The Florida Supreme Court overturned the Fifth District Court of Appeal and concluded that consequential damages — such as loss of use and lost rental income — are not available in a breach of insurance contract case when the terms and conditions of the insurance policy do not expressly cover such damages. (Photo: Shutterstock)
The Florida Supreme Court relieved an insurance company from damages allegedly caused by its failure to investigate and pay a legitimate insurance claim timely. The court ruled that the property owner in Citizens Property Insurance v. Manor House (January 21, 2021) was not entitled to recover lost rent from its insurance carrier when the owner needed the insurance money to repair the building and the insurance carrier failed to pay the claim for more than five years.
A win for insurers
Manor House obtained property insurance through Citizens, a governmental entity, for nine apartment buildings. The apartment buildings incurred significant damage from Hurricane Frances in September 2004. Following an inspection, Citizens issued payments totaling $1,927,747. Manor House requested that Citizens reopen the claim and sought damages exceeding $10,000,000.
In 2006, Citizens re-adjusted the claim and informally estimated the "replacement cost value" of the loss at $6,410,456. In August 2007, Manor House filed suit demanding payment of the undisputed claim amount and requested an appraisal of the remaining portion of its claim. The trial court ordered the parties to participate in an appraisal process, and in 2009, Manor House was awarded more than $8,000,000. In January 2010, more than five years after the damage and initial insurance claim, Citizens paid Manor House an additional $5,502,022 to complete payment on the property damage claim.
Manor House filed another lawsuit against Citizens for breach of contract and fraud. Manor House alleged that Citizens failed to properly adjust the loss, pay the undisputed amount after estimates, honor Manor House's demand for appraisal, provide Manor House with documents it needed to adjust the loss, and timely pay the appraisal award. Manor House also sought to recover lost rental income due to Citizens' procrastination in adjusting and paying the Manor House claims.
The trial court ruled in favor of Citizens on the basis that the insurance contract did not provide coverage for lost rental income. On appeal, the Fifth District Court of Appeal reversed the trial court decision and followed the more general proposition that 'the injured party in a breach of contract action is entitled to recover monetary damages that will put it in the same position it would have been had the other party not breached the contract.'
Latest ruling overturns Appeals court verdict
The Florida Supreme Court overturned the Fifth District Court of Appeal and concluded that consequential damages — such as loss of use and lost rental income — are not available in a breach of insurance contract case when the terms and conditions of the insurance policy do not expressly cover such damages.
The Florida Supreme Court noted that consequential damages may be available against an insurance carrier in a separate bad faith action; but, at the same time, the Florida Supreme Court acknowledged that Manor House could not pursue a bad faith action against Citizens because Citizens is considered a governmental entity and immune from liability for bad faith claims.
The decision is a difficult one for policyholders and a victory for the insurance industry. The property owner claimed that it lost rental income because it was unable to complete necessary repairs during the five-year period that the insurance claim remained pending. Despite the insurance company's alleged breach of the insurance policy and failure to timely investigate and pay the claim, the Florida Supreme Court limited the property owner's claims to damages expressly covered by the insurance policy.
And, the Court barred the property owner from recovering rental income allegedly lost while the owner was unable to make necessary repairs because the insurance company refused to investigate and pay the claim timely. Adding insult to injury, Manor House was not able to pursue a bad faith claim against Citizens to recover its lost rent because Citizens is not a private insurance carrier. Instead, Manor House had to absorb these damages.
Precedent set for property owners
So what does this mean for Florida property owners and insured policyholders, and how can you try to avoid the unfortunate situation of Manor House? Policyholders oftentimes lack the financial resources to repair unexpected property damage immediately and typically need the insurance proceeds to do so. After having sustained unexpected property damage, it is imperative that insurance carriers timely adjust and pay the claim. At the same time, insurance companies have the right to investigate the claim to determine what is owed adequately. Timely resolution to a claim starts with good claim preparation by the policyholder.
The insured policyholder should prepare and present its claim in an organized manner, and in compliance with the insurance policy. It is important to understand what the insurance policy covers and how to make a claim. Insurance policies state what types of losses and damages are covered under the policy.
Best practices for insureds
Knowing what is or is not covered is important to recover all losses and damages covered under the policy fully, and at the same time, not burdening the insurance company with claims and documentation that are not covered under the policy. Claims for uncovered loss and damages will likely delay the resolution of the remaining claim.
Insurance policies also include specific duties and conditions in the event of a claim to recover under the policy. Policies require insured policyholders to submit information such as a sworn proof of loss and backup invoices and other claim documentation, participate in an examination under oath, and otherwise cooperate with the insurance carrier in its investigation.
It is critical to understand and follow the required conditions as promptly as possible to expedite the adjustment and payment of the claim. If the claim has been timely and properly submitted and you are continuing to incur damages because the insurance company is unreasonably delaying payment, it is important to consult with a lawyer to understand your rights and determine how to protect yourself and your property best.
Joseph R. Young is a partner in the Fort Lauderdale, Fla., office of Smith, Currie & Hancock. He is board-certified in construction law by the Florida Bar. Young concentrates his practice on all aspects of the construction industry, including the representation of general contractors, construction managers, subcontractors, material suppliers, design professionals, sureties and owners.
© Touchpoint Markets, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.