Total Loss and Constructive Total Loss in Florida

Chip Merlin | Property Insurance Coverage Law Blog | September 11, 2018

Total loss and constructive total loss concepts in Florida are often confused with automobile total loss situations and exclusions and coverages related to Ordinance or Laws. We recently were asked about building law and ordinances which required a building to be demolished per building codes. The cause of the damage was by a covered peril although like the vast majority of older buildings, there was pre-existing wear and tear to the structure.

Merlin Law Group’s very capable Ashley Harris recently stated in Florida Valued Policy Law & Hurricane Irma, these rules regarding total loss and constructive total loss:

First, a “total loss” could be what is referred to as an “actual total loss,” which occurs when a building “los[es] its identity and specific character as a building, and becomes so far disintegrated it cannot be possibly designated as a building, although some part of it may remain standing.” Greer v. Owners Ins. Co., 434 F.Supp.2d 1267 (N.D. Fla., 2006); (citing Lafayette Fire Ins. Co. v. Camnitz, 111 Fla. 556, 560, 149 So. 653, 654 (Fla. 1933)). Courts refer to this as the “identity test.”

Second, a “total loss” could be a “constructive total loss.” This requires an “unequivocal demolition order.” Magaldi v. Safeco Ins. Co. of America, 2009 WL 10668553 (S.D. Fla. Feb. 9, 2009) (“This court concludes that the majority view, requiring an unequivocal demolition order to establish “constructive total loss,” adopted in Netherlands Ins. Co. v. Fowler, 181 So.2d 692 (Fla. 2d DCA 1966) is the correct approach…”) Put differently, “[a] constructive total loss occurs when a building, although still standing, is damaged to the extent that ordinances or regulations in effect at the time of the damage actually prohibit or prevent the building’s repair, such that the building has to be demolished.

Ashley Harris’ post was very similar to the Memorandum of Law filed in trial court by the very able counsel in the Sebo v. Jacobson case, which stated:

[T]he valued policy law (“VPL”) as codified in § 627.702. Fla. Stat. (2004), is a valuation statute not a causation statute. The VPL was and is intended to prohibit an insurer from challenging whether the value of the insured property is less than the full amount of coverage as stated in the policy based on depreciation of values and other causes, in the event of a total loss. Fla. Farm Bureau Casualty Ins. Co. v. Cox, 967 So.2d 815 (Fla. 2007) citing American Ins. Co. of Newark. N.J. v. Robinson, 120 Fla. 674, 163 So. 17 (Fla. 1935). The VPL has no application other than to conclusively establish the property’s value when there is a total loss….

In determining a total loss, Florida uses two different tests. The first such test is the “identity test”. A building is considered a total loss when the building has lost its identity and specific character, and becomes so far disintegrated, it cannot be possibly designated as a building, although some part of it may remain standing . . . . The second test used to determine whether a building is a total loss is the “constructive total loss test”. A building may be deemed a constructive total loss when the building, although still standing, is damaged to the extent that ordinances or regulations in effect prohibit or prevent the building’s repair, such that the building has to be demolished.1

Another Florida case, Regency Baptist Temple v. Insurance Company of North America,2 found the same:

The present case should also be distinguished from cases in which an ordinance or regulation prevents repair of a damaged building. In those cases courts have declared the building a “constructive total loss” and held the insurer liable for the building’s entire value. E.g., Feinbloom v. Camden Fire Ins. Co., 54 N.J.Super. 541, 149 A.2d 616 (1959) . . . .

Building law and ordinances that prevent the reconstruction of structures or require them to be torn down are constructive total losses in Florida.

1 Sebo v. Jacobson, No. 11-2007-CA-000054-0001-XX, 2011 WL 13127538 (Fla. Cir. Ct. Memorandum of Law filed Feb. 23, 2011).
2 Regency Baptist Temple v. Ins. Co. of North America, 352 So.2d 1242 (Fla. 1st DCA 1977).

Is Recovery for Breach of an Insurance Policy Limited to Only Damages That Would Have Been Covered by the Policy?

Tamara Chen-See | Property Insurance Coverage Law Blog | September 1, 2018

In Florida, the short answer is “no.” Here, as in most states, traditional rules governing breach of contract apply to insurance policies, and in a proper case consequential damages may be awarded.1 Defense lawyers in first party insurance cases always dispute this argument.

The defense bar attempts to persuade courts that policy coverages and limits determine the amounts that can be recovered by a policyholder, even after the policy has been breached. And since judges generally rely heavily on the lawyers advocating for the parties to bring any specialized legal knowledge to the court, policyholder advocates are tasked to supply the courts with the caselaw clarifying this misconception. Certainly, there are some specialized rules of policy interpretation that apply because insurance policies are generally adhesion contracts, rather than ones negotiated at arms-length between parties with equal bargaining power.2 Yet insurance policies are still contracts and general contract interpretation principles provide additional ways to remedy the harm our policyholder clients suffer when an insured catastrophe happens.

Florida courts consistently apply the traditional standards to recover consequential damages in first party insurance cases. For example, in Travelers Insurance Company v. Wells,3 the Fifth District Court of Appeal held that the insureds could recover consequential damages against its carrier on a breach of insurance contract claim provided the insured proves the consequential damages were contemplated at the time the policy was issued. The Fifth DCA held:

Although that [the stated policy benefit] is normally the measure of damages for breach of an insurance contract, it is not exclusive. Consequential or resulting collateral damage may also be recovered if it can be sufficiently proved. It is possible to recover damages sustained by the wronged (uninsured) party, not because of the occurrence of the contingency which should have been insured against, but because of the breached contract, such as lost profits. Glades Oil Co. v. R.A.I. Management, Inc., 510 So.2d 1193 (Fla. 4th DCA 1987).4

Similarly, in Life Investors Ins. Co. of America v. Johnson,5 the Fourth District considered whether an insured could recover consequential damages from her disability carrier. The insured had purchased the disability policy in conjunction with a car purchase. Thereafter, the insured sustained a disabling injury. The carrier did not pay the claim in accordance with the policy, and the insured’s car was repossessed.

The insured filed suit for breach of contract. As damages, the insured sought to recover: (1) the loss of value to her car, (2) loss of use of her car, (3) transportation expenses related to the loss of use, and (4) long distance telephone calls, none of which were specifically covered by the policy. The carrier argued those categories of damage were improper and that the jury should only be permitted “to consider the amount due on the policy….” The trial court disagreed with the carrier and allowed the insured to seek recovery of these damages, and the jury returned a verdict in the insured’s favor for $3,500.

The carrier appealed. The Fourth District Court of Appeal started its analysis with a review of Hadley v. Baxendale,6 the common law case from England traditionally cited to express the standard for whether consequential damages are recoverable. This case held that damages for breach of contract “are those that arise naturally from the breach, or those that were in the contemplation of the parties at the time the contract was made.”7 Based on this rule, the court concluded that if the insured proved the carrier breached the policy, the insured was “entitled to recover more than the pecuniary loss involved in the balance of payments under the policy.”8The Fourth District held that the appropriate measure of damages for a breach of insurance contract claim was “the value of the auto or balance of payments under the policy, whichever is greater, together with the loss of use of the car from the date of repossession until the jury verdict is rendered, and interest thereon.”

Federal courts interpret Florida law the same way. In T.D.S. Inc. v. Shelby Mutual Insurance Company,9 the Eleventh Circuit considered a jury’s award of consequential damages because of a carrier’s breach of a multi-peril insurance policy. The trial court had instructed the jury “that an award could be returned for [consequential damages] if T.D.S. had shown that ‘special circumstances’ allowing for these damages had been in the contemplation of the parties at the time the insurance policy was entered into.”10

The Eleventh Circuit Court of Appeals approved of the instruction and stated, “[a]lthough generally an insurer’s liability under an insurance contract will not exceed the contractual limits of liability, the Florida courts have extended the Hadley special damages rule to allow recovery of these damages if they were in the contemplation of the parties at the time of the creation of the insurance contract.”11 The court then clarified that Florida did not predicate the recovery of consequential damages on an extra-contractual claim.

These cases involved first-party breach of contract claims where the insured requested consequential damages. In analyzing the insured’s consequential damages claim, each case differentiated between damages concerning policy benefits and consequential damages. None of these cases made an insured’s recovery of consequential damages dependent on the consequential damage being a covered policy benefit. Instead, the cases focus on whether the parties contemplated the damage to flow from the breach at the time the policy was created.

Consequential Damages are not “Bad Faith Damages.” As a final argument, the defense bar frequently attempts to characterize consequential damages as “bad faith damages.” Prior to enactment of Fla. Stat. § 624.155 in 1982 creating a “Civil Remedy” for bad faith claim handling, Florida did not recognize first-party bad faith claims.12 Therefore, if consequential damages were “bad faith damages” then the plaintiffs in Johnson and T.D.S. cases – decided before § 624.155 went into effect – would not have been able to recover consequential damages for their breach of contract claims. Consequential damages which are recoverable for a breach of contract claim focus on whether such damages were within the “mutual contemplation of the parties,” while statutory bad faith damages must be “foreseeable,” the traditional tort standard.13 This differentiation undermines the position that the consequential damages sought for breach of contract constitute bad faith damages.

This argument is straightforward, though it is unpopular with insurance carriers who want to contend that even when they breach their contractual obligations to their insureds, they still get the benefit of the limitation provisions of the policy that would apply if it had been honored. But Florida courts accept the basic proposition that once the policy has been breached by the carrier, those contractual limitations do not apply.
1 Florida applies the general contract rules governing consequential damages in the context of breaches of insurance contracts, as well. Seee.g.Travelers Ins. Co. v. Wells, 633 So.2d 457 (Fla. 5th DCA 1993); Travelers Indemnity Co. v. Parkman, 300 So.2d 284 (Fla. 4th DCA 1974); St. Paul Fire & Marine Ins. Co. v. Thomas, 273 So.2d 117 (Fla. 4th DCA 1973); T.D.S. Inc. v. Shelby Mut. Ins. Co., 760 F.2d 1520, 1531-32 (11th Cir. 1985) (Florida follows the general rule that to be recoverable, damages for breach of an insurance contract “must arise naturally from the breach, or have been in the contemplation of both parties at the time they made the contract, as the probable result of a breach.” Hobbley v. Sears, Roebuck and Co., 450 So.2d 332, 333 (Fla. 1st DCA 1984) (citing Hadley v. Baxendale, 9 Exch. 341, 156 Eng.Rep. 145 (1854)); Martin v. Monarch Life Ins. Co., 1995 WL 127157 (M.D. Fla. 1995).
2 Seee.g.Fayad v. Clarendon National Ins. Co., 899 So.2d 1082 (Fla. 2005).
3 Travelers Ins. Co. v. Wells, 633 So. 2d 457 (Fla. 5th DCA 1993).
4 Id. at 461.
5 Life Investors Ins. Co. of America v. Johnson, 422 So. 2d 32 (Fla. 4th DCA 1982).
6 Hadley v. Baxendale, 9 Exch. 341, 156 Eng. Rep. 145 (1854).
7 Johnson, 422 So. 2d at 33-34.
8 Id. at 34.
9 T.D.S. Inc. v. Shelby Mut. Ins. Co., 760 F.2d 1520, 1531-32 (11th Cir. 1985).
10 Id. at 1531.
11 Id. at 1531 n.11.
12 Fridman v. Safeco Ins. of Illinois, 185 So. 3d 1214, 1220 (Fla. 2016); McLeod v. Continental Ins. Co., 591 So. 2d 621, 623 (Fla. 1992).
13 T.D.S., 760 F. 2d at 1531 n.11; Johnson, 422 So. 2d at 33-34; B-K Cypress Log Homes Inc. v. Auto-Owners Ins. Co., 2012 WL 13018751, *3-4 (N.D. Fla. 2012). Indeed, “the fact that the legislature has specifically authorized first parties to recover damages in bad faith actions suggests that it may have contemplated more than the recovery of the same damages already available for breach of an insurance contract claim.” Marracini v. Clarendon Nat’l Ins. Co., 2003 WL 22668842, *2 (S.D. Fla. Oct. 1, 2003) (citation omitted). Under Section 624.155, Florida Statutes, insureds can recover all “damages which are a foreseeable result of a violation of [section 624.155(8)]….” The statute does not examine the “mutual contemplation of the parties” standard for consequential damages resulting from breach of an insurance contract.

Teaming Agreements: Avoiding Unenforceable ‘Agreements to Agree’

Chris A. Raftery | Faegre Baker Daniels | September 4, 2018

In the construction industry, we see a growing trend of contractors, subcontractors and designers collaborating to pursue large construction contracts. Among many benefits, these collaborations enable companies to pursue projects that would otherwise be too large by combining their resources and skill sets with compatible partners. The terms of these collaborations are often outlined in “teaming agreements,” which define the relationships, rights and responsibilities of both parties during both the pursuit of the contract and, if the contract is awarded, performance of the project.

However, what happens when one of the parties breaks the terms of that teaming agreement?

When teaming agreements contain sufficient specificity of terms, they are typically enforced and the breaching party will likely be found liable for damages. However, teaming agreements that are not reasonably complete, definite and clear may be declared unenforceable as mere “agreements to agree.” Under this scenario, a party to a teaming arrangement that fulfills its obligations while pursuing a contract may be left shortchanged if its partners don’t fulfill their promises when the project is ultimately awarded.

Parties to a teaming agreement can increase the likelihood that their agreement will be enforced by adhering to the following “Don’ts” and “Dos”.


  • Agree to negotiate essential terms at a future date. In its recent ruling in Navar, Inc. v. Fed. Bus. Council, the Supreme Court in Virginia found that an agreement between a contractor and subcontractors for a federal construction contract was unenforceable as it “merely set out agreements to negotiate future subcontracts in good faith.”
  • Rely on oral agreements. In Abt Assocs., Inc. v. JHPIEGO Corp, a federal court in Maryland held that a teaming agreement was unenforceable since it was not executed and did not indicate mutual agreement on the essential terms.
  • Include uncertain terms. In W.J. Schafer Assocs., Inc. v. Cordant, Inc, the Supreme Court in Virginia found a teaming agreement between a contractor and subcontractor unenforceable as it, among other things, did not identify a price for the item to be supplied by a subcontractor.


  • Identify essential terms. Typically, every contract must at least include the identity of the parties, the subject matter and consideration. Within those parameters, each project is different, and therefore the essential terms of an agreement differ project-by-project. For instance, under most scenarios, pricing is an essential term that must be carefully delineated. However, one California court found, in Krantz v. BT Visual Images, L.L.C., that identification of a specific price was not essential to the enforceability of a teaming agreement, as price there was necessarily dependent on subsequent events.
  • Draft a teaming agreement that clearly outlines the arrangement, and support the existence of the agreement with other written evidence. A federal case in Pennsylvania, ATACS Corp. v. Trans World Commc’ns, Inc., exemplifies this need. Under a teaming arrangement in which two contractors pursued a contract from the Greek army, one party agreed to assume financial responsibility for the contract, while the other party agreed to be a major subcontractor to assist in the proposal preparation. The terms of the parties’ understanding were documented in a letter which described the relationship as a “strategic alliance.” After the Greek government awarded the contract, the prime contractor awarded the proposed subcontractor’s work to another company that offered to do the work for less. The federal court upheld the “teaming agreement” as valid and enforceable given the specificity of the duties carefully described in the letter and the existence of several other written communications which supported the terms of the agreement. The judgment was affirmed by the United States Court of Appeals for the Third Circuit.

In sum, in order to avoid potential problems in your teaming arrangement, carefully consider the essential terms of the collaboration and clearly incorporate them into a written agreement.

Construction Law: Final Payment by Owner, Avoiding Lien Claims

Donalt J. Eglinton | Wardand Smith | September 5, 2018

A contractor has finished work on a construction project in North Carolina and submitted a written request for final payment to the owner of the real property that has been improved by the construction.

The owner is concerned about having to deal with liens from subcontractors and suppliers after final payment is made.  This article examines the circumstances under which an owner can make final payment without this concern.

The North Carolina law governing the assertion of liens by mechanics, laborers, and materialmen who furnish labor, material, or services to improve real property is complex.  It consists of a patchwork of statutes enacted and amended at different times to address particular issues.  It also involves a body of case law interpreting and applying these statutes that has developed as the statutes have been enacted and amended.  The statutes and case law are applied to determine, among other things, whether a right to assert a lien exists and, if so, the extent and priority of such lien.  Not surprisingly, this law gives owners, who want to avoid liens and a risk of having to pay twice for construction, pause when parting with their funds to pay a contractor.

Notwithstanding the complexity of the law, there is a circumstance under which an owner can safely make final payment to a contractor (who, for the purposes of North Carolina law and this article, is any contractor who contracts directly with the owner and is commonly referred to as a “general contractor,” as opposed to a subcontractor who contracts only with a contractor) without concern for potential lien claims from subcontractors or suppliers.  If the owner makes final payment to a contractor (and the payment is accepted by the contractor as final payment) at a time when the owner does not have proper written notice of any lien claim from a subcontractor or supplier who dealt with that contractor, the making of the final payment will protect the owner from the assertion of any valid lien claim made by any such subcontractor or supplier after final payment was made.

This simple, bright-line rule makes sense.  Generally, two kinds of liens arising out of construction projects are recognized in North Carolina:

  • The contractor may assert a lien against the owner’s improved real property (if this right exists, it can be exercised through subrogation by some subcontractors or suppliers under certain circumstances); and,
  • Some subcontractors or suppliers may assert a lien against any funds owed by an owner or a higher tiered contractor, subcontractor, or supplier.

These liens secure the right to be paid for work performed to improve the owner’s real property.  When an owner makes final payment to a contractor and the contractor accepts final payment, there are no more funds owned to the contractor.  If no funds are owned to the contractor, then:

  • The contractor has no right to assert any lien against the owner’s improved real property;
  • No subcontractor or supplier has any right to assert a lien on funds owed by the owner to the contractor; and,
  • No subcontractor or supplier has the ability, through subrogation, to assert a contractor’s lien against an owner’s improved real property because the contractor no longer has such a lien.

A comment and a caveat must be added:

Comment: Although the making of final payment effectively cuts off lien rights, it is well-advised for an owner to require any contractor to provide a comprehensive final lien release, commonly called a “lien waiver,” at or before the time final payment is made.

Caveat: If an owner has proper written notice of a lien claim from a subcontractor, then the owner is obligated by law to withhold from payment to the contractor an amount sufficient to satisfy and pay the subcontractor’s lien claim, and final payment, therefore, should not be made by the owner until the subcontractor releases, or “waives,” the noticed lien claim.  If the owner does not require this and the subcontractor is not paid by the contractor, the subcontractor’s lien on funds will become the even more problematic direct lien on the owner’s improved real property.  If this occurs and the owner cannot get the paid contractor to “refund” the erroneously paid funds to the owner (or to do the right thing and pay the subcontractor), the owner may well have to make a “double payment” (that is to pay the amount that is the subject of the subcontractor’s lien claim twice) in order to clear title to the improved real property.

The Skyscrapers of the Future Will Be Made of Wood

David J. Petersen | Tonkon Torp. | September 6, 2018

On August 8, the Oregon Building Codes Division approved a new state building code called a Statewide Alternate Method. The new code authorizes the construction of wood buildings taller than six stories, which was the previous limit. Taller wood buildings have been made possible by technological advances with cross-laminated timber. CLT, as it is known, is constructed by layering perpendicular sheets of solid lumber and adhering them together. It is similar to plywood, but much thicker, creating the necessary structural support for a high rise building. 

CLT has numerous advantages over steel, masonry and concrete. It is lighter and more flexible, which provides excellent seismic resilience, reduces the need for deep foundations and shortens construction time. The base material is easily adaptable to different uses by adding or removing layers to create the desired thickness and strength. As a wood product it sequesters carbon and can be sourced from a renewable, sustainable resource. Materials can be prefabricated off site, potentially lowering construction costs. Disadvantages include current higher production costs and weak sound insulation properties. While an increased risk of fire may seem logical, in fact CLT has been shown to have equal or better fire resistance than other non-carbon based construction materials.

CLT is in common use in Europe, and the largest CLT building currently in existence is Dalston Lane, a mixed use complex in Hackney in the U.K., with towers as tall as 10 stories. The Framework Building, a mixed retail, office, and residential tower to be constructed in Portland’s Pearl District, would have topped Dalston Lane at 12 stories, but due to development challenges the project is currently on hold. Portland also hosts the USA’s first CLT building, the four-story Albina Yard.

Despite the temporary setback of the Framework project and the manufacturing defects recently found in CLT used in a project at Oregon State University, CLT has loads of promise as the high-rise construction material of the future. By using sustainably-sourced wood or wood that would otherwise go to waste (much CLT in the market today is made from pine beetle-infested trees), the carbon footprint of new high-rises can be reduced significantly. As costs come down, as they do with all successful new technologies, expect to see CLT structures rise near you.

Before skyscrapers first touched the sky in New York and other cities over 100 years ago, most buildings were built of wood. The structural limitations and fire risk of wood kept buildings short, to perhaps five or six stories at most. Steel and concrete allowed architects to blow past those limitations. Now, with the advances made possible by CLT, our built environment is on the verge of completing a full circle to the space age wood structure of the future.