Flood Exclusion Upheld by Fla. High Court

Florida's law requiring full payment when a home is a total loss does not apply when part of the destruction involves flood damage excluded by policy language, the state's highest court decided yesterday.

The Supreme Court in its unanimous decision sent the case back to the trial court level to determine the appropriate payments for the damage.

At issue is a case brought by Eugene Cox, whose family home in the Florida Panhandle was a total loss in 2004 after damage from Hurricane Ivan winds and flooding. The Coxes have sought the $65,000 policy limit plus $52,000 for personal property and other coverages.

Florida Farm Bureau, the family's insurers has said it would pay $11,583 for wind damage and $3,227 for damage to other structures and $2,000 in living expenses.

According to the court papers, the Coxes initially received a trial court ruling in their favor based on a 2004 appeals court interpretation of the state's Valued Policy Law (VPL), which requires the face value of a policy be paid in a case of total loss.

The 2004 decision, which the Supreme Court ruled was wrong, found that VPL applies as long as a covered peril such as wind causes some of the loss.

In its opinion, the court noted that the legislature in 2005 amended the law to say that when a covered peril and noncovered peril in a policy are involved the insurer's liability "shall be limited to the amount of the loss caused by the covered peril."

Florida Farm Bureau, the court said has not challenged the face value of the policy, but asserts it is not liable for total loss of the home because it only the covered wind damage and the remaining loss was caused by flood damage and storm surge, "which were explicitly excluded perils."

The VPL, said the court, does not mention causation and does not "establish any requirement for an insurer to pay for excluded or noncovered perils."

Meanwhile, at the federal level, a decision is still pending on a request by plaintiff attorneys asking the 5th U.S. Circuit Court of Appeals in New Orleans to hold an en banc rehearing by all 17 judges to reconsider a VPL decision by one of the court's three judge panels. The panel found that Louisiana's VPL law did not provide for a policy face value payment when there is an excluded peril involved.

The Florida decision was hailed by insurers' organizations including the American Insurance Association, which had joined other insurance industry trade groups in submitting an amicus brief urging the Supreme Court it to rule as it did.

Eric Goldberg, AIA associate general counsel, said, "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."