Fla. High Court Affirms Policies Cover Only Losses from Covered Perils

September 21, 2007

Florida’s valued policy law means property insurance companies are only responsible for actual damages caused by perils that are specifically cited in the policy, the Florida Supreme Court has affirmed in a key decision.

Plaintiffs in the case, who had coverage for damage caused by wind but not for flood, had argued that they were entitled to full value even though the majority of the damage to their home was caused by flood.

The ruling, which favors insurers, only applies retrospectively but could still affect hundreds of lawsuits dating back to 2004 when Hurricane Ivan struck.

The ruling in Florida Farm Bureau Casualty v. Cox by the state Supreme Court upset two lower court opinions. It overturned a First District Court of Appeal decision that had said that the valued policy law mandated an insurer pay the value of the property described in a policy even if an uncovered peril caused the total loss. It also disapproved a 2004 decision in another case, Mierzwa v. Florida Windstorm Underwriting Association, which required an insurer to pay a policy’s full limits if any portion of a total loss was caused by a covered peril. The appeals court in Cox had relied upon the Mierzwa decision.

The question before the court was whether Florida’s valued policy law (VPL) requires an insurance carrier to pay the face amount of the policy to an owner of a building deemed a total loss when the building is damaged in part by a covered peril — in this case, wind — but is significantly damaged by an excluded peril, flood.

The 2004 version of the VPL, which was at issue in this case, says that “[i]n the event of the total loss of any building… located in this state and insured by any insurer as to a covered peril, in the absence of any change increasing the risk without the insurer’s consent and in the absence of fraudulent or criminal fault on the part of the insured or one acting in her or his behalf, the insurer’s liability, if any, under the policy for such total loss shall be in the amount of money for which such property was so insured as specified in the policy and for which a premium has been charged and paid.”

On Sept. 16, 2004, Hurricane Ivan struck the Florida Panhandle. The Coxes’ home suffered both wind and flood damage and was assessed as a total loss. The Coxes had a homeowners’ policy valued at $65,000 with Florida Farm Bureau Casualty Insurance Co., which provided protection from losses caused by wind damage but did not include losses based on flood damage. The Coxes did not carry flood insurance on the property.

The Coxes made a policy limits demand of $65,000, plus additional coverage for personal property and other additional provisions for a total of $117,000.

Florida Farm Bureau claimed that the wind caused $11,583.93 of the damage to the home, the storm caused an additional $3,227.14 worth of damage to other structures, and the Coxes were entitled to $2000 for living expenses.

After tendering all amounts it claimed that it owed to the Coxes under the policy, Florida Farm Bureau filed a complaint to seek declaratory relief, asserting that the loss was caused primarily by flooding. The Coxes counterclaimed for breach of contract and a violation of the VPL.

The trial court granted the Coxes’ motion, finding that “the holding in Mierzwa is controlling and binding” and that under Mierzwa’s interpretation of the VPL, the VPL does not require that a covered peril be the peril causing the entire loss so long as a covered peril caused some of the loss.

Florida Farm Bureau appealed to the First District Court of Appeal, which also concluded that the VPL required the insurer to pay the value set forth in the policy even if a peril covered by the policy did not cause the total loss of the property.

Farm Bureau then appealed to the state Supreme Court, which has now rejected the lower courts’ interpretation of the VPL, finding that they misconstrued the plain language and missed certain elements of the VPL.

“Contrary to the conclusion of the district court, we do not find that the plain language of the statute intends that if a covered peril causes part of a total loss, that the insurer is mandated to pay for the total loss,” Justice Charles T. Wells wrote for the high court.

“Based upon this plain language of the statute, we conclude that the statute intends that an insurer is liable for a loss by a peril covered under the policy for which a premium has been paid,” the decision further states.

The high court, noting that the lower courts relied upon the Mierzwa decision, also overturned that 2004 ruling, claiming it misapplied the VPL and ignored some of its provisions.

The decision only applies retrospectively because the VPL has been changed since 2004. In 2005, after Mierzwa was released, the Legislature amended the VPL, expressly providing that when a loss is caused in part by a covered peril and in part by a non-covered peril, the insurer’s liability under this section shall be limited to the amount of the loss caused by the covered peril.

Even retrospectively, however, the ruling will have an impact.

The state-backed Citizens Property Insurance said it has approximately 200 lawsuits affected by the ruling.

Citizens’ General Counsel Perry Cone said the decision should end most litigation stemming from storm surge damage that occurred in 2004.

He said Citizens believes it has paid all wind damages to the policyholders involved in the litigation. Plaintiffs has sought to require Citizens to pay for flood damages. Citizens argued state law did not require such payments.

The American Insurance Association, which had joined other industry trade groups in submitting an amicus brief to the Supreme Court urging it to rule as it did, praised the unanimous decision.

“This decision confirms that the valued policy law is a liquidated damages statute, and not a statute that grants coverage where none exists under the insurance contract,” said Eric Goldberg, AIA associate general counsel.

“We are pleased that the Supreme Court upheld the clear reading of the law and contracts,” said William Stander, assistant vice president and regional manager, Property Casualty Insurers of America. “The Legislature only fixed something the courts should have gotten right in the first place. Now the court has confirmed what we’ve known to be true from the beginning.”

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