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Florida Sinkhole Homeowners Insurance Update Regarding the Contract for Repairs Argument Being Upheld

Florida Homeowners Insurance Claims and Litigation Handbook

Overview

One of the hundred million dollar sinkhole insurance questions has finally been answered by Florida’s Second DCA: even if the insurer denies a claim, homeowners are not entitled to coverage for the cost of subsurface stabilization repairs until they enter into a contract for those repairs.


McKee v. Tower Hill: the Rulings

In Andrew McKee v. Tower Hill, Florida’s Second DCA determined the following:

(For a full copy of the order, scroll to the end of this post.)

Subsurface Stabilization Repairs

  • The homeowner was not entitled to the cost of subsurface stabilization repairs because he failed to enter into a contract for those repairs.
    • Note #1: the Second DCA did not specify whether the homeowner could have entered into a contract during litigation or before the judgment.
    • Note #2: this is an important victory for Tower Hill because the homeowner likely argued that Tower Hill’s denial prevented it from entering into a contract for repairs.
      • The homeowner probably argued that it did not want to enter into a very large contract without assurances from Tower Hill that it would cover the cost. The homeowner probably also argued that Tower Hill’s denial was a breach that made the contract for repairs provision unenforceable.
      • Importantly, Tower Hill avoided these prior breach arguments and remained entitled to rely on the contract for repairs requirement.

Breach of Contract

  • Despite Tower Hill’s argument that the homeowner prematurely filed suit without complying with policy conditions, the Second DCA appeared to uphold a finding that Tower Hill breached the contract.  This is not 100% clear from the order.
    • Note #1: the Second DCA held that the sinkhole loss settlement provision and post loss conditions were conditions to the amount of coverage provided, not coverage itself.
    • Note #2: I have not had the opportunity to review the briefs, but based on the opinion, this leads me to believe that the homeowner may still be entitled to his attorney’s fees.
      • Why? Because he may have prevailed on the underlying breach of contract action, and he likely will be able to obtain a judgment for the coverage to repair the above ground, cosmetic damages.
      • If Tower Hill filed a valid Proposal for Settlement, though, then it may not be required to pay the homeowner’s attorney’s fees.
      • If the Court finds Tower Hill breached the contract, the attorneys fees at this stage could exceed $200,000.00.

Prejudgment Interest

  • Lastly, the Second DCA determined Tower Hill was not required to pay prejudgment interest for the subsurface repairs because, as noted above, the homeowner is not entitled to the cost of those repairs, and this was outside of Tower Hill’s control.

Conclusions

The Good News

This case clarifies the issues on a common set of circumstances in Florida sinkhole claims.

The Bad News

  • Too little, too late?: This ruling comes a bit late – tens of thousands of sinkhole claims have been resolved without any insurer taking this common, specific issue through the appellate process.
  • Expensive Unanswered Questions: The Second DCA is required to focus on the specific issue it is asked, and it will not give advisory opinions. This leaves a few important questions unanswered:
    • This ruling does not answer the question of whether a homeowner can enter into a contract during litigation.
  • Attorney’s Fees: Depending on some other issues outside of this ruling, Tower Hill may have “won the battle but lost the war” because they may be required to pay the homeowner hundreds of thousands of dollars in attorney’s fees … despite this favorable ruling.

Takeaway

You have to applaud Tower Hill and the homeowner’s attorneys for finally taking this issue this far up the judicial chain, and finally giving the the Florida homeowners insurance industry some guidance on this set of facts.  This ruling, however, would have had 100x the impact if it was issued 5 years ago, and comes with several limitations that make it hard to determine its overall impact on the remaining cases.


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And here is the complete copy of the order:

Download (PDF, 48KB)