Evolving Collapse Coverage in Florida is Not Defined by the Prominent Hip-Hop/Rap Artist Eminem

Chip Merlin | Property Insurance Coverage Law Blog | July 26, 2019

As a younger member of the Merlin Law Group team, my generation is more likely to appreciate the lyrical ingenuity of the Eminem song, ’Till I Collapse. Homeowners of all generations, however, should appreciate how collapse coverage is defined in Florida.

Your homeowner’s insurance policy may include an additional coverage for “collapse.” Collapse may be covered for a variety of causes depending on the policy, such as hidden decay, insect/vermin damage, weight of rain, weight of contents, defective material/construction and others. But what does “collapse” even mean? Does my house need to be reduced to an unrecognizable pile of rubble to allow insurance coverage?

Defining “collapse” and whether your home insurance policy will cover a loss is something that the courts, policyholders, and insurance companies often grapple with. For an excellent background on collapse coverage, see previous MLG blog post, Court Defines “Collapse” by Shane Smith, or for how collapse coverage is applied under California law, see, What Constitutes an “Abrupt Collapse”? by Edward Eshoo.

In Florida, collapse coverage has evolved due to changes in policy language and judicial interpretation. If no definition is provided in the policy language, courts since 1978 have defined “collapse” quite liberally as “a material and substantial impairment of the basic structure of a building or part of a building.”1 However, since contract law allows parties to determine their own definitions, insurance companies soon began to write more precise definitions into the policy language to constrict their collapse coverage.

For example, one policy I recently read covers only losses of an “abrupt collapse,” defined more specifically as “an abrupt falling down or caving in of a building or any part of a building with the result that the building or part of the building cannot be occupied for its intended purpose.”2However, a policy like this one still leaves words such as “abrupt,” “cave-in,”3 and “fall down”4open to interpretation.

Luckily, an ambiguous provision is construed in favor of the insured and strictly against the drafter. In Kings Ridge Community Association, Inc. v. Sagamore Insurance Company,5 the court picked up a Merriam–Webster’s dictionary to settle the ambiguity. Here “abrupt” was defined as an “action or change without preparation or warning: unexpected.” Thus, the court held a clubhouse roof that suddenly buckled when the trusses failed, leaving it sagging inward about 12-inches, may constitute an “abrupt collapse” under the policy.6

Last year, the Southern District of Florida decided another “abrupt collapse” case under Florida law.7 Despite a similar structural “sagging” as the caved-in roof in Kings Ridge, this collapse seemed to be less “abrupt.” Often a factor is whether the owner knew or should have known the damage was threatening the structural integrity of the property prior to the collapse. The property owner here likely knew the building was steadily collapsing over time, since the structural defects had existed for years and the building admittedly had “gradually deteriorated.” In fact, the property owner submitted several conflicting dates as to when the building actually “collapsed.” The case therefore did not make it to the jury to determine the factual issues. However, this case is currently on appeal to the U.S. Court of Appeals for the Eleventh Circuit.

In the words of rap artist Eminem, no collapse occurs “’till the roof comes off, ’till the lights go out.” Insurance companies and Florida courts have clearly taken a different approach to define collapse and determine whether a loss is covered under your homeowner’s policy.

(Note: This guest blog is by Sean Cornell, a law student clerking in our Tampa, Florida, office)
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1 Auto Owners Ins. Co. v. Allen, 362 So.2d 176 (Fla. 2d DCA 1978).
2 For a different policy language example, see Sandalwood Condominium Ass’n at Wildwood, Inc. v. Allstate Ins. Co., 294 F.Supp.2d 1315, 1319 (M.D.Fla.2003) (involving a policy that mandates a collapse be “direct, sudden and accidental physical damage”).
3 Kings Ridge Cmty. Ass’n, Inc. v. Sagamore Ins. Co., 98 So.3d 74, 78 (Fla. 5th DCA 2012)(defining “Cave-in” as “to fall down or inward…”).
4 Kings Ridge, 294 F.Supp.2d at 78 (defining “Fall” as “to descend freely by the force of gravity … to hang freely … to drop oneself to a lower position … to become lower in degree or level.”).
5 Id.
6 Id.
7 S.O. Beach Corp., et al. v. Great American Ins. Co., 305 F.Supp.3d 1359 (S.D.Fla.2018).

Release of “Unknown” Claim Does Not Bar Release of “Unaccrued” Claim: Fair or Unfair?

David Adelstein | Florida Construction Legal Updates | May 27, 2019

A general release of “unknown” claims through the effective date of the release does NOT bar “unaccrued” claims.   This is especially important when it comes to fraud claims where the facts giving rise to the fraud may have occurred prior to the effective date in the release, but a party did  not learn of the fraud until well after the effective date in the release.  A recent opinion maintained that a general release that bars unknown claims does NOT mean a fraud claim will be barred since the last element to prove a fraud had not occurred, and thus, the fraud claim had not accrued until after the effective date in the release.  See Falsetto v. Liss, Fla. L. Weekly D1340D (Fla. 3d DCA 2019) (“The 2014 [Settlement] Agreement’s plain language released the parties only from “known or unknown” claims, not future or unaccrued claims. Because there is a genuine issue of material fact as to whether the fraud claim had accrued — that is, whether Falsetto [party to Settlement Agreement] knew or through the exercise of due diligence should have known about the alleged fraud at the time the 2014 Agreement was executed — the trial court erred in granting summary judgment on those fraud claims.”).  

Fair or unfair?  In certain contexts, perhaps fair — such as when the facts giving rise to the fraud took place after the effective date of the release.   In other contexts, perhaps unfair — such as when the facts giving rise to the fraud occurred prior to the effective date in the release but were unknown.  

What are your thoughts?    However, modifying a release to now include “unaccrued” claims may not be the answer as this could have broad implications relating to future claims, which a party may be cautious about releasing in light of current or future relations between the parties.

Growing Pains: The Story Behind Florida’s Daubert Arc – Part 2

Alan J. Lazarus | Drinker Biddle & Reath LLP | July 8, 2019

The Aftermath of Marsh

When the Marsh case was decided in 2007 its broad interpretation of the “pure opinion exception” and narrow vision of the role of Frye took Florida expert evidence admissibility law well out of the mainstream. Florida law was starkly at odds with the reliability concerns addressed by Daubert and its progeny and counterparts.

A 2010 court of appeal case highlighted the dramatic difference between Florida and federal admissibility standards. Hood v. Matrixx Initiatives, Inc., 50 So.3d 1166 (Fla. 4th DCA 2010). [Disclosure: The author was defense counsel in Hood.] Plaintiffs sued the maker of OTC cold remedy Zicam nasal gel claiming it caused loss of sense of smell. They also sued the local supermarket chain, Publix, solely to defeat diversity – a fact that will become significant shortly. The trial court granted a Frye motion to exclude plaintiffs’ causation expert, Dr. Jafek, and then granted summary judgment.

Dr. Jafek had previously been excluded by federal courts in Alabama (2), California, Kentucky, Oregon, and Texas, all finding the science behind his causation opinions unreliable under Daubert. Despite this track record, and even though one of the factors under Frye is whether the science underlying the expert’s opinion has been accepted in the courts, the court of appeal reluctantly reversed. “While we recognize the federal courts’ uniform refusal to admit Dr. Jafek’s testimony, we are compelled to find that Dr. Jafek’s opinion is admissible in Florida under Marsh.”

Even beyond the diametrically different results regarding admissibility of the same expert and same opinions, two aspects of Hood shined a bright light on the weaknesses in Florida’s admissibility threshold.

  • First, as only Dr. Jafek’s general causation opinion had been challenged, and he both necessarily and actually relied heavily on extrapolation from scientific studies to conclude that the product can cause smell loss, Hood confirmed the extraordinary reach of the pure opinion exception after The court of appeal expressly rejected the defense argument that the exception was inapplicable because of the prominent role of scientific literature in Dr. Jafek’s analysis.
  • Second, in authorizing experts to rely on scientific research and still escape reliability scrutiny under the exception, the court confirmed that the exception had become entirely untethered from its rationale. Recall the premise of the pure opinion exception, however questionable, was that jurors were well equipped to evaluate an opinion based solely on the experts’ training and experience; they were in no danger of being spellbound by scientific methods, data and principles difficult for laymen to independently understand, process, and evaluate. Credibility assessment was the jury’s wheelhouse. The reconfigured pure opinion exception allowed the experts to have their proverbial cake (avoid reliability screening) and consume it (clothe their opinion in the aura of science), too.

After Marsh and Hood, the difference between federal and state courtrooms in Florida was striking. Federal judges were not just authorized but obligated to police all scientific expert testimony and require that it rest on a reliable foundation in methods, data, and reasoning. Their state counterparts were prohibited from scrutinizing the reliability of scientific opinion testimony “in the vast majority of cases.” Frye was not applicable at all if the experts relied on training and experience, even if they also relied on any scientific research. Only opinions based on new or novel scientific tests or methods were subject to Frye, and the experts’ reasoning and conclusions were entirely immune from Frye-testing. And while federal judges would consistently exclude true “pure opinion” (i.e., an opinion actually based solely on the experts’ training and experience) as inadmissible ipse dixit, state judges were bound to automatically admit it, with no further reliability inquiry. As Hood explained, Marsh had opted for “a ‘battle-of-the-experts’ approach to the admissibility of expert testimony, designed to prevent trial judges from usurping ‘the jury’s role in evaluating the credibility of experts and choosing between legitimate but conflicting scientific views.’”

The Legislature Strikes Back

How did the Florida Legislature and business community respond to this state of affairs? They mobilized. Concerns over the lack of any meaningful mechanisms to reject junk science, the consequential potential for jackpot justice in tort cases, and the ultimate encouragement of unnecessary local joinders and forum-shopping fueled increasingly urgent calls for legislative reform.

Legislation was introduced in 2008 and 2011 to amend Florida’s version of rule 702 to adopt a Daubert standard and reject the existing Frye regime, but fell short. Another concerted effort was mounted in 2013, and in April 2013 I was contacted by a tort reform organization promoting the amendment. It seemed an important swing vote on the Senate Rules Committee was on the fence. Though he was concerned with the prospect of forum-shopping, he had seen no concrete evidence that it was actually occurring. The ask was for any evidence that plaintiffs’ lawyers were targeting Florida and/or joining local defendants solely to stay in state court.

Recall that in Hood the Florida grocery chain Publix had been joined to defeat diversity. After remand, the case went to trial in February 2013, the jury returned a defense verdict, and I was defending the verdict on appeal. Having the trial record handy, I was able to provide the Legislature with the transcript of the plaintiffs’ opening statement. Counsel had essentially told the jurors that Publix was in the case for strategic reasons, simply because it had sold the product, and had not done anything blameworthy. The legislation wound up passing, and Florida had a Daubert standard effective July 2013. Florida Statutes § 90.702.

Florida’s AOB Reform Bill Became Effective July 1, 2019: How Does This Affect Me?

Beaujeaux de Lapouyade | Property Insurance Coverage Law Blog | July 8, 2019

My primary role as an attorney at Merlin Law Group is to represent the best interests of policyholders and get all benefits owed following a loss. But, I call it like I see it when approached with debatable inquiries from contractors and restoration companies.

Assignment of Benefits (“AOB”) is a controversial issue, which has been a recent topic of discussion in my conversations with policyholders and industry professionals. Chip Merlin summarizes both sides of the AOB debacle in his blog post, Assignment of Benefits Contracts are the Hot Topic of Discussion and Legislation in Florida, North Dakota and Elsewhere.

There are always two sides to every story. AOBs affect claim adjustments, take away important rights from policyholders, and can play a role in higher premiums. Nevertheless, AOBs can also provide stress relief to policyholders, affect the way contractors conduct business, and often guarantee payment to contractors for services rendered. The Florida Legislature finally decided to play ball on this hotly debated topic.

Florida’s new AOB Reform Bill went into effect on July 1, 2019. Florida Governor Ron DeSantis signed House Bill 7065 on May 23, 2019, which is now Laws of Florida Chapter 2019-57 (“Act”). The Act amended Florida Statutes Section 627.422 and created Sections 627.7152 and 627.7153, which contain definitions and required provisions for assignment agreements executed under residential and commercial property insurance policies.

The Florida Office of Insurance Regulation issued Informational Memorandum OIR-19-02M to notify insurers of the passage of the Act, discuss various provisions of the Act, and provide guidance to facilitate implementation.

Here are some noteworthy provisions of Florida’s newly effective AOB Reform Bill, which are important to know regardless of which team you are on.

Fee Shifting Switch

Insurers argue some contractors take advantage of the AOB system by performing excessive repairs or submitting inflated invoices to the insurer with the expectation that the insurer will inevitably pay the inflated invoice. An executed AOB allows a contractor (the assignee) to step into the shoes of the policyholder (the assignor) and receive payment directly from the insurer. An executed AOB also allows an assignee to pursue litigation against the insurer if an insurer refuses to pay an invoice.

Florida’s one-way fee provision is a vital protection for policyholders under Florida law. In an interview with Law360, Beth A. Vicchioli explained,

The current one-way attorney fee provision was always originally designed to help consumers who don’t have the same financial resources as their insurers to go through litigation.

She also noted,

Once these assignments started popping up then the insurer was no longer in litigation against a consumer, but against another sophisticated commercial company.

The new law imposes a formula, which allows an award for the assignee or the insurer or neither based on pre-suit settlement negotiations. This change does not apply to policyholders who file suit against their insurance company directly.

The gap between the carrier’s pre-suit settlement offer and the assignee’s pre-suit demand is the “disputed amount.” The new fee-shifting formula compares the differences between the disputed amount, the judgment obtained, and the settlement offer. If the judgment obtained is less than 25% of the disputed amount, then the insurer is entitled to an award of reasonable attorney’s fees. If the judgment obtained is 25% to 49% of the disputed amount, then neither party is entitled to an award of attorney’s fees. If the judgment obtained is 50% or more of the disputed amount, then the assignee is entitled to a reasonable attorney’s fee award.

Pre-Suit Requirements

Under the new Florida law, the assignee must notify the insurer of its intent to file a lawsuit and allow the insurer the opportunity to issue a coverage decision within the statutory timeframe required. The insurer must then respond with a settlement offer or demand for alternative dispute resolution within ten days.

Insurers Required to Offer More Options to Consumers

Insurers are now able offer policies restricting post-loss assignments to third parties with the caveat that the carrier notify the prospective policyholder of the restriction, and also offer policies allowing post-loss assignments with the same coverage. The policy restricting post-loss assignments to third parties must have lower premiums in exchange for the restriction.

Monitoring AOB Reform

Under the new AOB law, insurers must submit annual reports to the Florida Office of Insurance Regulation for each residential and commercial property insurance claim paid under an executed assignment. This requirement begins on January 30, 2022, which allows the OIR to monitor the effectiveness of the AOB reform.

It will be interesting to assess and monitor the impact of the new AOB legislation on insurance regulation. Merlin Law Group attorneys licensed in the Sunshine State are here to answer questions regarding Florida’s new AOB Reform Bill and its potential impact on businesses, policyholders, and other insurance professionals. It’s time to play ball.

Effective October 1, 2019, Florida General Contractors Have a Statutory Right to Recovery of Attorney Fees Against a Defaulted Subcontractor’s Surety

Warren E. Friedman | Peck Law

Florida contractors will soon have a level playing field, at least related to the right to recovery of attorney fees in certain circumstances. Effective October 1, 2019, the Florida statute by which legal fees may be recovered from insurers and sureties was amended to expressly afford that right to contractors.

Florida’s Insurance statute, Chapter 627, affords a right to recovery of attorney fees when a judgment is obtained against an insurer and in favor of any insured pursuant to a policy or contract executed by the insurer. See Fla. Stat. § 627.428. In the construction context, the Florida Legislature has also applied this right to the recovery of attorney fees from sureties, for example in circumstances where suit is brought against a surety under a payment or performance bond. See Fla. Stat. § 627.756.

But there was an oddity to this statute – it specifically provided this right for “owners” and “subcontractors”, but “contractors” were skipped over. For as long as Section 627.756, Florida Statutes has been on the books, the right to recovery of attorney fees against a surety under a payment or performance bond was only afforded to owners, subcontractors, laborers, and materialmen. Specifically, since at least 1977, Section 627.756, Florida Statutes substantially provided as follows (emphasis added):

Section 627.428 applies to suits brought by owners, subcontractors, laborers, and materialmen against a surety insurer under payment or performance bonds written by the insurer under the laws of this state to indemnify against pecuniary loss by breach of a building or construction contract. Owners, subcontractors, laborers, and materialmen shall be deemed to be insureds or beneficiaries for the purposes of this section.

Fla. Stat. § 627.756(1) (2018)

Notably absent and excluded from the text is the word “contractors”, which is surprising because the right to pursue a claim on a performance bond usually exists for both owners and contractors. Owners have a potential right to pursue a claim against the general contractor’s performance (and sometimes payment) bond and general contractors have a potential right to pursue claims against their subcontractor’s performance (and sometimes payment) bond. Unless the performance bond explicitly provided a right to recovery of attorney fees, the statute, for decades, afforded no such right to the general contractor. General contractors were left responsible for attorney fees when one or more subcontractors defaults, with no right to recover legal fees unless stated in the bond itself.

On May 2, 2019, the Florida Legislature modified Section 627.756, Florida Statutes, which now reads as follows (emphasis added):

Section 627.428 applies to suits brought by owners, contractors, subcontractors, laborers, and materialmen against a surety insurer under payment or performance bonds written by the insurer under the laws of this state to indemnify against pecuniary loss by breach of a building or construction contract. Owners, contractors, subcontractors, laborers, and materialmen shall be deemed to be insureds or beneficiaries for the purposes of this section.

Fla. Stat. § 627.756 (Oct. 1, 2019)

Under the new version of the statute, general contractors possess a right for the recovery of attorney fees in claims against a surety, a right that did not previously exist except where provided in the bond or, under certain circumstances, in the bonded contract. This small change – the addition of the word “contractors” – is impactful and now affords a significant right to general contractors when pursuing claims against a defaulted subcontractor and its surety. The new law becomes effective on October 1, 2019 and applies only to payment and performance bonds issued after that date.