Florida Court OK with Insurer Not Following Hurricane Deductible Notice to a ‘T’

The failure to strictly follow the requirements for providing policyholders with information about their hurricane deductible does not mean the deductible is unenforceable, Florida’s high court has ruled.

The Florida Supreme Court recently issued the ruling in a case [QBE Insurance Corp v. Chalfonte Condominium Association Inc., SC09-441 (FL 2012)] in which Chalfonte was awarded $8.2 million in federal court based on several points including that QBE failed to follow the state’s hurricane disclosure requirement. That amount was later reduced by the judge to $7.2 million, partially because the judge disagreed with the jury’s finding on the deductible issue.

By law, homeowners and property insurance policies must contain the warning, “This policy contains a separate deductible for hurricane losses, which may result in high-out-pocket expenses to you.”

Lawmakers specified the warning must be printed in bold face with an 18-point font size.

In the case of QBE, the insurer used the term “windstorm” instead of “hurricane” and several words were printed in a slightly smaller type.

However, the court ruled that the legislature did not intend to penalize insurers for failing to strictly follow the disclosure’s requirements and since there is no legislative penalty for failure to do so, a policyholder cannot bring suit against the insurer.

QBE attorney Raoul Cantero said had the ruling gone the other way, it could have exposed insurers to a slate of lawsuits in even minor instances where they inadvertently didn’t follow the law.

“This decision has wide implications for insurers underwriting insurance in Florida,” said Contero. “Had the court ruled otherwise, any policy in Florida would have been voided, resulting in an incalculable loss to insurance companies.”

Authored by Justice Peggy Quince, the opinion notes that in the section of the law in question (Chapter 627.701, Florida Statues), the legislature specifically said its intent was to “encourage higher hurricane deductibles as a means of increasing the effective capacity of the hurricane market.”

As a result, the court ruled the deductible notice was merely a “by-product” to inform policyholders. Further, the court found that when such a notice “merely makes provisions to secure the safety or welfare of the public it will not be construed as establishing civil liability.”

Daniel Rosenbaum, representing Chalfonte, disagreed with the ruling.

“It doesn’t make sense that if you mandate certain wording that the policyholder has no rights when the insurer doesn’t [comply],” said Rosenbaum. “The court shouldn’t be worried about economics; it should be focused on contracts.”

The court cited another case [AIU Insurance Co. v. Block Marina Investments Inc. 544 So.2d. 998 (FL. 1989)], where the court refused to void a surplus lines commercial general liability policy endorsement for failing to fully follow the laws governing the approval of policies and forms. “The legislature did not intend to give an insured coverage which is expressly excluded for the policy simply because an insurer fails to comply with the terms of the aforementioned statute,” the court wrote.

The court’s ruling, however, does leave one question unanswered. The judges noted that in the Chalfonte case, QBE did substantially comply with the disclosure requirements. However, how would the court react if the insurer failed to follow the disclosure requirements at all? Would the court maintain its position that absent a legislative penalty there is no recourse for policyholders?

“That is a good question,” said Contero, who served as a Florida Supreme Court Justice between 2002 and 2008. “We don’t know what the court would do about that.”

What the court would do is one thing, what insurers may do is another, said Rosenbaum. “If it is not going to be enforced, why would it be followed?” he said.

The disclosure requirement was not the only question facing the court in the Chalfonte Condominium case. The court also rejected on a technical basis Chalfonte’s claim that QBE failed to act in good faith by failing to investigate and assess its claim within a reasonable period of time.