The Florida Supreme Court has a 14-year lawsuit against Citizens Property Insurance Corp. settled in favor of the insurer in a judgment that was expected but still has far-reaching implications for the state property market.
The court made the unanimous decision last week Citizens Property Insurance Corp. versus Manor House, LLC.
The case involved a first party breach of contract claim in which the insured, Manor House, sought to recover from Citizens extra-contractual, consequential damages for lost rental income totaling approximately $ 2.5 million.
The issue in the case, which originated in 2007, was whether Florida law allows insured parties to recover non-contractual consequential damages in a first party breach of an insurance contract by an insured against his insurer.
Citizens called the ruling "significant" and said it will protect policyholders.
"Citizens are delighted with this highly anticipated Florida Supreme Court ruling," said Michael Peltier, citizen spokesman. "The unanimous opinion benefits policyholders who would have been on the hook for higher premiums had the Supreme Court not reviewed this case and made this decision."
Manor House filed a claim with Citizens for nine apartment buildings damaged in 2004 by Hurricane Frances, which later paid Citizens more than $ 1.9 million after inspection. Two years later, Manor House Citizens' public expert asked to reopen the claim and then filed a new $ 10 million claim.
Citizens made additional payments in September 2006 totaling $ 345,192 and later informally estimated the true present value of the loss at nearly $ 5.5 million and the replacement value of the loss at $ 6.4 million. Meanwhile, Manor House's public expert estimated the replacement value to be just over $ 10 million.
In March 2007, Manor House's new owner and litigation agent made an effort to resolve the costs of the lawsuit by asking citizens to declare the & # 39; undisputed & # 39; amount of $ 6.4 million – the expert in the field's informal estimate of replacement costs – and demanded a valuation.
Manor House filed a lawsuit later that year for the prompt payment of what it claimed was an undisputed $ 6.4 million, asking the court to compel citizens to participate in review procedures set out in the policy. In 2009, the court demanded that the parties continue with the appraisal process leading the appraisal panel to award Manor House nearly $ 8.7 million in replacement value and more than $ 8.3 million in actual present value. Citizens later paid an additional $ 5.5 million to Manor House in 2010.
Manor House later sued Burgers for breach of contract and fraud, saying Burgers did not correct the loss, failed to pay the undisputed amount after estimates, respected their valuation requirement, failed to provide documents necessary to correct the loss and the award assessment.
Manor House claimed extra-contractual damages in connection with rental income that the court said had been lost because of the delays in repairing the complex due to "procrastination of citizens in adjusting and paying for the Manor House's claims," the court said. documents.
The court then granted the citizen's motion for a partial summary judgment regarding the breach of contract claim for rental income, saying "nothing in the insurance contract provides cover for lost rent" and "no legal coverage is sought" for the damages Manor House sought .
Fifth district regulation
Manor House appealed the court's motion preventing her from filing a claim for non-contractual consequential damages and the Fifth District reversed the court's decision. The Fifth District alleges that the court had ignored a blanket proposal that an injured party should be entitled to monetary damages that would put it in the same position as if the contract had not been breached by another party.
“In issuing summary judgment, the court denied Manor House the opportunity to prove whether the parties considered that Manor House, an apartment complex, would suffer consequential damages in the form of foregone rental income if the citizen's contractual obligations were to adjust in a timely manner. and pay. damage covered, which in this case would have resulted in a significant delay in completing repairs so that units could be re-hired, ”the Fifth District advises.
It further noted that while Citizens are immune to claims of bad faith because it is a government entity, the "consequential damages that Manor House pursues is based entirely on breach of contract, which does not require any claim or evidence that the citizens acted in bad faith" . It concluded that Burgers were in fact not legally immune to that aspect of Manor House's claim.
Florida Supreme Court weighs in
The Florida Supreme Court quashed the Fifth District's finding, saying that non-contractual consequential damages are not available in a first-party breach of the insurance contract because “the contractual amount due to the insured is the amount due under the express terms. . of the policy. "
While non-contractual damages are available in a separate bad faith lawsuit, it cannot be recovered in this lawsuit against Citizens because the insurer is legally immune from claims by firsts in bad faith, the court said.
The Supreme Court said the court and the Fifth District had acknowledged that the policy did not include cover for lost rental income, but the Fifth District ruled that the court had denied Manor House the opportunity to prove that it would suffer consequential damages from lost rental income as a citizen breached its contractual obligation to timely adjust and pay covered damages. The Fifth District's conclusion, the court said, is based on the premise that parties can & # 39; consider & # 39; outside the express terms of the insurance policy.
“However, as the court has rightly concluded, the parties must base themselves on what they actually have under the express terms of the insurance policy,” the court said.
The court ultimately concluded that extra-consequential damages are not available in a first-party breach of an insurance contract, because the contractual amount owed to the insured is the amount due under the terms of the insurance policy.
In addition, "Non-contractual damages are available in a separate bad faith action … but cannot be recovered in this action against Citizens, as Citizens are legally immune from claims by first parties in bad faith," the advisory said.
Impact on the industry
Florida attorney Derek Goldsmith of the Fort Lauderdale firm of Kelley Kronenberg said the ruling was not a surprise, but was still important because the Florida Supreme Court ruled that the consequential damages Manor House is seeking is not allowed in a breach of contract if first batch was so broad that in these circumstances it also applies to private carriers.
Goldsmith said the plaintiffs tried to argue that they were entitled to the consequential damages, but in the event of breach of contract for first party claims, courts need only determine whether there is coverage under the policy and the extent of coverage.
“The allegations brought forward by Manor House are reserved solely for actions related to bad faith, as prescribed by Florida statutes,” he said. "They tried to put the cart in front of the horse, because bad faith is only ripe when the carrier is fully liable."
But since the citizen is immune from bad faith, he was not liable here.
Goldsmith had ruled otherwise by the Florida Supreme Court, "the floodgates would have been open" to lawsuits from homeowners seeking a range of additional contractual damages prescribed only for bad faith lawsuits, not contractual damages.
"It really is a decision that should come as no surprise, as the framework has already been set for what is appropriate for breach of contract in a first party ownership action and what is appropriate for an action taken in bad faith," he said. "And if you are claiming consequential damages because the insurance company has not appropriately amended the claim, they are only for bad faith and not for the underlying breach of contract."