Fla. high court affirms insurers need pay for covered perils only

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 insurers hailed, 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 covered wind damage but did not cover 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 in 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, Florida Farm Bureau sought 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 was controlling and the VPL does not require that a covered peril be the peril causing the entire loss.

Florida Farm Bureau appealed to the First District Court of Appeal, which upheld the trial court. Farm Bureau then appealed to the state Supreme Court, which has now ruled that the lower courts 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.

Instead, Wells wrote, “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 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 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 an insurer’s liability is 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 involved in the litigation. Plaintiffs had 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.