Navigating Florida’s Valued Policy Law–What Is A Total Loss?

Shaun Marker – January 27, 2014

Last week we started a discussion on Florida’s Valued Policy Law.1 Florida’s Valued Policy Law has many intricacies; too many to discuss in a single post. We will be looking at a few of the statute’s interesting parts in the next few weeks. Hopefully these discussions will cover areas of the law that you may deal with regularly, as well as parts of it that are a little more unusual, while providing useful insight to you in both scenarios.

Since the main purpose of the statute is to fix the amount of damages in a total loss, let’s look at what the law considers to be a “total loss.” Recall from our discussion last week that the provisions of Florida’s current Valued Policy Law referring to total losses can be from any type of loss that is a covered peril. The provision of the Valued Policy Law concerning partial losses still only applies to fire or lightning claims.

Florida’s Valued Policy does not define “total loss.” Court opinions interpreting the law provide some guidance. The Florida Supreme Court has adopted the “identity test” to determine whether a structure is a “total loss.” According to the identity test, a structure is a total loss if the damage to it is so significant that it has lost its identity and character as a building, even though a portion of it remains and could be used for some useful purpose.2

Obviously, if a structure has been reduced to a pile of rubble, it is easy to demonstrate the “total loss” example. As the identity test reveals though, it can require analysis by a trier of fact hearing a case to determine if it meets the criteria even if a portion of the structure is still standing and could be used for some purpose.

What about other situations where a building is condemned, or ordered to be demolished, even if it is still standing after a loss?

When a structure is damaged by a covered peril (and is not a “total loss”), and an ordinance or law prevents its repair or reconstruction, it may be deemed a “constructive total loss.” Florida’s Valued Policy Law applies to these situations where a property is considered a “constructive total loss.” For example, if a fire damages a property and building department officials inspect the property and determine that it is un-repairable and dangerous because of safety concerns, and is condemned, this is a situation that will implicate Florida’s Valued Policy Law. The policyholder could be entitled to the limit of the policy. If the ordinance or law merely makes it more expensive to repair/rebuild the property, then it would not be a situation that would trigger Florida’s Valued Policy Law.

Florida’s Valued Policy Law contains many important provisions for policyholders and insurers, and the limit of the policy is the measure of the damages to be paid to the policyholder once the property is determined to be a “total loss” or a “constructive total loss.” If you have any questions about your loss and the applicability of Florida’s Valued Policy Law, do not hesitate to consult with experienced insurance professionals.

1 F.S. § 627.702(1).

2 Lafayette Fire Ins. Co. v. Camnitz, 149 So. 653 (Fla. 1933).

via Navigating Florida’s Valued Policy Law–What Is A Total Loss? : Property Insurance Coverage Law Blog.

An Introduction to Arizona First-Party Bad Faith

Ashley Smith – January 15, 2014

In Arizona, insurance contracts include an implied covenant of good faith and fair dealing requiring the insurer to refrain from any conduct that would impair the benefits or rights expected from the insurance contract.1

Interestingly, unlike many other jurisdictions, the insured is not required to prevail on the breach of contract action to recover bad faith damages.

We hold that a plaintiff may simultaneously bring an action both for breach of contract and for bad faith, and need not prevail on the contract claim in order to prevail on the bad faith claim, provided plaintiff provides a breach of the implied covenant of good faith and fair dealing.2

Arizona courts have described the insurer’s duty of good faith as:

The carrier has an obligation to immediately conduct an adequate investigation, act reasonably in evaluating the claim, and act promptly in paying a legitimate claim. It should do nothing that jeopardizes the insured’s security under the policy. It should not force an insured to go through needless adversarial hoops to achieve its rights under the policy. It cannot lowball claims or delay claims hoping that the insured will settle for less.3

The policyholder’s burden in proving bad faith has been described by the Arizona courts as two-fold: The first inquiry involves an objective analysis of whether the insurer acted unreasonably; the second inquiry involves a subjective analysis regarding “whether the insurer knew that its conduct was unreasonable or acted with such reckless disregard that such knowledge could be imputed to it.”4

Further, just because the insurance company ultimately lives up to its contractual duty and pays the policyholder what is owed – for example, ultimately paying an appraisal award over two years after the loss – does not release the insurer from bad faith liability.

[T]he insurer’s eventual performance of the express covenant—by paying the claim—does not release it from liability for ‘bad faith’5

[I]f an insurer acts unreasonably in the manner in which it processes a claim, it will be held liable for bad faith ‘without regard to its ultimate merits.’6

While I don’t address the details of punitive damages here, it should be noted that courts consider claims for punitive damages to punish and deter the insurer from future misconduct in relation to bad faith actions in Arizona.

This is meant as a brief introduction to Arizona first-party bad faith law. Further in depth discussions of the case law will be addressed in future blogs.

1 See Rawlings v. Apodaca, 151 Ariz. 149, 726 P.2d 565, 570 (Ariz. 1986).

2 Deese v. State Farm Mut. Auto. Ins. Co., 172 Ariz. 504, 508, 838 P.2d 1265,1269 (Ariz. 1992).

3 Zilisch v. State Farm Mut. Auto. Ins. Co., 196 Ariz. 234, 238, 995. P.2d 276, 280 (Ariz. 2000).

4 Deese v. State Farm Mut. Auto. Ins. Co., 172 Ariz. 504, 838 P.2d 1265 (Ariz. 1992).

5 Rawlings v. Apodaca, 151 Ariz. 149, 154, 726 P.2d 565, 570 (1986).

6 Zilisch, 196 Ariz. at 237-38, 995 P.2d at 279-80 (citing Deese, 172 Ariz. at 508, 838 P.2d at 1269).

via An Introduction to Arizona First-Party Bad Faith : Property Insurance Coverage Law Blog.

Construction Defect Ruling in California Creates Uncertainty, Claims AxisPointe CEO

Digital Journal – January 14, 2014

On Dec. 18 the California Supreme Court denied a motion to hear Brookfield’s appeal regarding the Fourth Circuit ruling in Liberty v. Brookfield Homes. The court, in the case of Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC (Cal.App. 4 Dist., Case No. G046731, August 28, 2013) effectively opens the door to common law causes of action outside of the once-exclusive remedy of the 10-year old Right to Repair statute, known as SB 800.

The Court’s latest action was touted as a victory on the National Association of Subrogation Professionals (NASP) website, which stated, “This is a huge blow to the homebuilders industry, which fought fiercely to persuade the Act applied to subrogating carriers.” See text.

AxisPointe’s CEO Stan Luhr, who has practiced forensic consulting in California for 30 years, stated that this ruling is rapidly changing the landscape of construction defect claims, as plaintiff attorneys scramble to amend current cases to take advantage of this landmark decision.

The full text of the Liberty v. Brookfield decision can be downloaded from the California Courts website and searching on Liberty v. Brookfield Homes, or download a copy here.

“I spoke with a few attorneys who received notices from plaintiffs counsel that they will be filing amended complaints immediately,” said Luhr. “We don’t know how this will affect current cases but it will definitely add to the delays in getting consumer complaints resolved quickly.”

Luhr recommends its California builders to step up their customer service and post-warranty claims processes—and have a detailed quick response process for any claim involving water intrusion or actual damage to a home.

“The 4-year statutes in SB 800 for components such as plumbing, electrical and painting now seem to be out the window, since claimants can now sue beyond these limitations for up to 10 years if there is damage,” Luhr said.

Luhr said the possible fallout from this decision is significant:

Homeowners can now make claims for property damage long after the 4-year legislative statute has expired on issues such as plumbing and electrical systems, effectively opening the door for up to 10 years on such damage claims.

Plaintiffs may attempt to circumvent the SB 800 Right to Repair process altogether, arguing that property damage claims do not fall within the confines of the alternative resolution process. This may create a dual-tracked case where SB 800 claims are litigated separately from actual property damage claims.

The definition of “damage” will undoubtedly be debated, since some plaintiff experts believe that ordinary stucco cracks, cracked roof tiles and other innocuous cosmetic issues constitute “damage”—the very nuisance items SB 800 was designed to eliminate.

Homeowner’s insurance companies who traditionally foot the bill for water leakage and damage claims will likely increase subrogation claims against home builders, making it more difficult for builders to defend such claims when the alleged defect has been repaired and evidence may have been destroyed in the process.

“We have always believed that any water-related service call is a 911 priority, and builders should take aggressive steps to permanently resolve such problems,” Luhr said, adding that aggressive customer service resolution to such issues is critical.

AxisPointe provides builders with several risk prevention tools that are particularly suited for California builders, who are required by state law to provide buyers with written maintenance manuals and information on energy components. Luhr stated that AxisPointe is the only provider that has a mobile QA app for builders, electronic document storage and a robust customer service and work order tracking system to help eliminate many claims that often plague builders.

via Construction Defect Ruling in California Creates Uncertainty, Claims AxisPointe CEO – Press Release – Digital Journal.

Navigating Florida’s Valued Policy Law–Partial Loss By Fire Or Lightning

Shaun Marker – January 20, 2014

Several states have valued policy laws (“VPL”) that address situations when policyholders should be paid policy limits for total losses. I have recently had discussions with several experienced adjusters encountering unique circumstances involving Florida’s VPL. As I mentioned to them, it is amazing how you can practice for years in this area of the law and still have unique situations arise. So I thought I would write a series on Florida’s VPL.1

Florida’s VPL has existed in Florida for over a hundred years. The purpose of the statute is to fix the measure of damages in case of a total loss, or partial loss, and it requires the insurer to ascertain the insurable value at the time of writing the policy and to include the total insurable value of the property in the policy.2

Do you think Florida’s VPL applies to partial losses?

In certain circumstances, it does…the second section of the VPL addresses insurers’ obligations to pay claims when the insured property sustains a partial loss due to fire or lightning. Section (2) of Florida’s VPL provides:

(2) In the case of a partial loss by fire or lightning of any such property, the insurer’s liability, if any, under the policy shall be for the actual amount of the loss but shall not exceed the amount of insurance specified in the policy as to such property and such peril.

In cases involving a partial loss by fire or lightning, the insurer must pay “the actual amount” of the loss. The statute requires the insurer to pay the claim to place the building in as nearly the same condition as it was before the loss without allowing depreciation of the materials used.3

Florida’s VPL does not apply to partial losses other than those caused by fire or lightning. Do not hesitate to contact experienced insurance claim representatives if you have questions about whether your loss was appropriately paid.

1 Fla. Stat. §627.702.

2 Hartford Fire Ins. Co. v. Redding, 37 So. 62, 65 (Fla. 1904).

3 Sperling v. Liberty Mut. Ins. Co., 281 So.2d 297 (Fla. 1973).

via Navigating Florida’s Valued Policy Law–Partial Loss By Fire Or Lightning : Property Insurance Coverage Law Blog.