Disciplined in Sophisticated Defense and Insurance Litigation

September 01, 2017 | Blog Post| Hurricane Hindsight is 20/20

It took years of depositions and other discovery to realize that that most of my 2004-2005 hurricane condominium association claims were much simpler to defend than I thought.   The center of gravity of these claims was the proper calculation of Actual Cash Value (ACV).

 ACV is a concept used to describe an intangible and subjective value of physical damage.  Compare that with Replacement Cost (RC), which is an incurred and reimbursable out of pocket cost.   Under most policies, only ACV is owed until repairs are done.  Many high value condominium claim submissions avoided a proper but substantially lower ACV claim by artificially increasing RC in the ACV = RC minus depreciation formula.  ACV is a value of loss or damage and arguably should not include the value of undamaged items or future collateral damage during future repairs that may never be done.  Many hurricane claims contained an inflated ACV, containing matching and "expected" tear out-related work that should not be included in the RC aspect of the ACV formula.  This often amounted to millions of dollars in high rise condominium association claims.  

When I finally realized the extent of improper ACV calculations, I hired consultants to review multi-million dollar ACV estimates and remove all of the matching, restorative work, contingent collateral damage, and other items that should not be included in an ACV calculation and would never be part of a true repair.  For example, one estimate in an ACV claim contained $2 million for a complete redash of stucco on a multistory condominium building.  Why?   Because there was a claim for complete window replacement (unnecessary) and the removal of all of the windows was “expected” to cause stucco damage around windows, which was “expected” to cause a stucco matching problem.  So, the redash of the entire elevation of the building was claimed, as well as a repainting of the elevation as well.   Under no theory of indemnity should this depreciated value of $2 million for stucco redash be paid as part of ACV when the stucco was not damaged.  And the redash may never happen anyway.  The removal of all of the improperly included items reduced a multimillion dollar claim to one in the low six figures. 

Incidentally, I challenged a couple of appraisal awards on this basis as well before the claims eventually settled.   Arguably, an appraisal award ACV calculation should not include matching or tear out-related work either.  Only the damaged item should be considered to determine ACV value or damaged items.   Now, if an insured does the repairs, and assuming matching and restorative work are all covered, then the insured absolutely should get reimbursed under standard RC coverage.  The point here is that ACV should reflect a proper value of the damage and should not include depreciated amounts for things that are not damaged or do not exist yet and may never exist—like the $2 million stucco redash work in my case!   The policy covers for direct physical loss.   Either the value of just the damage should be paid or the incurred repair cost reimbursed.

My take on ACV is entirely consistent with principles of ACV and indemnity, but there is little case law on point.  And the “RC” in the ACV = RC minus depreciation is universally perceived to be the complete repair cost versus just the repair or replacement of just the damaged item.   That’s a hard perception to overcome because the distinction does not matter for the vast majority of claims where the scope of repair is proportional to the scope of damage.  But it does matter when the RC is manipulated in high dollar claims where the scope of repairs claimed is far greater than the scope of damage, resulting in an ACV claim that is far beyond any reasonable valuation of the loss. 

The lesson here for Harvey insurers is to adjust claims in good faith and front RC if desired to encourage the insured to make repairs. But take care to estimate, state, and if sued, reserve your right to litigate only a properly calculated ACV when repairs have not been made.  

J. Pablo Cáceres

A Partner at Butler Weihmuller Katz Craig LLP in Tampa, FL. Pablo practices in our Extra-Contractual, Third-Party Coverage, First-Party Coverage, and Aviation departments.

November 09, 2017 Blog PostDon't Wreck Your Carmack Claim: Requirements for the Written Notice of Claim

Carmack claims are unique animals.  Carmack provides a shipper—or its subrogating insurance company—with the sole remedy for damages sustained when goods are shipped between states.  As the sole remedy, it’s imperative that a claimant strictly comply with Carmack’s notice of claim requirements and any additional notice requirements outlined in the bill of lading.  As subrogation professionals, when a cargo claim comes in, the bill of lading should be the first document reviewed to determine what needs to be done—in addition to the five items listed below—to provide proper notice of the claim to the carrier.  Failure to file proper written notice will bar the claim. 

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November 06, 2017 Blog PostContingency Fee Multipliers: Florida Supreme Court Rejects Rare and Exceptional Circumstances Requirement

The United States Supreme Court analyzed the availability of contingency fee enhancements under fee-shifting statutes in Burlington v. Dague, 505 U.S. 557 (1992). There, the Court held that a contingency enhancement was not permitted under fee-shifting provisions of the Solid Waste Disposal Act and Clean Water Act. It reversed a 25% lodestar enhancement. Justice Scalia wrote the majority decision. He emphasized that fees are “certain” or “contingent.” Id. at 560. A fee is certain if it is payable without regard to the outcome of the suit; it is contingent if the obligation to pay depends on a particular result obtained. Id. at 560-61.

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September 21, 2017 Blog PostThe Rule of Sevens: Evaluating Claims Involving a Child

As subrogation professionals, we may be tasked with evaluating property loss claims where a child caused or contributed to the property damage.  For example, is a child playing with matches or a lighter liable for a fire loss?  Or, is a child liable for driving a vehicle into the neighbor’s home? In some instances, a parent may be held liable for the child’s acts.   As more fully set forth below, when evaluating a claim involving a child, it is important to evaluate the age and capacity of the at-fault party, and to be familiar with state specific statutes regarding parental liability. 

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August 29, 2017 Blog PostThe Common Interest Doctrine: Maintaining Confidentiality

While confidentiality is usually destroyed when communications between an attorney and client take place in the presence of a third party or when work product is shared with others, those communications can remain protected if the common interest doctrine applies.

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August 23, 2017 Blog Post"It's Not Old, It's A Classic!": Risk in Aging Aircraft with GARA Protecting Manufacturers

The General Aviation Revitalization Act of 1994 (“GARA”) was a byproduct of aging aircraft, rising costs, and tort liability in the United States.  Congress was concerned that aircraft manufacturers were being devastated by liability costs for accidents occurring long after the planes left the manufacturer.  These liability costs drove up the price for aircraft beyond what the market would bear, and general aviation experienced a sharp decline.  The General Aviation Manufacturers Association reports the total U.S.-manufactured general aviation airplane shipments went from a high of 17,811 in 1978 to a low of 929 in 1994.  As a result many manufacturers stopped making certain model aircraft, including Cessna which ceased production of all piston aircraft in 1986. 

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August 15, 2017 Blog PostThe ABC's of ACV in Subrogation Claims

Oftentimes, during the course of a subrogation claim, third-party liability adjusters will refuse to pay the full amount of the “Repair Cost Value” (“RCV”) of the damages demanded, and contend that they only owe “Actual Cash Value” (“ACV”), regardless of the amount paid in the underlying first party property claim adjustment.   Oftentimes, this position is not necessarily predicated on a specific legal doctrine or theory, but rather a general “understanding” that is commonly used in the insurance context.   The true measure of damages, in the legal context, is always dictated by state law. 

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August 09, 2017 Blog PostTO FEE OR NOT TO FEE, THAT IS THE QUESTION: THE FLORIDA SUPREME COURT FINDS COVERAGE FOR PROPOSAL FOR SETTLEMENT SANCTIONS IN FAVOR OF THE PLAINTIFF UNDER AN AUTOMOBILE LIABILITY POLICY IN MACEDO II

Due to its holding in Macedo II, the Florida Supreme Court created a situation where, arguably, many auto policies now provide coverage for attorney’s fees and expenses awarded against an insured following an adverse verdict triggering the penalties under a proposal for settlement.

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August 09, 2017 Blog PostTO FEE OR NOT TO FEE, THAT IS THE QUESTION: THE FLORIDA SUPREME COURT FINDS COVERAGE FOR PROPOSAL FOR SETTLEMENT SANCTIONS IN FAVOR OF THE PLAINTIFF UNDER AN AUTOMOBILE LIABILITY POLICY IN MACEDO II

Due to its holding in Macedo II, the Florida Supreme Court created a situation where, arguably, many auto policies now provide coverage for attorney’s fees and expenses awarded against an insured following an adverse verdict triggering the penalties under a proposal for settlement.

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August 08, 2017 Blog PostHoly Harleysville! – The Rules Governing RORs, Intervention, and More in South Carolina Have Just Changed

For insurers, litigating third party coverage disputes in South Carolina has always proved formidable.  Insurers can be liable for “bad faith” even if there is no coverage; they may be required to pay an insured’s attorney’s fees if the insurer commences a coverage action against its insured and loses ; and extra-contractual claims may proceed simultaneously with a breach of contract claim.

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July 26, 2017 Blog PostThe Continuing Saga of Sebo v. American Home Assurance Company: The Second District Court of Appeal Rules on Remand

On July 20, 2017, the Second District Court of Appeal issued an order that closed its books on the Sebo appeal.  Mr. Sebo made a homeowner’s claim to American Home contending construction deficiencies had allowed water to enter the residence at multiple points, causing, eventually, a complete destruction of the residence.  The trial court ruled the concurrent cause doctrine applied, and so that the combination of covered water damage and excluded faulty, inadequate and defective construction had resulted in coverage for the loss. 

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July 18, 2017 Blog PostSubrogation Following a Hurricane is All Hands on Deck

Hurricane season began June 1 st, and runs through November 30th.   However, we are about 30 days from approaching the peak of hurricane season, when the season becomes its most active.  Weather predictors are predicting an above-average number of storms this year, with 14 expected named storms.  As anyone who has worked “CAT” claims knows, when a hurricane hits, it’s “all hands on deck.”  This is true for subrogation professionals, as well.  There is a significant increase in the number of claims that must be triaged, with a goal of finding any claims that might have subrogation potential. 

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July 17, 2017 Blog PostThe Innocent Co-Insured: Underestimating Definite and Indefinite Articles

Four little words—a, an, any, and the—can mean a world of a difference with respect to coverage for an innocent co-insured.  A federal judge (applying Florida law) recently ruled that “that the phrase ‘any insured’ unambiguously expresses a contractual intent to create joint obligations.” Stettin v. National Union Fire Insurance Company of Pittsburg, PA, 2017 WL 2858768 (11th Cir., July 5, 2017) (emphasis added).  The Settin Court solidified a prior U.S District Court for the Southern District of Florida case, which held that an intentional loss provision precluded coverage for even innocent co-insureds when the intentional loss provision contained language prohibiting coverage for intentional acts by any insured.

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July 05, 2017 Blog PostEarth Movement: "Any" Means Any; Home-Owners Insurance Company v. Dominic F. Andriacchi (Michigan Court of Appeals)

For years, courts across the country have considered whether an earth movement exclusion in a policy applies only when the earth movement losses are caused by or stem from natural causes or phenomena, or whether it applies to earth movement losses from both natural and man-made causes.

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June 22, 2017 Blog PostBottini v. GEICO: Parties to Bad Faith Action Not Bound by $30.8 million-dollar Verdict Without Appellate Review

For years, when a bad faith action was brought pursuant to a jury verdict in excess of policy limits in the underlying UM claim, everyone assumed the jury verdict was binding in the bad faith action. Then, Bottini v. GEICO resulted in a $30.8 million-dollar verdict – over 600 times the policy’s UM limit of $50,000! GEICO appealed, and the Second DCA concluded that even if GEICO were correct that errors affected the jury’s computation of damages, any such errors were harmless in the context of this case.

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June 20, 2017 Blog PostFlorida's Third District Court of Appeals provides a warning: When insureds communicate about their policy needs, agents better listen and communicate back or insurance companies could be left holding the bag in a negligent procurement action.

In Kendall South Medical Center v. Consolidated Insurance Nation, No. 3D16-926, 2017 WL 1908376, *1 (Fla. 3d DCA May 10, 2017), the Third District Court of Appeals reversed the lower court’s fourth dismissal of Kendall South Medical Center’s complaint for negligent procurement, holding that there may be liability for negligent procurement where an agent fails to explain to an insured a coinsurance provision that could reduce coverage to less than the amount requested by that insured.

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May 19, 2017 Blog PostINSURANCE PROCEEDS PAYABLE TO TENANT DIVERTED TO PAY FOR PROPERTY OWNER'S BACK TAXES

The Third Circuit Court of Appeals sitting in Pennsylvania recently issued a precedential decision that interpreted the definition of a “named insured” under a tax delinquency statute to encompass tenants of a property even though the property owner, not the tenant, owed the delinquent taxes.

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March 23, 2017 Blog PostNebraska Supreme Court Rules that an Insurer Can Depreciate Labor in Determining Actual Cash Value

Property policies typically provide, if there is coverage, that the insured can recover for the costs to repair or replace the property damaged by loss.  But when an insured does not repair or replace the damaged property (or until such repairs are made), the insured is only entitled to the actual cash value of the property.  The calculation of actual cash value varies state to state, but generally courts either define it as replacement cost less depreciation or courts use the broad evidence rule. 

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March 21, 2017 Blog PostPennsylvania Superior Court adopts narrow interpretations of surface water exclusion and ensuing loss clause

In the Ridgewood Group LLC v Millers Capital Insurance Company, No. 1138 EDA 2016, February 27, 2017, the Superior Court of Pennsylvania analyzed two often troublesome policy provisions, the surface water exclusion and the ensuing loss cause .

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March 14, 2017 Blog Post2017 Florida State Legislature to Consider Bills Aimed at Assignments of Benefits, Water Losses, Appraisers, and Umpires

The 2017 Florida Legislative Session convened on March 7.  Of particular interest to property insurers are the following bills, which we are closely watching: SB 944, proposing licensing requirements upon appraisers and appraisal umpires; SB 1038 and HB 1218, proposing a statute concerning assignments of benefits; and SB 1218, proposing licensing requirements on those who perform water damage restoration and prohibiting policy provisions that preclude post-loss assignments of benefits.

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March 07, 2017 Blog PostFederal Diversity Jurisdiction: Proving Citizenship of Limited Liability Companies

Jurisdiction gives a federal court the power to hear a case. Jurisdiction matters at the outset of a lawsuit. It matters during discovery. It even matters after summary judgment. Jurisdiction matters because federal courts are courts of limited jurisdiction.

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March 07, 2017 Blog PostFederal Diversity Jurisdiction: Proving Citizenship of Limited Liability Companies

Jurisdiction gives a federal court the power to hear a case. Jurisdiction matters at the outset of a lawsuit. It matters during discovery. It even matters after summary judgment. Jurisdiction matters because federal courts are courts of limited jurisdiction.

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February 16, 2017 Blog PostSurplus Insurers, Too, Can Rely on the Application to Interpret Policy

Section 627.419 of the Florida Statutes provides that “[e]very insurance contract shall be construed according to the entirety of its terms and conditions as set forth in the policy and as amplified, extended, or modified by any application therefor or any rider or endorsement thereto.”  This statute has not applied to surplus lines insurers since the “Zota-fix” legislation of 2009, which generally exempted surplus lines insurers from Chapter 627.

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January 11, 2017 Blog PostWhat Is An Offer of Judgment And Can It Really Lower the Cost of or Shorten Litigation?

Insurance coverage litigation today is often time consuming and expensive.  Many cases include claims for “bad faith” damages, and some cases seek punitive damages.  To support their allegations, litigants will usually seek a wide-array of documents and testimony.  Accordingly, litigating such matters can also become expensive. 

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June 24, 2016 Blog PostTreading Water: Florida Office of the Insurance Consumer Advocate Holds Forum on Florida's Ongoing Water Loss Crisis

The state of water loss claims abuses in Florida, the water loss marketplace, and water loss damage claims on a national scale were presented by the Division of Insurance Fraud, Bureau of Property & Casualty, and the National Insurance Crime Bureau, respectively. 

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November 16, 2015 Blog PostWest Virginia Supreme Court Allows Landlord's Subrogation against Tenant

The West Virginia Supreme Court of Appeals recently opened the door further for a landlord’s insurer subrogating against a tenant for damages to the landlord’s property.

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October 28, 2015 Blog PostWhen Revenge Is Not So "Sweet": The Wages of "Revenge Porn" under Florida's New Cyber Harassment Statute

Policyholders who seek coverage for the monetary consequences of a violation of the statute under the “personal and advertising injury” or general liability coverage in their insurance’ policies are likely to find themselves looking elsewhere for funds.

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September 08, 2015 Blog PostNJ: Insurers Still On The Hook To Pay Innocent Parties Under Fraudulent Policies

The decision offers further guidance in the somewhat inconsistent world of rescission and automobile policy statutes, which – when accounting for the application misrepresentation, policy, and statutes – can be a tricky process.

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September 08, 2015 Blog PostNJ: Insurers Still On The Hook To Pay Innocent Parties Under Fraudulent Policies

The decision offers further guidance in the somewhat inconsistent world of rescission and automobile policy statutes, which – when accounting for the application misrepresentation, policy, and statutes – can be a tricky process.

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August 27, 2015 Blog PostLa. Federal District Court Greatly Expands the Duty to Preserve in Response to a Litigation Hold Notice

Takeda appealed the ruling to the Fifth Circuit Court of Appeals, but it reached a settlement in the MDL litigation in May of 2015 before appellate briefing commenced.  The Actos ruling is isolated to date; no other court has applied this holding or followed its interpretation.

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August 11, 2015 Blog PostInsurers Don't Sleep on Your Rights: Insurer's Motion to Intervene Denied as Untimely

The court noted that Cincinnati had been defending the action since 2012, but did not file the motion until 2015 and only on the eve of trial.  With regard to the damage interrogatories themselves, the parties argued that neither party’s expert had broken down the damages in the manner proposed by Cincinnati.

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June 10, 2015 Blog PostPost-Complaint Communications by Insurer's Employees Protected from Discovery in Bad Faith Litigation

The insured failed to articulate any type of argument that he could not obtain the substantial equivalent by other means without undue hardship.  The court recognized that the insured has the opportunity to conduct bad faith discovery, which may include deposing State Farm adjusters, to obtain the substantial equivalent...

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April 09, 2015 Blog PostCan an Insured Sue His Adjuster When the Insured is Injured Cleaning Debris, Because the Adjuster Incorrectly Denied Coverage for Debris Removal?

Imagine a gigantic tree limb weighing over 7,000 lbs falling onto your home.  You dutifully call your insurance company to report the loss. So when the adjuster inspects your home and (verbally) tells you that debris removal is not covered by your policy and that you need to clean up the debris (glass, limbs, branches) all by yourself, you clean it up yourself, right?  And when you hurt your hand in the process ...

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April 08, 2015 Blog PostFourth Circuit Sets Stage For Interpreting Contingent Business Interruption

CBI insurance provides coverage for loss of sales or revenue sustained when business is interrupted due to property damage that occurs away from the insured premises and, consequently, disrupts the flow of goods and services from/to a supplier or customer (referred to as the “dependent” or “contributing” properties). There are a limited number of cases discussing issues relating to CBI insurance; and the Fourth Circuit’s ruling provides greater clarity as to what constitutes a “direct” supplier, which is a common...

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April 08, 2015 Blog PostFourth Circuit Sets Stage For Interpreting Contingent Business Interruption

CBI insurance provides coverage for loss of sales or revenue sustained when business is interrupted due to property damage that occurs away from the insured premises and, consequently, disrupts the flow of goods and services from/to a supplier or customer (referred to as the “dependent” or “contributing” properties). There are a limited number of cases discussing issues relating to CBI insurance; and the Fourth Circuit’s ruling provides greater clarity as to what constitutes a “direct” supplier, which is a common...

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April 06, 2015 Blog PostIt's a "Storm Surge" -- not a "Flood"!

Both parties cited to the SEACOR Holdings, Inc. v. Commonwealth Ins. Co., 635 F.3d 675 (5th Cir. 2011) case. The SEACOR case held that flood limits did not apply to Hurricane Katrina-generated water damage. In the SEACOR policy, there were definitions for flood, windstorm and named windstorm. The definition of windstorm and named windstorm did not include the phrase “storm surge,” but the definition of flood included wind-driven water. The SEACOR court held that all damage caused by Katrina was the result of a named windstorm...

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April 06, 2015 Blog PostIt's a "Storm Surge" -- not a "Flood"!

Both parties cited to the SEACOR Holdings, Inc. v. Commonwealth Ins. Co., 635 F.3d 675 (5th Cir. 2011) case. The SEACOR case held that flood limits did not apply to Hurricane Katrina-generated water damage. In the SEACOR policy, there were definitions for flood, windstorm and named windstorm. The definition of windstorm and named windstorm did not include the phrase “storm surge,” but the definition of flood included wind-driven water. The SEACOR court held that all damage caused by Katrina was the result of a named windstorm...

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October 13, 2014 Blog PostIs Texas Following Florida's Lead On Changing The Economic Loss Rule?

Practicing in both Florida and Texas I have seen the Economic Loss Rule evolve over the years, and its direct impact on the recovery potential for our subrogation claims appears to be moving in a positive direction. Recently, the Texas Supreme Court held in a per curium opinion in Chapman Custom Homes, Inc. v. Dallas Plumbing Co., 2014 WL 4116839 (Tex. Aug. 22, 2014), that a claimant can now bring a tort claim (negligence, in this case) against a party, as well as a breach of contract claim. In doing so, the Court applied ...

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September 26, 2014 Blog PostWhen It Comes to Sinkholes, Contracts, Statutes and Regulations Do Matter

On August 21, 2014, the United States Court of Appeals for the Eleventh Circuit vacated the decision of the U.S. District Court for the Middle District of Florida in Shelton v. Liberty Mutual, Case number 13-15371 / D.C. Docket No. 8:12-cv-02064-JSM-AEP. This decision confirms that the statutory definitions for structural damage under the May 17, 2011 amendments to the Florida sinkhole statutes apply to property policies issued after those amendments were enacted. The court’s order reversed the positions taken by the District Court that seemed bent on plotting a new course for Florida jurisprudence.

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September 26, 2014 Blog PostWhen It Comes to Sinkholes, Contracts, Statutes and Regulations Do Matter

On August 21, 2014, the United States Court of Appeals for the Eleventh Circuit vacated the decision of the U.S. District Court for the Middle District of Florida in Shelton v. Liberty Mutual, Case number 13-15371 / D.C. Docket No. 8:12-cv-02064-JSM-AEP. This decision confirms that the statutory definitions for structural damage under the May 17, 2011 amendments to the Florida sinkhole statutes apply to property policies issued after those amendments were enacted. The court’s order reversed the positions taken by the District Court that seemed bent on plotting a new course for Florida jurisprudence.

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July 24, 2014 Blog PostThe Emperor's New Property Damage?

For many years, Florida courts appeared to say that general liability insurance policies did not cover a subcontractor’s faulty work that damaged other parts of a general contractor’s work. That all changed with the Supreme Court of Florida’s decision in United States Fire Insurance Company v. J.S.U.B., Inc., in 2007. In J.S.U.B. the court found that present GL policies covered the faulty work of a subcontractor that damaged other parts of a general contractor’s work. The reasoning used by the J.S.U.B. court to reach that conclusion would seem to also apply to claims for property damage to a subcontractor’s work that resulted from the subcontractor’s faulty work. However, courts applying Florida law have not yet found this to be so, and in fact say just the opposite.

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July 22, 2014 Blog PostFeng Shui: Direct Physical Loss Does Not Include Damage to Invisible Forces

A federal judge recently ruled that an insurer was not obligated to pay $50,000 for a feng shui consultant following a fire loss in a dentist’s office. Patel v. American Economy Insurance Co. et al., No. 12-cv-04719, 2014 WL 1862211 (N.D. Cal. May 8, 2014). While the cost to repair the physical damage from the fire was insured under the policy, the court found that the cost to repair damage to any invisible forces that may have been at work in the office was not.

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