What Constitutes a Dwelling or Building Under Construction or Renovation For Purposes of a Vacancy Exclusion?

Edward Eshoo | Property Insurance Coverage Law Blog | October 8, 2018

The typical vacancy provision in a homeowners property insurance policy is patterned after the Insurance Services Office (ISO) Homeowners 3-Special Form (HO-3 form)1 and excludes coverage for damage caused by vandalism if the dwelling has been vacant for more than 60 consecutive days before the damage occurs.2

The typical vacancy provision in a commercial property policy is patterned after the ISO Building and Personal Property Form (BPP form).3 It excludes loss or damage caused by vandalism, sprinkler leakage, glass breakage, water damage, and theft or attempted theft if the building has been vacant for more than 60 consecutive days. For all other covered causes of loss, including fire, the carrier will reduce payment by 15 percent if the building has been vacant for more than 60 consecutive days before the loss occurs.4

Vacancy provisions in homeowners and commercial property policies typically state that properties “being constructed,” “in the process of construction,” “under construction,” “under renovation,” or “under construction or renovation” are not considered vacant. “Construction” is not limited to the erection of a new structure; it contemplates “renovation,” “remodeling,” and “additions,” although those terms usually are not defined.5 Courts have concluded that when “renovation” is used in conjunction with “construction,” it includes any activity that restores the property to its former condition, such as repairing broken waterlines, repairing or replacing damaged ceiling tiles, toilets, and porches, and replacing drywall or a roof.6 Under this interpretation, a broad range of construction or renovation activity would prevent a property from being deemed vacant.

To support an argument that a vacancy exclusion does not apply because the dwelling or building was under construction or renovation, evidence should be presented that shows substantial, continuous construction or renovation activity. Sporadic entry is insufficient. Inquiry should be made as to the ongoing presence of construction personnel, including the number of people who worked on the project, the amount of time they spent in the building, and how much of the building they occupied.
1 ISO Form HO 00 03 05 11.
2 Homeowners property policies usually do not define “vacant” or ““unoccupied,” so courts give those terms their plain and ordinary meaning. Although they are frequently used interchangeably, the terms have different meanings: vacant means empty or without contents, and unoccupied means the lack of people’s habitual presence.
3 ISO Form CP 10 30 10 12.
4 Under the ISO BPP form, the definition of vacant depends on whether the policy is issued to a building owner or a tenant. For owners, the property is considered the entire building, and it is vacant unless a lessee or sub-lessee rents at least 31 percent of its total square footage and uses it to conduct customary business operations, or the building owner uses it to conduct customary operations. For tenants, the building is the unit the tenant rents, and it is vacant when the premises do not contain enough business personal property to conduct customary operations.
5 Seee.g.TRB Invs., Inc. v. Fireman’s Fund Ins. Co., 145 P.3d 472 (Cal. 2006); Warren Davis Properties V, L.L.C. v. United Fire & Cas. Co., 111 S.W.3d 515 (Mo. App. 2003).
6 Seee.g.Farbman Group v. Travelers Ins. Co., 2006 WL 2805646 (E.D. Mich. Sept. 28, 2006); Baker v. Nationwide Mut. Ins. Co., 2013 WL 1905334 (Ohio App. May 6, 2013).

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.

An Exception to an Exclusion: Always Read the Policy

J. Ryan Fowler | Property Insurance Coverage Law Blog | April 9, 2018

I commonly get asked coverage questions that relate to a commercial client’s claim for damages. My response is always the same, “send me the policy and I will take a look.” I know this sounds obvious but with the multitude of policies out there it is impossible to relate a policy to a factual situation without first reading the policy.

A recent ruling from the United States District Court of North Dakota points out why this is so important. The court in Spring Glen Apartments LLP v. Arch Specialty Insurance Company, ruled that an exception to an exclusion lead to coverage for the insured.1

The facts of the case were predominantly undisputed. A forty-year-old water pipe approximately seven feet below the complex burst due to wear and tear causing property damage and a loss of business income. The insurance company denied coverage due to an exclusion which read in part:

We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.

The specific exclusion cited to deny coverage was the “water exclusion” which excluded coverage in part for:

Water under the ground surface pressing on, or flowing or seeping through: (a) Foundations, walls, floors or paved surfaces; (b) Basements, whether paved or not; or (c) Doors, windows or other openings.

At this point in the opinion it sure looks like the insurance company is correct and there is no coverage for the pipe that burst under the complex. The court goes on to talk about another exclusion, the “wear and tear exclusion.” The wear and tear exclusion stated “loss or damage caused by or resulting from wear and tear” is not covered. The policy goes on to say that:

but if an excluded cause of loss [listed in this subsection] results in a ‘specified cause of loss’…we will pay for the loss or damage cause by that ‘specified cause of loss.’

The Definitions section of the policy states “specified cause of loss” is defined, in part, as “water damage” and “water damage” is defined as:

(1)Accidental discharge or leakage of water…as the direct result of the breaking apart or cracking of a plumbing, heating, air conditioning or other system or appliance…that is located on the described premises…and (2) accidental discharge or leaking of water…as the direct result of the breaking part or cracking of a water or sewer pipe that is located off the described premises and is part of a municipal potable water supply system…if the breakage or cracking is cause by wear and tear.

The definitions section then explains:

But water damage does not include loss or damage otherwise excluded under the terms of the Water Exclusion…to the extent that accidental discharge or leakage of water falls within the criteria set forth [above]…such water is not subject to the provisions of the Water Exclusion which preclude coverage for surface water or water under the surface of the ground.

The court went on to conclude that the cracked pipe is a covered cause of loss under the policy. Holding that once you read the policy, “Wear and tear” is one of the causes of loss that is excluded from coverage under the policy. The exclusion, however, states that if wear and tear “results in a ‘specified cause of loss’. . . [insured will cover] the loss or damage caused by that ‘specified cause of loss.’” The policy defined “specified causes of loss,” in part, as “water damage.” Water damage is then defined, in part, as “[a]ccidental discharge or leakage of water. . . as the direct result of the. . . cracking of a water or sewer pipe that is located off the described premises. . . if the breakage or cracking is caused by wear and tear.” The leaking water leading to the damage in this case was due to the circumstances explicitly provided for in the water damage definition. Therefore, the water was “not subject to the provisions of the Water Exclusion.” The court thus concluded that the policy unambiguously provided coverage for damage caused in a situation such as this one and imposed liability on insurer.

So, at the end of the day the simple answer was yes there is coverage for the damage, but it took a careful reading of the policy, the exclusions, an exception to an exclusion, and a rereading of the definitions to get there. As an insured or insurer, it is always important to Read the policy.
1 Spring Glen Apartments LLP v. Arch Specialty Ins. Co., No. 3:17-cv-00028 (D. N.D. April 2, 2018).

Do You Really Need a Court to Tell You What the Insurance Policy Covers? Litigating Insurance Coverage Issues? When and How to Turn to the Courts (Part 1)

A. David Fawal | BizLitNews Blog | March 2, 2018

No one should know what an insurance policy covers better than the insurer itself.  After all, the insurer wrote the policy, right? Yet there are times when coverage questions arise that even the drafter of the policy cannot answer – and on those occasions, a need for court guidance may arise.  This blog is part one of a brief discussion of the options that exist when coverage questions arise, although specific procedures vary by state.

As an initial matter, and stating what should be the obvious, if there is no coverage, there is no coverage.  And there is no duty to defend if there is no coverage.  If the facts and policy language support denial, don’t be afraid to deny.  However, what if the coverage question is not clear cut? Or what if some claims are covered and others may not be? Court involvement may be appropriate in such instances.

One method allowed in some states for addressing coverage issues is intervention. This usually arises where coverage issues exist after an insured has been sued.  Often, the complaint will assert covered and non-covered claims against the insured.  The insurer can tender a defense pursuant to a reservation of rights letter, and hire separate coverage counsel to intervene in the lawsuit. The argument for intervention is that it promotes judicial economy, minimizes the possibility of multiple actions and inconsistent verdicts, and does not prejudice the rights of the original parties.  Some states do not allow insurers to use this process, while others allow it through permissive intervention, when one or more of the claims asserted against the insured may not be covered under the pertinent policy. Of course, use of “permissive intervention” means the trial judge has discretion to deny the insurer’s request to intervene.

Under one type of intervention, the insurer can request special verdict forms or special interrogatories to determine the basis for the jury’s verdict (in the event of a verdict against the insured). An intervening insurer can also request to participate in discovery and attend depositions to obtain information that may be pertinent to the coverage questions. However, the jury should never hear about the existence of insurance or the presence of the insurer or its counsel.

In some instances, the courts can go even further and allow the intervening insurer an alternate “bifurcated trial” procedure.  After the liability trial against the insured (again, assuming a verdict against the insured), the same jury then hears the coverage trial. Of course, the downside of a bifurcated trial for the insurer is the jury has already found for the plaintiff against the insured and awarded money.  That same jury may be highly inclined to then find coverage to insure the plaintiff gets paid.  Another negative of the bifurcated trial is that the jury is familiar with all of the parties and lawyers from the underlying liability trial.  Now in phase two of the bifurcated trial, the insurer and a new lawyer appear to contest coverage, and there is no relationship. Needless to say, agreeing to intervention for a bifurcated trial carries risks for the insurer, and if a court is inclined to proceed in that manner, an insurer should pass on intervention and instead consider filing a declaratory judgment action (DJ). Stayed tuned for part two where I will address the pros and cons of filing a DJ.

Certified Copy of the Policy…To the Best of Our Knowledge

Christina Phillips | Property Insurance Coverage Law Blog | February 3, 2018


When determining if there is coverage for a claim, the first document attorneys, homeowners, and adjusters will look at is the policy. We often instruct adjusters or homeowners to request a certified copy of the policy to make sure that we have a complete, accurate copy. In that regard, it is often presumed that if you are provided with a “Certified Copy” it is accurate and the policy in place at the time of the loss.

Recently, I was reviewing a policy and was intrigued to find the above stamp on the policy. Rather than certifying that a true and correct copy of the policy was attached, the stamp provided a slightly different attestation: true and certified “to the best of our knowledge.” A slight, but probably more accurate statement of what a certified copy of an insurance policy actually is.

Most times a certification is performed by someone in the underwriting department who is merely signing an attestation page that the policy is true and accurate. What amount of research goes into determining whether the certified policy is accurate is usually unknown by the policyholder. After all, the certification does not discuss the steps the underwriter went through to determine its accuracy. Even if the underwriting department spent to time to review and certify the policy’s contents, there is not guarantee the “certified copy” is the policy issued to the insured. Rather, it is more accurately, true and certified “to the best of our knowledge.”

Therefore, even if you receive a “Certified Copy” of the policy it is still a good practice to take the time to review the applicable declarations and/or forms schedule and compare it to the policy pages you are provided. Match up each of the policy forms to the declarations/form schedule to confirm that you do in fact have a complete and accurate copy of the policy—at least to the best of your knowledge.