Tag Archives: Shelton v. liberty mutual

Florida Sinkhole Homeowners Insurance Update Regarding the Second DCA on Sinkhole Burden of Proof

Florida Homeowners Insurance Claims and Litigation Handbook

Brief Summary

In Mejia v. Citizens, Florida’s Second DCA held that Citizens had the burden of proof to show that sinkhole activity was not the cause of the plaintiff’s property damage. Once Mejia proved the property suffered a loss during the policy period, Citizens was required to show that the loss was excluded under this policy. In addition, the Court ruled that the amount of money Citizens paid to its engineer during the previous three years ($9.5M) was admissible.

For a copy of the Mejia opinion, scroll to the bottom of this article.

This is one of several key sinkhole homeowners insurance opinions in the last couple of months. If you missed the last few, you can read them here:

Omega v. Johnson

Contract for Repairs Argument Upheld

2011 Statutory Structural Damage Definition Applies to Policies Issued After Senate Bill 408’s Effective Date

Homeowner Not Required to Produce Sinkhole Report Before Lawsuit


How does CaseGlide Solve This Problem?

To learn more about how our proprietary claims litigation software CaseGlide solves this problem, check out our First Party Property Insurance Blog article on CaseGlide here.


The Mejia Opinion

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Florida Sinkhole Homeowners Insurance Update Regarding Homeowner Not Required to Produce Competing Sinkhole Report Obtained After Denial

Florida Homeowners Insurance Claims and Litigation Handbook

 Overview:

Florida’s Second DCA recently answered an important question in Florida sinkhole homeowners insurance litigation: if (1) a homeowner has a competing engineering report it obtains after an insurer denies a sinkhole claim and (2) the insurer does not request the report, the homeowner is not required to produce the report before filing a lawsuit.

In a concise opinion embedded at the end of this post, Florida’s Second DCA in Herrera v. Tower Hill determined that the insureds were not required to produce their competing engineering report prior to filing their lawsuit against Tower Hill.  In summary, Tower Hill argued that the insureds’ failure to produce the report constituted a breach of the “concealment or fraud” and the “duties after loss” provisions.

Tower Hill argued that the insureds, before filing the lawsuit, should be required to to produce the report to Tower Hill. If the insureds would have produced the report, Tower Hill could have evaluated the report and the parties could have avoided the litigation altogether. The trial court granted Tower Hill’s motion for summary judgment on these arguments.

The Second DCA reversed the trial court’s finding in favor of Tower Hill. The Second DCA explained that “[t]hese conditions apply where the insurer admits liability but disputes the recovery amount. See Tower Hill Select Ins. Co. v. McKee, 39 Fla. L. Weekly D1756, at *1. The policy did not require the Herreras to give the Geohazards report to Tower Hill unless they had the report at the time of the claim, but before Tower Hill denied it. See Surrett v. First Liberty Ins. Co., No. 8:11-cv-60-T-23MAP, 2011 WL 3879515, at *2 (M.D. Fla. Sept. 2, 2011).”

Takeaway:

This is a very popular argument for insurers; however, the Second DCA did not agree that it applied to this specific set of facts. Interestingly, the Second DCA may have “left the door open” to this argument: if Tower Hill would have requested the report at some point after it was created, the policy may have required the insureds to produce the report before the lawsuit. That’s not exactly what the opinion states; however, you have to assume the Second DCA mentioned that fact for a reason.

In addition, Tower Hill’s arguement may still provide it with a defense to the insureds’ attorney’s fees as discussed here in our analysis of Omega v. Johnson.

This is one of several key sinkhole homeowners insurance opinions in the last couple of months. If you missed the last three, you can read them here:

Omega v. Johnson

Contract for Repairs Argument Upheld

2011 Statutory Structural Damage Definition Applies to Policies Issued After Senate Bill 408’s Effective Date


As a reminder, we have the complete Herrera v. Tower Hill order embedded at the end of this post.

Let me know your thoughts on this opinion and feel free to send me a message.


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The Complete Order in Herrera v. Tower Hill

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Florida’s Fifth DCA Rules that Homeowners Insurer Does Not Have to Pay Attorneys’ Fees When it Flips Sinkhole Coverage Decision After Lawsuit

Florida Homeowners Insurance Claims and Litigation Handbook

 Overview:

According to Florida’s Fifth DCA, a homeowners insurer can reverse its position in a sinkhole case and still not be required to pay attorneys’ fees.  Read more about Omega Insurance Company v. Johnson to find out how Omega perfectly handled a disputed sinkhole claim.


 

In Johnson v. Omega Insurance Company, Florida’s Fifth DCA held that it is possible for a homeowners insurer to make a mistake in a sinkhole case and still not have to pay hundreds of thousands of dollars in attorneys’ fees.  I include a full copy of the opinion at the end of this post.

Facts

Omega, a Tower Hill company, followed the statutes from the beginning to end. Relying on a report from a professional engineering and geology firm, Omega initially denied the sinkhole claim. The homeowner hired an attorney, and that attorney hired an engineer to contradict Omega’s decision. According to the homeowner’s engineer, Omega’s engineer may have been wrong – there may have been sinkhole activity causing damage.

Instead of providing this report to Omega and allowing Omega to make a decision based on the new information, the homeowner’s attorney sued Omega, and then provided the report to Omega in discovery. As discussed below, Omega was entitled to rely on its engineering and geology firm’s report.

In response to the homeowner’s lawsuit, Omega submitted the case to neutral evaluation (which we know is mandatory), and the neutral evaluator sided with the homeowner – sinkhole activity may be the cause of the damage. In response to the neutral evaluator’s opinion, Omega agreed to comply with the neutral evaluator, accepted coverage, and tendered the policy benefits to the homeowner.

Now that there was no dispute, the homeowner made her next move: a motion for confession of judgment and attorneys’ fees.

Holding

The Fifth DCA determined Omega did everything right. By complying with every Florida statute for sinkhole claims, Omega did not do anything that wrongfully led the homeowner to resort to litigation. Accordingly, Omega did not have to pay the homeowner’s attorneys’ fees.

Takeaway

As you know, the homeowners insurers that are still litigating sinkhole cases rely very heavily on these arguments. In short, the argument is that the insurer is entitled to rely on its expert absent any competing reports.  When you combine that presumption with the confession of judgment doctrine, insurers believe that they should never have to pay attorneys’ fees when a homeowner’s attorney hides a report that could have led to no lawsuit in the first place.

You can bet these insurers are relieved that their hard work paid off in this case. With hundreds of thousands of dollars per case looming over every adjuster’s head on every case, a decision the other way would have been tough for these insurers to endure.

Of course, this outcome could have been different for a number of reasons- what if the homeowner did not have the report before filing the lawsuit?  Most homeowners’ attorneys would not make this same mistake today.

The Second DCA in Colella v. State Farm has a similar holding for insurers to rely on.  In Johnson, the Fifth DCA called Colella and Johnson “strikingly similar.”

For those remaining sinkhole cases (many have settled), homeowners insurers’ attorneys will have another tool in their arsenal.

The Big Takeaways

With sinkhole claims dwindling, the big takeaway here is that this logic can be applied to other types of insurance claims.  Johnson stands for the longstanding Florida proposition that homeowners need to give insurers a chance to fully evaluate the claim instead of “hiding the ball.” The sinkhole statutes may provide an added level of protection – the presumption of correctness – but the arguments in this case are undoubtedly applicable to any other case where the homeowner withholds information in her possession before she files the lawsuit.

Additionally, if you have been following along, you may have noticed that this is the third big sinkhole case in favor of homeowners insurers in the last two weeks. If you missed the first two, you better read them here:

Contract for Repairs Argument Upheld

2011 Statutory Structural Damage Definition Applies to Policies Issued After Senate Bill 408’s Effective Date


Did this Article Answer Your Homeowners Insurance Question?

If not, please contact us.


And here is the complete copy of the order:

Download (PDF, 78KB)

Florida Sinkhole Homeowners Insurance Update re Eleventh Circuit Rules that 2011 Structural Damage Statutory Definition Applies to Policies Issued After Senate Bill 408’s Effective Date

Florida Homeowners Insurance Claims and Litigation Handbook

Overview

Another hundred million dollar sinkhole insurance question has finally been answered: to deny a sinkhole claim, homeowners insurers can apply the 2011 statutory definition of “structural damage” to a policy issued after May 17, 2011 even if the insurance policy did not include the statutory definition.


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

In Shelton v. Liberty Mutual, the Eleventh Circuit issued a ruling that is extremely important for sinkhole claims reported for insurance policies that were issued after May 17, 2011, the effective date of Senate Bill 408.  Although Liberty Mutual’s policy did not have the statutory definition for “structural damage” written in the policy, the Eleventh Circuit held that Liberty Mutual properly denied a sinkhole claim by relying on the “structural damage” definition in the statute – Fla. Stat. 627.706(2)(k).

Liberty Mutual’s Arguments

Liberty Mutual argued that the statutory definition controlled, even though it was not in their policy.  Liberty Mutual argued that the statutory definition is incorporated into the insurance policy, regardless of whether it is an extreme departure from the simple definition in its policy.  As you know, this is the 2011 statutory definition of “structural damage;”

(k) “Structural damage” means a covered building, regardless of the date of its construction, has experienced the following:

1. Interior floor displacement or deflection in excess of acceptable variances as defined in ACI 117-90 or the Florida Building Code, which results in settlement-related damage to the interior such that the interior building structure or members become unfit for service or represents a safety hazard as defined within the Florida Building Code;

2. Foundation displacement or deflection in excess of acceptable variances as defined in ACI 318-95 or the Florida Building Code, which results in settlement-related damage to the primary structural members or primary structural systems that prevents those members or systems from supporting the loads and forces they were designed to support to the extent that stresses in those primary structural members or primary structural systems exceeds one and one-third the nominal strength allowed under the Florida Building Code for new buildings of similar structure, purpose, or location;

3. Damage that results in listing, leaning, or buckling of the exterior load-bearing walls or other vertical primary structural members to such an extent that a plumb line passing through the center of gravity does not fall inside the middle one-third of the base as defined within the Florida Building Code;

4. Damage that results in the building, or any portion of the building containing primary structural members or primary structural systems, being significantly likely to imminently collapse because of the movement or instability of the ground within the influence zone of the supporting ground within the sheer plane necessary for the purpose of supporting such building as defined within the Florida Building Code; or

5. Damage occurring on or after October 15, 2005, that qualifies as “substantial structural damage” as defined in the Florida Building Code.

The Homeowner’s Counterarguments

The homeowner made at least two arguments:

  • because Liberty Mutual’s policy did not include the statutory definition, Liberty Mutual could not rely on the statutory definition and, therefore, had to cover sinkhole claims if there was any damage to the structure.
  • this change in the “structural definition” was a change that required heightened notice to the policyholder.

The Eleventh Circuit’s Opinion

The Eleventh Circuit rejected both arguments.

The Definition is Incorporated

The court held that the statute is a part of the insurance policy and Liberty Mutual’s policy and should be read as if it were part of it. Unfortunately for the homeowner, the court does not go into great detail regarding why this can’t be considered a situation where the insurer offers more coverage than the statute allows. This argument – that the statute provides a baseline for the coverage required but not necessarily all of it – is usually homeowners’ attorneys’ favorite argument in situations like these. Interestingly, although the Court rejected the argument, the court did not go into great detail regarding why this did not apply here.

This Change in Policy Terms Did Not Require Heightened Notice

Second, there is an entire body of case law that can make insurers’ new policy provisions invalid if they failed to provide proper notice of material changes to the policy.  In other words, if an insurer drastically changes an insurance policy, it can’t call it a renewal because the homeowner might not ever notice the change.  Usually, if that happens, the insurer will be forced to apply the old parts of the policy if it failed to provide notice of the new terms.

  • Here, in Shelton, we had what most could consider to be a material change – a change in coverage from all sinkhole damage to only the worst forms of sinkhole damage.
  • However, the court used Fla. Stat. 627.43121 to state that this was a change in policy terms that was mandated by the legislature; therefore, it was not a “change in policy terms” as defined by the law, and it did not require heightened notice procedures.

Conclusion

So … all of those sinkhole claims may not be covered … and we are just finding this out now?

Of course, the Eleventh Circuit does not bind Florida state courts, and Florida’s appellate courts could take a completely different position. However, like yesterday’s post about the contract for repairs ruling, we are finding out this information a little late.

Unlike with the contract for repairs decision we discussed yesterday, this delay was outside of everyone’s control.  The statutory definition came into effect in 2011, yet the contract for repairs requirement arose years and years before that. For homeowners insurers to get a ruling on the statutory definition issue, they had to wait this long for it to go up the ladder to the Eleventh Circuit.

The vast majority of these claims – hundreds of millions of dollars worth of claims – are resolved. Thus, the impact is very limited.

Nevertheless, thousands of claims and lawsuits remain pending, and this case should give homeowners insurers and their attorneys a big boost in their arguments to resolve these cases.

Takeaway

Like the opinion in yesterday’s post, homeowners insurers would have been much better served if they had this opinion a couple of years ago. Unfortunately, homeowners insurers and attorneys had no choice but to let this issue linger in the federal system until now.

It will be interesting to see if Florida courts side with the Eleventh Circuit, or if they focus more on the argument that insurers are free to provide more coverage than the statutes.  For the good of the industry, hopefully that Florida appellate opinion comes out soon.


For More Information on Sinkhole Claims Updates …

For more information on some of the extremely important sinkhole claim updates, please read these articles:


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And here is the complete copy of the order:

Download (PDF, 56KB)