option to repair or replace. A strong coverage letter will acknowledge coverage for the damaged property (the lone affected tile), and invoke the insurer’s contractual right to repair.
C. Not a Perfect Solution
Invoking the option to repair or replace is not a perfect solution. Insureds are typically unsatisfied with just having their floor restored to its pre-dropped object condition. Instead, many insureds will take the position that the repair or replacement is not one of like kind and quality and will, therefore, pursue legal action.
In any subsequent action, however, insurers are in a much better position than they would be had they denied the claim for “marring, wear and tear, and deterioration” – which Lorenzo makes clear is a losing position. In a subsequent suit, an insured will have the burden of proving that the insurer’s repair or replacement of the affected floor tile was not one of like kind and quality; but rather the only reasonable option is to restore the insured to his pre-loss condition by replacing the entire, continuous floor. While resolution of this argument is likely a question of fact, a smart insurer, armed with a good proposal for settlement, should have some confidence that a jury will side with it and reject an insured’s overreaching claim.
Avatar Property & Casualty Ins. Co. v. Lorenzo, 72 So.3d 758 (Fla. 3rd DCA 2011)
April 26, 2013
Offers of Judgment Exclusive of Attorney’s Fees: What, if any, legal effect do they have?
The offer of judgment/proposal for settlement (or some version thereof) has been available to Florida litigants for over 20 years. Designed to reduce litigation by providing a means by which litigants could incentivize each other to reach a negotiated settlements early in the litigation process, the ultimate goal was to save the state the time and expense of costly trials unless absolutely necessary. Ironically, the practical effect of this legislation has been the generation of a bevy of additional litigation over its precise operation.
The statute allows a litigant to make an offer to an opponent which, if not accepted, allows the offeror to recover its attorneys’ fees and costs if the judgment ultimately obtained by the offeree is not at least 25% or more than the offer made. Florida Statutes § 768.79.
What’s more, the Florida Supreme Court has added further nuance to the rule beyond what is contained in the statute, illustrating their approach on a chart formulated by the Court and published as part of the Court’s opinion in State Farm Mut. Auto. Ins. Co. v. Nichols, 932 So. 2d 1067, 1074 (Fla. 2006). The chart is of further utility for our purposes inasmuch as the Court in that particular case specifically addresses the interplay between the Proposal for Settlement statute, and Florida Statutes § 627.428, entitling insureds to attorney’s fees when they sue their insurer and recover damages.
If the judgment is:
Post-offer fees under the offer of judgment statute
75% or less of insurer’s offer
Pre-offer fees under section 627.428
Post-offer fees under the offer of judgment statute
More than 75% of insurer’s offer, but not more than 100%
Pre-offer fees under section 627.428
More than insurer’s offer
All fees under section 627.428
However, one question remains unanswered with regards to Offers of Judgment/Proposals for Settlement: can one make an offer of judgment exclusive of attorneys’ fees? Or, more to the point, if one makes an offer of judgment exclusive of attorneys’ fees, will the court exclude the attorneys’ fees when it comes time to calculate “all damages which may be awarded in a final judgment[,]” for the purposes of determining whether there will be a fee shift? See FN1, supra.
According to an article published in the Florida Bar Journal nearly seven years ago (Crockett), the Supreme Court of Florida approached this quandary in 2002 in White vs. Steak and Ale of Florida, Inc., but demurred from actually providing a definitive answer, all-encompassing answer to the question. As a result, the several Florida District Courts of Appeal remained largely split
District Courts of Appeal remained largely split on the issue, each Court having already formulated its own respective approach to the issue. White v. Steak & Ale of Florida, Inc., 816 So. 2d 546, 549-551 (Fla. 2002). Furthermore, the Supreme Court of Florida has still yet to provide any ruling that would settle the split amongst the various District Courts of Appeal. However, despite the Court’s ambivalence with regards to providing an answer to the question generally, it has inadvertently provided guidance as to the this question within the context of certain, very particular situations; first-party insurance litigation is one such situation.
In White, the court was confronted with having to construe the meaning of the words, “judgment obtained” inFla. Stat. §§ 768.79(6)(a) and 768.79(6)(b)—the two sections of the statute that set forth the circumstances under which a party’s legal fees shift (if at all). In White the court says, succinctly,
[W]e conclude that the “judgment obtained” pursuant to section 768.79 includes the net judgment for damages and any attorneys’ fees and taxable costs that could have been included in a final judgment if such final judgment was entered on the date of the offer. Thus, in calculating the “judgment obtained” for purposes of determining whether the party who made the offer is entitled to attorneys’ fees, the court must determine the total net judgment, which includes the plaintiff’s taxable costs up to the date of the offer and, where applicable, the plaintiff’s attorneys’ fees up to the date of the offer. White v. Steak & Ale of Florida, Inc. at 551 (Fla. 2002)
Thus, based upon the above, the determination of whether any given fee or cost should be considered part of the “judgment obtained” depends upon whether said fee or cost would have been considered part of the final judgment. With regards to first-party insurance litigation, there is a statute that directly addresses this new inquiry, Fla. Stat. § 627.428—the same attorneys’ fee statute that prompted the Supreme Court to formulate the chart in Nichols. Supra, pg.1.
Referring to the award of attorneys’ fees due an insured who obtains a judgment against their insurance carrier, that statute says, “[w]hen so awarded, compensation or fees of the attorney shall be included in the judgment or decree rendered in the case.” Fla. Stat. § 627.428(3). In essence, § 627.428 specifically disclaims the possibility that an insured would ever have to pursue the attorney’s fees to which he is entitled in another separate action, or as an additional, related judgment.
Thus, if per the Offer of Judgment statute, the “judgment obtained” necessarily includes “any attorneys’ fees and taxable costs that could have been included in a final judgment if such final judgment was entered on the date of the offer[,]” and § 627.428 sets forth that attorney’s fees awarded by operation of the same “shall be included in the judgment or decree rendered in the case”, it would seem that when an insured obtains a judgment against its insurer, and one party served a proposal for settlement upon the other, the calculation of the “judgment obtained” for purposes of determining whether the party who made the offer is entitled to fees, must, as a matter of law, include the insured’s pre-offer reasonable attorney’s fees—regardless of whether the terms of the offer stipulated that the offer was being made “exclusive” of attorney’s fees.
Now, that is not to say that there is no conceivable reason to serve a proposal for settlement exclusive of fees; there is clearly more to defending a first-party insurance lawsuit than the black letter of the law. There is no practical legal penalty for serving a proposal for settlement exclusive of fees under these circumstances. And further, there is something to be said for the psychological effect of presenting a Plaintiff with a readily available sum of money they need not share with Plaintiff’s counsel. However, and similar to any other given tactic, whether it would ultimately be prudent or fruitful to serve a proposal for settlement exclusive of fees (despite the legal ineffectiveness of such a term), is a determination best made on a case-by-case basis— ideally by case manager working closely with counsel.
Florida Statutes § 768.79
932 So. 2d 1067, 1074 (Fla. 2006)
See FN1, supra
Jeffrey B. Crockett, Statutory Offers of Settlement in Florida Practice: Uses, Problems, and Solutions, 80 No.3 The Florida Bar Journal 24 (2006)
White v. Steak & Ale of Florida, Inc., 816 So. 2d 546, 549-551 (Fla. 2002)
See FN4, supra
Fla. Stat. § 627.428(3)
March 26, 2013
Late Notice in Hurricane Cases: Two different juries, two different outcomes
While most property insurance policies require claims be reported promptly to the carrier, the policies traditionally do not specify when the notice will be late enough for the claim to be denied. Under current Florida law, late notice will only bar a claim if it prejudices the carrier. If a jury finds that the notice was late, the carrier is allowed a presumption of prejudice, which can be rebutted by the insured. See Bankers Ins. Co. v. Macias, 475 So. 2nd 1216 (Fla. 1985). The following is an analysis of two recent trials in federal court in South Florida where two different juries found different results in cases where the defense of late notice was raised.
In the case of Ocean View Towers Association, Inc. v. QBE Insurance Corporation,
11-60447-CIV (S.D. Fla.), Plaintiff, a South Florida condominium association, allegedly suffered substantial damage to its property in 2005 from Hurricane Wilma. Immediately after the storm, the association reported the claim to its insurance carrier, QBE, which conducted an investigation of the loss. The association cooperated with all requests made by its carrier (notice of loss, description of damage, accurate repair expense record-keeping, etc.). In turn, QBE issued payment of $125,312 in 2006. The payment represented what QBE considered the total damages less the policy deductible. In 2010 the association hired a public adjuster who found approximately four to five million dollars in damage to the property. The association then filed suit for breach of contract without notifying QBE of the newly discovered damage or submitting a supplemental claim. The carrier raised the late notice defense in its motion for summary judgment, which the Court denied. However, the jury reached an opposite conclusion, finding that the carrier did not breach the contract with its insured by not paying for alleged damage claimed to have been discovered later.
A different result occurred in the case of Banta properties v. Arch Specialty Insurance Company, 10-61485-CIV (S.D. Fla.). In Banta, the judge also denied the insurance carrier’s motion for summary judgment on the late notice defense, but this time the jury concurred with the Court by finding that the carrier did breach the insurance contract by failing to pay for damage claimed as a result of Hurricane Wilma.
Plaintiff, Banta Properties, Inc. is a property management company that manages several multiple-building apartment complexes in Broward County, Florida. Banta had primary insurance through General Star Indemnity Company against physical damage up to $2.5 million on the three properties at issue in this case. Defendant, Arch Specialty Insurance Company (“Arch”), issued an excess insurance policy to Banta that covered physical damage up to $8,503,732.00 per occurrence on the same properties. The terms of the General Star policy were incorporated into the Arch Policy, which had a notice provision that read, “The Insured, upon knowledge of any occurrence likely to give rise to a claim hereunder, shall give immediate written notice thereof.”
Banta’s properties allegedly suffered damages as a result of the hurricane, so Banta filed a claim with General Star, which tendered the policy limits of $2.5 million under its contract in March 2008. Banta then filed a claim against Arch for its excess coverage. In response, Arch issued a reservation of rights letter to Banta along with a separate letter stating that Banta had prejudiced Arch by not providing Arch the opportunity to inspect the alleged damages immediately after Hurricane Wilma and that Banta’s repairs to the property obscured any damage. On May 5, 2008, Banta submitted to Arch a repair contract with Hunter R Contracting for $11,855,549.54. Three days later, Arch requested that Banta refrain from making any repairs until Arch had the full claim submission and an opportunity to inspect the properties. On June 18, 2008, Arch inspected the properties. By that time, Banta had completed repairs to six of the thirteen covered buildings. Banta then filed a Proof of Loss with Arch on July 30, 2008 and filed suit on August 17, 2010 asserting claims for breach of contract and for declaratory relief. Defendant Arch moved for summary judgment on the late notice defense, which the Court denied. In denying the insurance company’s motion for summary judgment, the Court identified two possible ways that the policyholder can overcome prejudice from a late filed claim: (1) by providing a complete investigation from another insurance company, or (2) by providing “substantial information” regarding the claim to the insurance company. At trial, the jury did find that the insured failed to promptly report the claim, but also found that the insured overcame the presumed prejudice and awarded the plaintiff $4 million.
Although the two cases had common questions of law, the facts of each case allowed the respective juries to reach different conclusions. The different results demonstrate how fact specific the analysis of the late notice defense needs to be, and also shows why courts should not treat all late notice defenses the same.
February 3, 2013
Retroactivity of Florida’s New Statutes Limiting the Time for Filing First Party Property Loss Claims
In May of 2011, the Florida Legislature passed Senate Bill 408, which amended the statute of limitations applicable to first party property loss claims. Specifically, Fla. Stat. §95.11(2)(e) now provides that the statute of limitations for the filing of a cause of action applicable to a first party property loss expires within five years from the date of the loss. The prior version of Fla. Stat. §95.11 provided that the statute of limitations begins to run on the date that the contract was breached. In light of this amendment, attorneys, adjusters and homeowners are now frequently faced with the question, “Does Fla. Stat. §95.11(2)(e) apply retroactively?” This article examines the arguments for and against applying Section 95.11(2)(e) retroactively, and outlines recent case law that should clarify any existing confusion.
a. The Argument in Support of Retroactivity
As of the date this article was drafted, it appears that there is only one court decision in Florida that has interpreted Fla. Stat. §95.11(2)(e) to apply retroactively. In that lawsuit, the Court noted that a suit filed on July 11, 2011 relating to a claim for Hurricane Katrina was barred as a matter of law by the new statute of limitations found in Fla. Stat. §95.11(2)(e) as signed into law by Governor Scott in June of 2011. View West Condominium Association, Inc. v. Aspen Specialty Insurance Company, WL 3704782 (S.D. Fla. 2011). The federal court for the Southern District of Florida noted that Florida’s new statute of limitations ran from the date of the loss, and because this particular loss occurred on August 25, 2006, the Plaintiff’s suit was time barred.
This case is a federal case interpreting Florida law, and seems to support the conclusion that Fla. Stat. §95.11(2)(e) applies retroactively.
b. The Argument against Retroactivity
We are able to look to a recent Florida Supreme Court decision to try and determine how the retroactivity issue of §95.11(2)(e) should be resolved. In Florida Insurance Guaranty Association, Inc. v. Devon Neighborhood Association, Inc., 67 So.3d 187, the Florida Supreme Court held that in order to determine whether a statute applies retroactively, “we look at the date the insurance policy was issued and not the date that the suit was filed or the accident occurred because the statute in effect at the time that the insurance contract is executed governs substantive issues arising in connection with that contract.”
The Devon Neighborhood case involved a Hurricane Wilma claim and a 2004 insurance policy. The insured attempted to argue that it was not required to go to appraisal because the insurer failed to comply with Fla. Stat. §627.7015 when it neglected to provide the insured with notice of its right to mediate the dispute between the parties. The insurer argued in response that Fla. Stat. §627.7015 did not apply because the portion of the statute that precluded an insurer from demanding appraisal if it failed to provide notice of a right to mediate did not go into effect until 2005, one year after the policy was issued. The Court sided with the insurer, and noted that Fla. Stat. §627.7015 did not expressly state that the legislature intended for the statute to apply retroactively.
Additionally, in Sanchez v. Acapulco Plasters & Stucco, the First District Court of Appeals held that “statutes of limitations are to be applied prospectively unless legislative intent to the contrary is expressed, clear and manifest.” See Sanchez v. Acapulco Plasters & Stucco, 668 So.2d 298 (Fla. 1st DCA 1996). Furthermore, Florida’s Fourth District Court of Appeals recently determined that Section 95.11(2)(e) does not apply retroactively. The Court stated, “[A] new statute of limitations that shortens the time for filing a cause of action is presumed not to apply retrospectively to causes of action already existing unless there is a clear expression of legislative intent to give the new statute retroactive effect.” David Strickland v. American Family Home Insurance Company, Case Number: 16-2011-CA-7856-XXXX.
To summarize, while the Florida legislature left room for judicial interpretation regarding the retroactivity of Section 95.11(2)(e), longstanding principals governing the retroactivity of statutes, and recent case law make clear that Section 95.11(2)(e) will only be applied on prospective basis.
January 8, 2013
The Ethical Inspection: 5 guidelines every adjuster should follow
In the almost three months since the beginning of the 2012 season, there have already been eight named storms, three of which were hurricanes, with another tropical depression slowly massing force towards becoming a tropical storm. Further, based on projections from NOAA’s Climate Prediction Center, a division of the National Weather Service, this trend may not abate. NOAA is predicting that by the end of the 2012 season on November 30 there will have been between 12 and 17 named storms, including five to eight hurricanes, of which as many as three could be major hurricanes (Category 3, 4 or 5, with winds of at least 111 mph).
Of similar importance to the property and casualty insurer is an emerging trend in insurance litigation that has found company adjusters being met in the field not only by the insured’s public adjuster, but a plaintiff’s attorney. Given the enhanced possibility of having to deal with the destruction wrought by one or more major storms and the burgeoning trend of increased cooperation between public adjusters and plaintiffs’ attorneys from the very inception of a given claim, company adjusters could soon find themselves investigating many catastrophic storm losses under the baleful watch of individuals actively scrutinizing their investigation, looking for error. As such, it is more than important than ever for company adjusters to be aware of their ethical obligations and responsibilities when they perform onsite inspections. The following analysis is designed to aid company adjusters to execute their duties ethically and effectively, with confidence and peace of mind, regardless of who is present and watching.
The ethical requirements for insurance adjusters are codified in Fla. Admin. Code r. 69B-220.201. While it is important that all ethical rules be followed at all times regardless of who is present during the on-site inspection of a claim, it cannot be emphasized enough that the possible presence of a public adjuster and/or plaintiff’s attorney during the inspection requires that field adjusters exercise the utmost care and take every precaution while investigating a claim and/or interacting with an insured. What might once have been considered throwaway formalities may soon take on a great deal of significance. The following general guidelines, distilled from the ethical rules, are likely to be the most relevant in day-to-day inspections:
1. An insured/claimant must be given at least 48-hours notice prior to the scheduling of a meeting with the insured/claimant, or inspection of an insured property.
Failure to give this 48-hour notice allows the insured/claimant to deny a company adjuster access to the property.
2. The presence of an attorney does not mean an adjuster may not speak directly with an insured.
First and foremost, most if not all policies include a provision making the insured’s cooperation a post-loss obligation; this is deemed to include a duty to cooperate with an insurer’s investigation of a claim. Furthermore, it has recently been made clear that, in Florida, where this language is present in an insurance policy, an insured’s failure to comply with his or her post-loss obligation to cooperate with the investigation of his or her claim may constitute a breach precluding recovery from the insurer as a matter of law. SeeCitizens Prop. Ins. Corp. v. Gutierrez, 59 So. 3d 177, 179 (Fla. 3d DCA 2011); Sunshine State Ins. Co. v. Corridori, 28 So. 3d 129, 131 (Fla. 4th DCA 2010), reh’g denied (Mar. 22, 2010). Both of these cases borrow language from Haiman v. Fed. Ins. Co., 798 So. 2d 811, 812 (Fla. 4th DCA 2001), which in turn takes its language from a Georgia case that says,
A total failure to comply with policy provisions made a prerequisite to suit under the policy may constitute a breach precluding recovery from the insurer as a matter of law. If, however, the insured cooperates to some degree or provides an explanation for its noncompliance, a fact question is presented for resolution by a jury.
Diamonds & Denims, Inc. v. First of Georgia Ins. Co., 203 Ga. App. 681, 682, 417 S.E.2d 440, 441 (Ga. Ct. App. 1992) (emphasis added)
The specific language adopted by the 3d and 4th DCAs is bolded in the selection above. By adopting the reasoning pertaining to partial cooperation, the 3d and 4th DCAs impliedly adopt the reasoning that where there is no partial cooperation and no explanation for noncompliance (which is to say, no cooperation at all), there is not a question of law. Needless to say, it behooves the insured to cooperate.
Furthermore, citing representation by counsel as a reason for noncompliance is unsatisfactory given the fact that when an adjuster arrives to adjust a claim and investigate a loss for the first time, there is no lawsuit pending and thus, there are no parties legally opposed to one another.
3. Adjusters may NOT advise the insured that they don’t need an attorney, or that they should not/do not need to be represented by counsel. NOR should adjusters engage in the unlicensed practice of law.
Given the fact that the courts themselves are at a loss to define precisely what constitutes “the practice of law”, the best guidance available in case law with regards to the sorts of activities that should be avoided comes from State ex rel. Florida Bar v. Sperry, 140 So. 2d 587, 591 (Fla. 1962) (later vacated on other grounds by Sperry v. State of Fla. ex rel. Florida Bar, 373 U.S. 379 (1963)),
If the giving of such advice and performance of such services affect important rights of a person under the law, and if the reasonable protection of the rights and property of those advised and served requires that the persons giving such advice possess legal skill and a knowledge of the law greater than that possessed by the average citizen, then the giving of such advice and the performance of such services by one for another as a course of conduct constitute the practice of law.
In an overabundance of caution, it is most advisable that adjusters simply refrain from discussing the law, the practice of law, and lawyers in their conversations in the course of their claim adjusting.
4. Adjusters should be aware of an insured/claimant’s emotional state and/or cognitive ability when interacting with him or her—particularly the elderly.
Fla. Admin. Code r. 69B-220.201(3)(h) literally contains the language “extraordinary care” with regards to an adjuster’s duty not to take advantage of an elderly insured/claimant’s possible cognitive deficiencies and/or impaired memory. Fla. Admin. Code r. 69B-220.201(3)(l) provides that an adjuster may not negotiate with nor take a statement from an insured/claimant OR witness when he or she “would reasonably be expected to be in shock[,] or serious mental or emotional distress as a result of… trauma associated with a loss.”
Both of these subsections deal with the relative capacity of an insured/claimant (and/or possibly a witness). It would be futile and inadvisable to attempt to include in this article guidelines with respect to how one should go about determining any given person’s emotional fitness to deal with or engage in negotiations following a traumatic occurrence; similarly it would be inappropriate to speculate as to how one would go about determining that an elderly individual’s faculties are so impaired as to make it impermissible for an adjuster to engage the individual in the same manner as he or she would any other insured/claimant. Adjusters will almost certainly have to rely on their own discretion, but should take pains to use the extraordinary care referenced in the language of the ethical code, and when in doubt, err on the side of caution.
5. Company adjusters should refrain from speaking ill of or making derisive comments about public adjusters.
Fla. Admin. Code r. 69B-220.201(3)(q) forbids company adjusters from speaking ill of public adjusters, and similarly forbids public adjusters from speaking ill of company adjusters. To wit,
A public adjuster shall not represent or imply to any client or potential client that insurers, company adjusters, or independent adjusters routinely attempt to, or do in fact, deprive claimants of their full rights under an insurance policy. No insurer, independent adjuster, or company adjuster shall represent or imply to any claimant that public adjusters are unscrupulous, or that engaging a public adjuster will delay or have other adverse effect upon the settlement of a claim.
It should be noted that none of these guidelines or suggestions will stop a determined insured from filing suit. However, these guidelines will minimize any defects with the initial inspection so that if and when suit is filed, the case will be adjudicated on the merits, rather than on specious and formalistic objections to the manner in which the lost was inspected.
November 3, 2012
Clarifying Kroener: A look at Kramer and untimely reports of loss
On July 18, 2012, the Fourth District Court of Appeals released its decision in Kramer v. State Farm Florida Insurance Company, 2012 WL 2913189 (Fla. 4th DCA July 18, 2012), wherein the insureds claimed that the roof of their home was damaged by Hurricane Frances and Hurricane Jeanne. However, the insureds failed to submit a claim until four years later, when their roof began to leak. The insurer refused to pay the claim for failure to immediately report the loss and failure to timely submit a sworn proof of loss, as required by the insurance policy. As a result, the insureds filed suit against the insurer.
At the trial court level, the insurer filed a Motion for Summary Judgment, asking the Court to dismiss the case due to late notice and the late submission of the Plaintiffs’ proof of loss statement. The insurer argued that it had been prejudiced due to the Plaintiffs’ failure to timely comply with the policy’s conditions precedent to filing suit. In support of its Motion, the insurer relied upon Bankers Insurance Co. v. Macias, 475 So.2d 1216 (Fla. 1985). In Macias, the Court ruled that if an insured does not timely report a claim to the insurer, prejudice to the insurer is presumed. This presumption may be rebutted, however, by a showing that the late notice did not prejudice the insurer. The trial court found that the Plaintiffs failed to show that the insurer had not been prejudiced by lack of notice and granted the insurer’s Motion for Summary Judgment. The Plaintiffs appealed.
On appeal, the 4th DCA conducted an analysis as to whether requiring timely notice of loss and the submission of a proof of loss statement were conditions precedent to filing suit, or whether these requirements were merely cooperation clauses. The Court found that the notice provision along with the proof of loss provision in the policy were conditions precedent to filing suit, and thus followed the Macias holding in its analysis. Furthermore, the Court ruled that prejudice was presumed in this case against the insurer and thus the burden shifted to the Plaintiffs to demonstrate that their failure to provide timely notice of the loss and their untimely submission of the proof of loss statement did not prejudice the insurer. The Court further found that the Plaintiffs did not provide sufficient counterevidence to prove the insurer was not prejudiced by the Plaintiffs’ untimely notice of the loss and untimely submission of the sworn proof of loss.
As the holding in this case indicates, failure to timely provide notice of a loss to an insurer automatically creates a presumption of prejudice to the insurer. A fact intensive analysis is needed in order to determine whether the insurer has rebutted this prejudice. This case also serves to clarify the ruling in Kroener v. Florida Insurance Guaranty Ass’ n, No. 4D09-3604 (Fla. 4th DCA June 22, 2011), which appeared to change the law.
In that case, with a fact pattern similar to Kramer, the Court held that notice of loss of more than two years and two months after the date the loss occurred was not prompt notice to the insurer and was sufficient to bar the claim. The Court, however, made no mention of the rebuttable presumption of prejudice test. Kramerspecifically states that Kroener “should not be interpreted as having deviated from the prejudice analysis” as described in Macias.
In short, as noted in the companion article discussing late notice and prejudice found in this edition, attorneys defending insurance carriers in late notice cases should strive to provide as much insurmountable evidence as possible demonstrating prejudice to their client due to the late reporting of the loss, thereby shifting the burden to the insureds and making it difficult for them to rebut the presumption of prejudice.
August 22, 2012
Property Insurance Reform Bill: A Revisit
Previously, we discussed a property reform bill moving through the legislative process. In May of 2011, the Florida Legislature passed Senate Bill 408. This Bill makes numerous changes to laws related to property insurance, primarily residential property insurance. Most notably, the new law enacts several limitation periods relating to property damage claims. The new limitation periods are as follows:
95.11 Limitations other than for the recovery of real property.
Actions other than for recovery of real property shall be commenced as follows:
(2)(e) WITHIN FIVE YEARS. — Notwithstanding paragraph (b), an action for breach of a property insurance contract, with the period running from the date of loss.
627.706 Sinkhole insurance; catastrophic ground cover collapse; definitions.
(5) Any claim, including, but not limited to, initial, supplemental, and reopened claims under an insurance policy that provides sinkhole coverage is barred unless notice of the claim was given to the insurer in accordance with the terms of the policy within 2 years after the policyholder knew or reasonably should have known about the sinkhole loss.
627.70132 Notice of windstorm or hurricane claim.
A claim, supplemental claim, or reopened claim under an insurance policy that provides property insurance, as defined in s. 624.604, for loss or damage caused by the peril of windstorm or hurricane is barred unless notice of the claim, supplemental claim, or reopened claim was given to the insurer in accordance with the terms of the policy within 3 years after the hurricane first made landfall or the windstorm caused the covered damage. For purposes of this section, the term “supplemental claim” or “reopened claim” means any additional claim for recovery from the insurer for losses from the same hurricane or windstorm which the insurer has previously adjusted pursuant to the initial claim. This section does not affect any applicable limitation on civil actions provided in s. 95.11 for claims, supplemental claims, or reopened claims timely filed under this section.
Prior to the passage of Senate Bill 408, Florida Courts routinely held a cause of action for breach of an insurance contract, namely, when the insurer denied the claim. See Passman v. State Farm Fire and Cas. Co.,779 So. 2d 323 (Fla. 2d DCA 1999). Arguably, these rulings forced insurers to respond to claims in instances where, because significant time had passed, the insurer was prejudiced in its ability to thoroughly investigate the claim. The new limitation periods will bring more certainty to the claim handling process and eliminate prejudice to insurer. Moreover, insureds, practitioners, and courts will be in a better position to address legitimate claims and weed out those that are not.
To view a complete summary of Senate Bill 408, you may visithttp://www.flsenate.gov/Committees/BillSummaries/2011/html/0408BI.
March 14, 2012
Requests for Inspection Estimates and Reports: A Matter of Timing
In Florida, litigation involving insurance contract claims usually begins with discovery and hearing requests by the plaintiff’s counsel in an attempt to obtain and analyze the carrier’s expert reports and damage estimates. Although many carriers eventually rely on these estimates and reports and introduce them into evidence at trial, the question of whether or not these types of expert documents are discoverable often comes down to a matter of timing. This article will address the analysis used by courts in resolving disputes over the discoverability of consulting expert reports and estimates, as well as the appropriate strategies to use when handling these types of expert discovery requests.
In order for an expert’s estimates and reports to fall within the work product privilege, the documents and tangible things must be prepared in anticipation of litigation or for trial. Fla.R.Civ.P. 1.280(b)(3); Anchor Nat. Financial Services, Inc. v. Smetlz, 546 So. 2d 760 (Fla. 2d DCA 1989). Although this discovery limitation is clear, its application (i.e., defining the precise moment documents have been created as a result of trial preparation) is an ambiguous concept that often forms the basis of later discovery disputes between the parties. For the most part, Florida courts have held an expansive view of what falls under the purview of documents prepared “in anticipation of trial.” For example, in National Union Fire Ins. Co. of Pittsburgh Pa. v. Florida Const., Commerce and Industry Self Insurers Fund, 720 So. 2d 535, 537 (Fla. 2d DCA 1998), the court held that, “even investigative materials are privileged if compiled in response to some event which foreseeably could be made the basis of a claim.” This view also mirrors the approach taken by the United States Supreme Court in Upjohn Company v. United States, 499 U.S. 383 (1981), wherein the Supreme Court advised that statements taken during an investigation may be privileged so long as there was a possibility that litigation might take place in the future.
Furthermore, courts have held that a party may not assert the work product privilege for documents that will later be introduced as evidence in trial. Northrup v. Acken, 865 So. 2d 1267 (Fla. 2004); Dodson v. Persell, 390 So. 2d 704 (Fla. 1980). Northrup recognized the importance of protecting a lawyer’s ability to develop strategy in private and held that the mental impressions and trial preparation of an attorney were protected and not discoverable because they constituted the work product of that lawyer. The Northrup court also clarified the timing issue by holding:
Florida litigants must make a simple and discrete decision prior to entry of a pretrial case management order by the trial court. An attorney must evaluate whether he or she intends to use evidence in his or her possession for strategy and trial preparation purposes only, which would qualify the selection of the particular items as protected product of the thought processes and mental impressions of an attorney. On the other hand, if the evidence of material is reasonably expected or intended to be disclosed to the court or jury at trial, it must be identified, disclosed, and copies provided to the adverse party in accordance with the trial court’s order and the discovery requests of the opposing party. (Id. at 1270.)
As a result, the question of whether expert reports and/or estimates are discoverable comes down to a question of timing. When faced with discovery requests for such documentation, counsel would be wise to keep in mind the theoretical moment that a report or estimate transforms from a document that is generated in anticipation of trial (and afforded the work-product protections from discovery requests) to one that is going to be cited and used as an exhibit in trial (thereby removing the shield of the work-product privilege). Because of the difficulty inherent to defining these classifications, disputes over the discoverability of expert reports and estimates will likely continue to be a point of contention between carriers and insureds involved in litigation.
February 10, 2012
Contractual Right to Appraisal
Most homeowner’s insurance contracts contain an appraisal provision wherein either party may compel the other to submit to a binding appraisal process meant to resolve a covered claim. Often, an issue arises as to whether an insurance carrier has waived its right to appraisal, which, like any other contractual right, may be waived under certain circumstances.
When analyzing whether the right to appraisal has been waived, it is important to understand that Florida courts treat the contractual right to appraisal in much the same way as the contractual right to arbitrate, and have consistently found that there is a strong public policy preference in favor of enforcing appraisal provisions. Prestige Protective Corp. v. Burns International Security Services Corp., 776 So.2d 311 (Fla. 4thDCA 2001); Marine Environmental Partners, Inc. v. Johnson, 863 So.2d 423 (Fla. 4th DCA 2003); and State Farm Fire & Casualty Co. v. Middelton, 648 So.2d 1200 (Fla. 3d DCA 1995).
In order for an insured to establish that a contractual right to appraisal has been waived it must prove: (1) the insurer’s knowledge of an existing right to appraisal; and (2) that the insurer actively participated in litigation or other acts inconsistent with the right to appraisal. Marine at 425. Furthermore, Florida courts define waiver of the contractual appraisal to appraisal as the “the voluntary and intentional relinquishment of a known right which warrants the inference of relinquishment of that right.” Raymond James Financial Services, Inc. v. Saldukas, 896 So.2d 707, 711 (Fla. 2005); and Marine Environmental Partners, Inc. v. Johnson, 863 So.2d 423 (Fla. 4th DCA 2003). This definition means that an insurer must engage in litigation or other acts that are inconsistent with the contractual appraisal right before a Florida court will find that the contractual right to appraisal has been waived. Thus, the material question for the court to consider is whether an insurer’s acts are “inconsistent with the contractual right to appraisal?”
As noted above, proving waiver of the right to appraisal is a difficult standard to meet. For example, in Wilson v. Federated, an insurer sought to compel an insured to participate in appraisal. Specifically, four months after the insured’s loss, the property insurer filed an answer to the insured’s complaint asserting the right to appraisal as an affirmative defense and also served discovery on the insured. Thirty days later, the insurer filed a motion to compel appraisal. In arguing against appraisal, the insured took the position that the insurer waived its right to appraisal by engaging in litigation. The Court, however, rejected the insured’s argument, and held that the trial court did not abuse its discretion in ordering the parties to appraisal. Wilson v. Federated National Insurance Company, 969 So.2d 1133 (Fla. 2nd DCA 2007). The court reasoned that engaging in minimal discovery was not sufficient enough to support a finding that the insurer had acted inconsistently with its contractual right to appraisal.
Similarly, in Chimerakis v. Sentry, the Court enforced a contractual appraisal provision even though the insurer failed to respond to the insured’s request for appraisal within twenty days (the policy required that the insurer appoint its appraiser within twenty days of the insured requesting appraisal). The Court held: “an action to compel appraisal by an insured under a homeowner’s insurance policy does not accrue until the homeowner’s policy conditions precedent have been performed or waived, and appraisal is then refused.” Chimerakis v. Sentry Insurance Mutual Company, 804 So.2d 476 (Fla. 3d DCA 2001).
These cases illustrate just how protected the contractual right of appraisal is, and suggest that so long as a carrier does not reject an appraisal demand, or otherwise act in a manner inconsistent with appraisal, there should not be a finding that the right to appraisal has been waived. These cases also suggest that an insurer must preserve its contractual right to appraisal by asserting that right as an affirmative defense.
While there is a strong policy preference in favor of appraisal provisions, there are limited situations when appraisal may be waived. Specifically, Florida courts have held that if an insurer does not comply with Fla. Stat. § 627.7015(7) its right to appraisal will be waived.
Fla. Stat. § 627.7015(7) provides: If the insurer fails to notify a first-party claimant of its right to participate in the mediation program under this section or if the insurer requests the mediation, and the mediation results are rejected by either party, the insured shall not be required to submit to or participate in any contractual loss appraisal process of the property loss damage as a precondition to legal action for breach of contract against the insurer for its failure to pay the policyholder’s claims covered by the policy. In QBE Insurance Corp v. Dome, the Southern District held that the insurer waived its contractual right to appraisal by failing to comply with the mediation notification provisions of Fla. Stat. § 627.7015. QBE Insurance Corp v. Dome Condominium Association, Inc. 577 F.Supp.2d 1256 (S.D. Fla. 2008)
Obviously, each of the factual scenarios wherein an insured may successfully claim that its insurer has waived the contractual right to appraisal have not been addressed; however, the leading cases in Florida make clear that courts are reluctant to find that an insurer has waived its contractual right to appraisal, and will certainly require clear acts that the insurer rejected appraisal or acted in a manner that is inconsistent with that contractual provision.
January 5, 2012
Proposals for Settlement
Plaintiffs in first party property cases have increasingly filed actions for Declaratory Relief as a strategic means to avoid the benefits offered Defendants by Proposals for Settlement. As such, the question of many insurers has been whether or not to file a Proposal of Settlement. Under Florida Statute §768.79, an award of attorney’s fees and costs is authorized when a defendant files an offer of judgment that is not accepted by a Plaintiff and the final judgment is of no liability or an amount at least twenty-five percent (25%) less than the offer. Id.
Plaintiffs contend that an action for Declaratory Relief automatically invalidates a Proposal for Settlement, whether the complaint is a single-count action or also includes a Breach of Contract. Plaintiffs primarily rely upon the decisions of Century Sur. Co. v. de Moraes, 998 So. 2d 662 (Fla. 4th DCA 2009), and National Indemnity Company of the South v. Consolidated Insurance Services, 778 So. 2d 404 (Fla. 4th DCA 2001). Despite Plaintiffs contentions, the latter does not support the argument that a Proposal for Settlement is invalid in an action for Declaratory Relief, as the issue in Century Sur. Co. was whether the insurance broker was the apparent agent for the insurer so that the acceptance of a premium bound the company to cover the insured. Even further, the court in National cited its earlier decision in Nelson v. Marine Group of Palm Beach, Inc., 611 So. 2d 998 (Fla. 4th DCA 1996), explaining that an action of declaratory relief can support entitlement to attorneys’ fees and costs pursuant to the judgment statute when the real issue involves whether the action is for damages.
Proposals for Settlement are not invalidated merely on the fact that they are filed in connection with an action for Declaratory Relief. It is well-founded Florida law that when determining whether or not a Proposal for Settlement is enforceable the issue “is whether the lawsuit was an “action for damages.”” DiPompeo Const. Corp. v. Kimmel & Associates, Inc., 916 So.2d 17 (Fla. 4th DCA 2005). Coast to Coast Real Estate, Inc. v. Waterfront Properties, Inc., 668 So.2d 686 (Fla. 4th DCA 1996); Nelson v. Marine Group of Plam Beach, Inc., 677 So.2d 998 (Fla. 4th DCA 1996). V.I.P. Real Estate Corp. v. Fla. Executive Realty Mgmt. Corp., 650 So.2d 199, 201 (Fla. 4th DCA 1995); Burtman v. Porchester, 680 So.2d 631, 632 (Fla. 4th DCA 1996). Therefore, careful attention must be paid to the language of the complaint as it will often contain language similar to a breach of contract and in many cases actually ask the Court to find the insurer has violated or breached the policy in some manner, that damages are in excess of the jurisdictional limit, and prey for attorneys’ fees and costs. Language such as this offers substantial support for an Insurer’s argument that the action is one for damages.
Another method Plaintiffs have used increasingly to avoid the teeth of Proposals for Settlement is filing two-part complaints seeking breach of contract and declaratory relief. Plaintiffs erroneously contends that under Florida law the offer of judgment statute is never permissible if equitable relief is sought because the statute must be strictly construed and the offer of judgment statute does not apply when there is a claim for both monetary and non-monetary remedies. Plaintiffs often rely on the case of Palm Beach Polo, Inc. v. Equestrian Club Estates Property Owners Association, Inc., 22 So.3d 140 (Fla. 4th DCA 2009), in which the court invalidated a proposal for settlement filed in connection with a two-count complaint for breach of contract and injunctive relief. As monetary relief would not resolve the count for injunctive relief, and the proposal for settlement did not address how the count of injunctive relief would be resolved, the court held the proposal for settlement was unenforceable. However, Palm Beach Polo, Inc., is distinguishable from most first party property cases as monetary relief would not satisfy all the claims Palm Beach Polo, Inc., as compared to a first party property case where monetary relief will resolve the matter. As stated in Palm Beach Polo, Inc., “[t]he purposes of 768.79 include the early termination of litigation.” Id. at 145.
November 7, 2011
Appellate Decisions Addressing Appraisal
Issues surrounding appraisal continue to be a hot topic in Florida’s Appellate Courts. Florida courts have recently upheld traditional case law recognizing that compliance with a property insurance policy’s post-loss conditions is a condition precedent to the right of an insured to compel appraisal. Accordingly, decisions have held that, where there are factual issues regarding whether an insured has complied with post-loss policy conditions, the trial court must conduct an evidentiary hearing to determine if post loss conditions have been met by the insured. See, Citizens Property Insurance v. Maytin, 51 So.3d 591 (Fla. 3d DCA 2010) (property insurer is entitled to evidentiary hearing to determine whether insured complied with post-loss conditions of the policy before being compelled to participate in appraisal of insured’s losses) and Citizens Property Insurance Corp. v. Gutierrez, 2011 WL 710148 (Fla. 3d DCA 2011) (trial court erred in granting motion to compel appraisal and in failing to conduct evidentiary hearing concerning insureds’ compliance with policy’s post-loss conditions).
In addressing an insured’s duty to comply with post-loss conditions, the Third District Court of Appeal also recently upheld its position that the procedure utilized to resolve issues pertaining to coverage, as well as a determination of the scope of property damage via appraisal, should be left to the discretion of the trial court. In its recent decision the Third District noted that, while generally it would appear that the issue of coverage for a loss should be resolved by trial court before the amount of the covered loss is determined by appraisal, “putting the issue of coverage first before [appraisal] in every case might have adverse effects on the expeditious, out of court disposition of litigation which is the reason [appraisal] is a favored remedy.” Thus, the Third District Court of Appeal has left it to the trial court’s discretion to determine the order in which the issues of damages and coverage are to be determined. In undertaking its analysis, the trial court should determine whether or not to allow the appraisal and coverage processes to move forward on dual track basis. See, Citizens Property Insurance Corp. v. Mango Hill Condominium Association, 2011 WL 613518 (Fla. 3d DCA 2011).
The Mango Hill decision stands in contrast to the coverage versus appraisal procedure enunciated by the Fourth District Court of Appeal. In October of 2010 the Fourth District issued its decision in Citizens Property Insurance Corp. v. Michigan Condominium Association, 46 So.3d 177 (Fla. 4th DCA 2010). In Michigan Condominium, an insured brought an action against his property insurer seeking, among other things, an appraisal of damages. The trial court entered an order granting the insured’s motion to compel appraisal before the trial court resolved the parties’ underlying coverage dispute. The insurer appealed and argued at the appellate level that the trial court order conflicted with the Fourth District’s decision in Sunshine State Insurance Co. v. Corridori, 28 So.3d 129, 131 (Fla. 4th DCA 2010) holding that a trial court must resolve all underlying coverage disputes prior to ordering an appraisal. The Fourth District agreed and reiterated its position that a finding of liability necessarily precedes a determination of damages. The Appellate Court acknowledged, but respectfully disagreed with, the recognition of a dual track approach by the Third District Court of Appeal and certified conflict with the Third District’s position. Id. at 178. Insurers and practitioners who are addressing coverage and appraisal issues in the Third and Fourth districts should be aware of these decisions.
As noted in a companion article found in this Newsletter, pre-judgment interest can be a significant component of recoverable damages once an appraisal award has been entered, and, therefore, a proper determination of pre-judgment interest should be a paramount concern for an insurer. In Jugo v. American Security Insurance Company, 2011 WL 710188 (Fla. 3d DCA 2011), the Third District Court of Appeal held that the determination of whether pre-judgment interest was due on a supplemental claim for property damage turned upon whether the insured contested liability. In Jugo, the insured suffered a November 2006 fire loss at his home and filed a claim under his residential homeowner’s policy. After numerous inspections, in April 2007 the insurer made a payment on the claim in the amount of $46,995.56. The insured subsequently asserted that the amount was inadequate and submitted a supplemental claim. The insurer reviewed and denied the supplemental claim on the ground that the property had been gutted since the time the initial claim was investigated. The insured filed suit against its insurer in June of 2008, and, thereafter, the insurer invoked the policy’s appraisal provision. At appraisal, the insured was awarded an additional $71, 307.44 that was paid by the insurer within thirty days. The insured then filed a motion for pre-judgment interest as measured from the date of the loss rather than the date of the award in 2009. The trial court denied the insured’s motion and an appeal ensued.
In addressing the interest issue, The Third District Court of Appeal made the distinction between those claims where an insurer denies coverage from the outset maintaining that a loss is excluded under the policy and claims for which coverage is promptly admitted. According to the Third District, “in the absence of some contract provision or statute to the contrary-and none is apparent on this record-the insured is not entitled to pre-judgment interest on the supplemental amount of the appraisal award as computed from the date of the insured’s loss.” Id. Thus, it is important for insurers and practitioners to be aware that, where coverage has been denied and appraisal is later invoked and an award entered, an insurer can be required to pay pre-judgment interest from the date of loss.
For copies of any of the decisions cited in this article or for further discussion please feel free to contact the attorneys at DLD Lawyers.
August 6, 2011
Shielding Senior Officers From Depositions
This article will examine the case of General Star Indemnity Company vs. Atlantic Hospitality of Florida, LLC, 57 So.3d 238 (3rd DCA 2011) and how its ultimate outcome could shape the discovery process in regard to the depositions of senior officers. Although the case is currently pending review by the Supreme Court of Florida, the decision of the Third District Court of Appeal will be analyzed for the purposes of this article, since it is binding on all future decisions in the Eleventh Circuit of Miami – Dade County.
In General Star vs. Atlantic Hospitality, the petitioner, General Star, sought a writ of certiorari to quash two discovery orders compelling two senior officers of General Star to appear for depositions in a windstorm insurance coverage dispute. In opposition, General Star filed an affidavit stating that the senior officers had no role in the investigation or adjustment of Atlantic Hospitality’s claims. The Court found for General Star, since General Star had shown that its President is a manager, not an employee or adjuster, with personal knowledge of the dispute in the original lawsuit. The Court further concluded that Atlantic Hospitality had not shown that the President’s deposition was reasonably “calculated to lead to the discovery of admissible evidence.” The court held that trial and appellate counsel for the insured “are too sophisticated and experienced to believe that a pre-printed signature on a standard form policy would subject the Connecticut-based president of the insurer to a deposition.”
Thus, it should be the goal of a competent insurance defense counsel to keep discovery as “just, speedy and inexpensive” as possible. That goal cannot be obtained if senior officers of insurance carriers are expected to participate in depositions simply because their signature appears on boiler – plate, pre – printed, insurance policies when those depositions ought to be handled by other employees or adjusters with personal knowledge of the factual dispute.
The Court took note of, but did not adopt, the “apex doctrine.” This doctrine has been applied in many cases regarding the depositions of senior state governmental officers. General Star urged the adoption of this doctrine, which would require Atlantic Hospitality to depose lower level employees involved in the insurance dispute before noticing any depositions of senior managers at the “apex” of the company. Although adoption of this doctrine seems to alleviate General Star’s complaint against Atlantic Hospitality, the 4th District Court of Appeals held that a district court of appeal cannot adopt a doctrine which “arguably conflicts with discovery rules.” Only the Florida Supreme Court has this authority, and Florida’s discovery rules do not contain a requirement that a party must show that a high level officer has special knowledge before that officer can be deposed.
At first glance it seems odd that a discovery issue that appears to be so simple went so far in the trial system, yet under further investigation it is not just the complaint that is at issue, but also factors such as precedent and the limitations of lower courts. The District Court would set a dangerous precedent if it allowed Atlantic Hospitality to depose General Star’s senior officers when they had no real knowledge of the dispute in question. Much of the Court’s time and both of the parties’ time would be wasted, and problems most definitely would arise in which senior officers would not be able to manage their companies for having to attend depositions that are frankly unnecessary and harassing.
June 15, 2011
Property Insurance Reform Bill
The Florida Senate’s Budget Committee cleared this year’s Florida property insurance reform bill, allowing for it to continue through the legislative process. The bill has provisions that deal with Citizens Property Insurance Corp. as well as sinkhole claims, storm claims filing deadlines, public adjusters, surplus requirements and mitigation discounts. However, particular provisions that were central to the insurance industry’s support of the bill were changed on a narrow 7-5 vote.
Originally the bill, known as SB 408, contained provisions that would change the way claims for damages to homes would be paid; allowing payment for initial costs with the remainder to be paid when the homeowner provides a contract for repairs or replacement.
However, State Sen. Mike Fasano, R-New Port Richey, successfully attached an amendment that keeps the present method whereby all costs are to be paid up front. This change to the bill was made much to the dismay of the insurance industry that is strongly behind the bill’s original provisions dealing with replacement-cost methodology. The industry takes the position that homeowners are pocketing the money instead of making repairs to their property.
Sen. Fasano was also successful in defeating another industry-backed provision by repealing file-and use. The bill’s sponsor, Sen. Garrett Richter, R-Naples had pushed through the amendment that would require all rate filings that would increase premiums to go through the file and use process and get permission from the Office of Insurance Regulation. Sen. Richter believes the amendment necessary to correct problems expeditiously if a company has deficient rates. The rest of the bill, however, passed the committee on a 12-8 vote keeping intact another major goal of the industry: doing away with the current requirement that insurers provide sinkhole coverage.
Sen. Richter believes the Fasano amendments will not survive the bill’s eventual final version. Fasano himself expressed doubts his changes would remain when the bill is taken up for a final vote.
Richter said SB 408 is necessary so Florida’s insurance market can stabilize which in turn would attract more companies to Florida. Presently, companies are leaving the state even though it has not been impacted by any catastrophic storms in the last five years.
April 25, 2011
Pre-Judgment Interest & Appraisal
Insureds often argue that pre-judgment interest is an element of their recoverable damages once an appraisal award has been entered in their favor. Their argument is premised upon longstanding Florida law that “when a verdict liquidates damages on a plaintiff’s out-of-pocket, pecuniary losses, plaintiff is entitled, as a matter of law, to prejudgment interest at the statutory rate from the date of that loss.” Argonaut Ins. Co. v. May Plumbing Co., 474 So.2d 212, 215 (Fla.1985).
Argonaut, however, involved a subrogation claim made by an insurance carrier against a plumbing company. The carrier argued the plumbing company negligently caused a fire, which resulted in damages to the carrier’s insured. After judgment was entered against the plumbing company and in the carrier’s favor, the court awarded the carrier pre-judgment interest from the date of the loss. The court held, “when a verdict liquidates damages on a plaintiff’s out-of-pocket, pecuniary losses, plaintiff is entitled, as a matter of law, to prejudgment interest at the statutory rate from the date of that loss.” Argonaut at 215.
Insureds have relied upon Argonaut in arguing that an appraisal award is akin to a verdict that fixes damages as of a date certain (the date of the loss); and therefore, the insured should be entitled to recover pre-judgment interest from the date of the loss. Recent decisions have made clear that this argument is misplaced.
Specifically, in Ellie’s 50’s Diner, the Fourth District Court of Appeals held that in an appraisal context, it is the terms of the policy that decide when payment is due or, in other words, when damages have become liquidated. Ellie’s 50’s Diner, Inc. v. Citizens Property Insurance Corporation, 2011 WL 710149 (Fla. 4th DCA 2011). The Third District Court of Appeals has similarly held that in an appraisal context, pre-judgment interest is due from the date payment is due pursuant to the terms of the policy. North Pointe Ins. Co. v. Tomas, 16 So.3d 977 (Fla. 3d DCA 2009); and Sunshine State Ins. Co. v. Davide, 15 So.3d 749 (Fla. 3d DCA 2009).
Most insurance policies provide that a carrier has 30 or 60 days after the entry of an appraisal award to make payment, and carriers rely on these contractual terms in support of the position that pre-judgment interest does not accrue until after the expiration of the deadline to make payment according to the terms policy. The decisions in North Pointe and Sunshine State clearly support that argument.
The decisions in North Pointe and Sunshine State also make clear that if a carrier initially denies coverage and then agrees to go to appraisal, the carrier has waived any payment provision contained in the policy and thus, the proper calculation of prejudgment interest is from the date of the loss. North Pointe at 978.
In conclusion, following the entry of an appraisal award, so long as coverage has not been denied, the policy terms govern when payment is due and when pre-judgment interest begins to accrue. If, however, coverage was denied and appraisal is later agreed to, a carrier will be required to pay pre-judgment interest from the date of the loss.
April 11, 2011