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July 01, 2005 | Publication| Florida's "Valued Policy" Law - The Eye of the Storm

John V. Garaffa

Hurricanes Charley, Frances, Ivan, and Jeanne have once again brought Florida insurance law under the microscope. In the midst of this examination is Florida's valued policy law. For most insureds and their attorneys, there is an expectation that insurance will be available to return the insured's property to its pre-storm condition. Unfortunately, even for professionals, there are common misconceptions about the interplay of contract and law in this area. One such common misconception is the proper application of Florida's valued policy law. 

Florida's "Valued Policy" Law

Florida's valued policy law, Florida Statutes § 627.702, [1] was first enacted in 1899. Since then, the statute has undergone a number of legislative revisions. Subsection (1) provides that, in the event of a total loss by a covered peril, the carrier must pay "the amount of money for which such property was so insured as specified in the policy and for which a premium has been charged and paid." The valued policy law is part of every real property casualty insurance policy written on property in Florida. [2]

As noted by a Florida appellate court in the case of Springfield Fire and Marine Ins. Co. v. Boswell, [3] the principal object and purpose of Florida's valued policy law is to fix the measure of damages in case of total loss. [4] To accomplish that goal the statute requires the insurer to ascertain the insurable value at the time of writing the policy. The statute serves to "remove what would otherwise be a very troublesome and difficult issue to resolve either between the parties by negotiation or by the courts in litigation." [5]

There are two essentials of the statute. The first is that the building be "insured by [an] insurer as to a [e.s.] covered peril." [6] The second is that the building be a total loss. If these two facts exist, the valued policy law mandates that the carrier who chooses not to elect to repair [7] is liable to the owner for the face amount of the policy, no matter what other facts are involved as to the cost of repairs or replacement. In other words, if the carrier has liability to the owner for a building damaged by a covered peril and that building is deemed a total loss, that liability under the valued policy law must be for the face amount of the policy. [8]

Originally, the valued policy statute applied to both total and partial losses caused by fire or lightning. In 1939, the Supreme Court of Florida decided American Ins. Co. v. Robinson, 163 So. 17 (Fla. 1939), [9] in which the insurer withheld payment of policy limits for a total loss by fire on the basis that the insured dwelling was infested with termites and damaged by dry rot during the policy period. The insurer stated the infestation diminished the value of the structure and thus the amount that was due under the policy. The Supreme Court of Florida rejected the insurer's position and did not permit depreciation in the face of a covered total loss by fire. The Robinson court stated its ruling was dictated by the valued policy statute. In 1969, the Florida Legislature amended the valued policy law so that the provision referring to total losses applied to all covered perils. Inexplicably, no change was made to the provision of the valued policy law concerning partial losses, which still only applies to losses caused by fire or lightning.

In light of the language of the statute and the opinions interpreting and applying that language, a total loss to insured property caused by windstorm is subject to the valued policy law for total losses but not partial losses. In subsection (2) the law provides that, in the event of a partial loss caused by the perils of fire or lightning only, the insurer must pay "the actual amount of such loss." However, as noted in State Farm Fire and Casualty Co. v. Patrick, 647 So. 2d 983 (Fla. 3d DCA 1994), reh. den, [10] a partial loss due to windstorm is not subject to the statute.

In Patrick [11] the insurer paid the insured actual cash value for damages from windstorm and held back depreciation until the insured completed the repairs. On appeal, the insured argued that the withholding of depreciation until the insured completed the repair work was prohibited by the valued policy law. [12] The Florida Third District Court of Appeal held that "section 627.702(2) is not applicable because it covers only partial loss from fire or lightning; this case deals with wind damage." [13] The court further held that "[i]n the absence of a specific prohibition to the contrary, the language of the contract is controlling," thus relying on the policy language to determine whether the insurer could retain hold-back depreciation until repairs were completed. [14]

American Reliance Insurance Co. v. Perez, [15] also concerned a partial wind loss. The insureds decided not to repair the property after the loss. Given the insureds' intent not to repair, the insurer paid the insureds actual cash value for the loss. The insureds then sued the insurer for the difference between actual cash value and replacement cost. The trial court awarded summary judgment in favor of the insureds. On appeal, the Florida appellate court first determined that under the policy language, the insureds were entitled to only actual cash value for the loss until they actually repaired or replaced the property. [16] Additionally, the court determined that depreciation was properly considered in determining "actual cash value," [17] reversed the summary judgment in the insureds' favor, and remanded the case. The valued policy law was not even mentioned, presumably because the case involved only a partial loss caused by windstorm, not fire or lightning. 

Blanket Coverage – The Exception

Section 627.702 (3)(b) of Florida's valued policy law limits the application of the first two paragraphs of the statute. It provides "The provisions of subsections (1) and (2) do not apply when: (b) Two or more buildings, structures, mobile homes, or manufactured buildings are insured under a blanket form for a single amount of insurance..."

While there are no reported cases interpreting § 627.702 (3)(b), the practical reason for the limitation is that the "total loss" of any one structure would not implicate the policy limit. Thus, the goal of the valued policy law, speedy payment of the amount the parties have fixed for the property, would not be advanced by applying it where two or more structures are insured under a blanket form for a single amount of insurance.  

Definition of "Total Loss"

Florida's valued policy law is implicated when the insured structure is deemed to be a "total loss." Unfortunately, the statute does not define the term "total loss." Complicating perceptions of what constitutes a "total loss" are the impact of FEMA regulations for homes within designated flood plains [18] and the requirements of the Florida Building Code. [19] While both sets of rules may impact the rebuilding process, they do not, by their terms, determine when a property is or is not a total loss for the purposes of Florida's valued policy law.

In cases in which a structure is involved, the courts have applied two tests to determine what constitutes a "total loss:" (1) the "identity" test and (2) the "restoration" test. Under the "identity test," a structure is a total loss if the damage to the structure is so severe that it has lost its identity and character as a building, even though a portion of the building's components remain and could be utilized for some useful purpose. [20] Under the "restoration test," a structure is a total loss if a reasonably prudent owner would not use the remains of the structure after the loss as a basis for restoring the building to its pre-loss condition. [21]

In Lafayette Fire Ins. Co. v. Camnitz, 503 So. 2d 1321 (Fla. 1st DCA 1987), [22] the Florida Supreme Court adopted the "identity test," upholding the trial court's use of a jury instruction using that test. The trial court advised the jury:

That in construing a fire insurance policy, by a total loss, is meant that the building has lost 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. It matters not that some debris remains which may be useful or valuable for some purposes. A policy of insurance upon a building is an insurance upon the building as such, and not upon the material of which it is composed. The Court further charges you that if the identity and specific character of the insured building was destroyed by fire, although there was not an absolute extinction of all the parts thereof, it would still be a total loss within the policy of insurance herein.

In light of the Florida Supreme Court's holding, the critical issue is not the limits of the contract between insured and insurer. While the parties agreement may set limits on benefits under the policy, damage which reaches those limits will not implicate the provisions of the valued policy law. Instead, the insurer and insured will need to determine whether the "identity and specific character of the insured building was destroyed." 

"Constructive Total Loss"

In addition to the definition of "total loss" under the "identity" test, when an insured building or structure is damaged by a covered peril and an ordinance or regulation prevents repair, it may be deemed to be a "constructive total loss." [23] Such a designation will also result in an application of Florida's valued policy law. The following Florida cases are instructive.

In Netherlands Ins. Co. v. Fowler, 181 So. 2d 692 (Fla. 2d DCA 1966), [24] the policy provided $10,000 in dwelling coverage to the extent of the actual cash value at the time of loss, but not exceeding the amount it would cost to repair or replace the property and without any allowance for increased costs of repair or reconstruction by reason of any ordinance or law regulating construction or repair. Following a fire in which the insured building was significantly damaged, the city refused to allow the building to be repaired and ordered it demolished because it was deemed to be unrepairable and dangerous.

The insurer appraised the damage caused by the fire at $4,619.69 and tendered this amount. The insured refused to accept the tendered amount and sued for the $10,000 face amount of the policy. The insured argued that under the valued policy law, she was entitled to the face value of the policy because the fire caused the damage that prompted the condemnation by the city. The insurer argued that the building was only partially damaged by the fire and that the total destruction of the building was caused by operation of the building codes.

The Florida appellate court agreed with the trial court in holding that the building was a total loss under the circumstances and that the valued policy law applied, entitling the insured to the full face amount of the policy. The court reasoned that even though the fire had only partially damaged the building, the loss was a "constructive total loss" because the city found the building to be unrepairable and ordered its destruction.

Following the language in Fowler, a loss is deemed to be a "constructive total loss" when an insured building or structure is damaged by a covered peril and repairs are prohibited pursuant to an applicable law or ordinance. Under these circumstances, the Fowler court concluded that payment of the policy limit, or the "value of the policy," must be paid to the insured. However, the outcome is different when the insured building or structure is damaged by a covered peril and the cost of repairs are only increased pursuant to an applicable law or ordinance. As described below, these situations do not trigger application of the constructive total loss rule and therefore do not require a payment of the policy limits under Florida's valued policy law.

In Regency Baptist Temple v. Ins. Co. of North America, 352 So. 2d 1242 (Fla. 1st DCA 1977), [25] part of the roof of the insured structure collapsed under the weight of standing water. It was determined that the collapse occurred because the entire roof was originally installed with the trusses upside down. Thereafter, the parties reached a settlement on replacing the collapsed portion of the roof. However, pursuant to a local ordinance, the city refused to issue a building permit unless the entire roof was replaced. When the insurer refused to pay to replace the entire roof, the insured filed suit. The trial court found that, under the terms of the policy, the amount payable was "the replacement cost of the property damaged or destroyed at the time of loss without deduction for depreciation." The policy excluded coverage for loss "occasioned directly or indirectly by enforcement of any local or state ordinance or law regulating the construction, repair or demolition of buildings or structures."

On appeal, the Florida appellate court agreed with the trial court, holding that the loss was not a total loss, and refusing to require the insurer to pay for the code upgrades for the undamaged portion of the roof. In addition, regarding the provision that explicitly excluded coverage for loss due to the enforcement of any ordinance or law regulating construction or repair, the court noted:

The rule is otherwise when, in the case of loss by fire or lightning, such a provision conflicts with Florida's valued policy law, Section 627.702, Florida Statutes (1975). Netherlands Ins. Co. v. Fowler, 181 So. 2d 692 (Fla. 2d DCA 1966). 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. [26]

Thus, simply because an ordinance or law may require repairs to undamaged portions of the building or structure, this does not render the loss a constructive total loss as long as the ordinance or law does not prevent repairs. 

Policy Limits as "Total Loss"

There is a common misconception that when potential repair or replacement costs near policy limits, that the property is a "total loss" for the purposes of the valued policy law. However, whether a property is a "total loss" is not related to the cost of repair. Instead, as noted above, that designation will depend on whether the structure has lost its identity and character as a building [27] or is considered a "constructive total loss" because law or ordinance prohibits the insured from repairing the structure and thus returning it to functional use.

Once a property has been determined to be a total loss, the parties must look to the statute and the policy to determine what is owed. Keeping with the legislative history of the statute, there is no occasion to consider actual or replacement costs. The parties to the contract must also bear in mind that the reverse is also true. When the structure is not a "total loss" the restrictions and exclusions of the policy may dictate significant limits on benefits despite the fact that anticipated replacement or repair costs meet or exceed policy limits.  

Mierzwa – A Category Five

In Mierzwa v. Florida Windstorm Underwriting Ass'n, 2004 WL 1392320, 29 Fla. L. Weekly D1528, (Fla. 4th DCA., June 23, 2004), [28] a Florida appellate court addressed the implications of Florida's valued policy law in a case involving multiple carriers insuring the same property for different perils. The homeowner had wind insurance with one carrier and flood insurance with another. The wind insurer's policy contained an anti-concurrent cause clause excluding coverage for any damage other than by wind. The dwelling sustained both wind and flood damage. An ordinance of the city of Fort Lauderdale required buildings to be made to conform to the current construction requirements whenever repairs and alterations amounted to more than fifty percent of the value of the existing building during any 12-month period. For the insured's building, the building code required that the site be elevated and this could not be done without demolishing the structure. The city condemned the building once it determined that the cost of repairs for the total damage exceeded half the value of the building.

The insured argued that Florida's valued policy law required the wind insurer to pay the face amount of the policy if the building was a total loss even if there were multiple policies on the property and windstorm resulted in a fraction of the damage to the property. The insured also argued he was due an additional 25 percent in benefits under the ordinance or law coverage. The wind insurer argued that it was liable only for its pro rata share, not for the face amount of the policy. The trial court found for the carrier. The trial court also refused to award any additional sum for "law and ordinance" coverage, ruling that the damage by windstorm alone had not resulted in damage exceeding fifty percent of the structure's value and thus had not resulted in the application of the City ordinance.

Importantly, either the insurer did not argue that the valued policy law does not apply, or the trial court did not accept such an argument. The trial court did accept the argument that, notwithstanding the applicability of the valued policy law, the insured need not pay its limits. The insurer defended its argument for a pro rata liability on appeal. Despite the apparent equities in favor of the insurer, the Florida appellate court reversed the trial court, holding the insurer was liable for both the face value of the policy and the additional amount for law and ordinance coverage.

The Florida appellate court found that the meaning of Florida's valued policy law was "simple and straightforward." If the building is insured by an insurer for a covered peril and the building is deemed to be a total loss, the valued policy law mandates that the carrier is liable to the owner for the face amount of the policy, no matter what other facts are involved as to the cost of repairs or replacement. According to this Florida appellate court, once there is a determination that there is a covered peril and a total loss, the actual cause of the total loss is irrelevant.

The quixotic nature of the majority's decision is addressed by Judge Gross' concurring opinion. In that opinion, Judge Gross, urges the application of a "proximate cause" standard:

I disagree with the majority's holding that "if the insurance carrier has any liability at all to the insured for building damage by covered peril and deemed a total loss, that liability is for the face amount of the policy."

The better rule is to require that a covered peril be the proximate cause of the total loss in order to trigger the valued policy law. . . A proximate cause analysis does not change this case, since it is clear that but for the wind damage, the ordinance would not have been brought into play.

While more balanced than the majority opinion, the relief promised by Judge Gross' "proximate cause rule" or "but for" standard might prove to be a bit illusory in this particular application. It would only apply where the structure would have been deemed a constructive total loss or an actual total loss even in the absence of the damages caused by the covered peril. Even if Judge Gross' "proximate cause rule" was adopted by other Florida courts, it is suspect as to whether the universe of applicable claims would be significant. Nevertheless, the test suggested by Judge Gross' concurring opinion would at least avoid the more Kafkesque results of the majority's decision.

Perhaps the most disturbing aspect of the Mierzwa decision is its superficial, broad brush approach to the rights of the parties under the terms of the contract. After finding that each of multiple carriers insuring the same property would owe policy limits to the insured, the Mierzwa court found that the windstorm insurer also owed an additional amount over policy limits for its "law and ordinance" coverage. Without substantive comment, Mierzwa sets aside the contract's requirement that increases in benefits due to "law and ordinance" coverage depend on whether the damaged caused by the covered peril actually resulted in increased costs due to the application of a "law or ordinance." In simple terms, it seems clear that such coverage was simply not due unless the amount of the loss exceeded the policy limits for the dwelling. No such calculations were ever made or addressed by the court. The court acknowledged that the purpose of the coverage was to compensate the insured for the increased costs of reconstruction caused by changes in local building codes adopted after the original construction of the building. Despite that reality, the court failed to make any findings as to what the reconstruction costs would be or whether they were actually increased by any law or ordinance. Instead, without any further discussion or explanation, the court advised:

The resolution of this claim is partially related to the decision on the VPL issue; if the building is deemed a total loss for the purpose of VPL it should certainly be deemed a total loss for purposes of this ordinance or law coverage. 

Mierzwa Under the Microscope

As Judge Gross seems to recognize, given the historical and public policy context of the valued policy law, it is clear that the statute was not written to apply to a policy that excludes the peril that is the cause of an actual or constructive total loss. That is, the valued policy law was neither intended nor written to apply where a first-party property carrier excludes certain causes or perils from coverage and only when those excluded perils or causes are combined with the covered peril or cause is there a constructive total loss or actual total loss.  

The Expectations of the Parties – The Contract and the Law

In one respect, the court's decision with respect to the dwelling limits appears consistent with the terms of the valued policy law, which both the insurer and the homeowner are presumed to know. On its face, the statute does not provide for valuation of actual damages once the building has been condemned. Similarly, the statute does not provide for prorating the amounts due for the dwelling under a valued policy when there are multiple policies.

However, while Mierzwa appears to apply the language of the valued policy law literally, it ignores the purpose of that statute which was to compel the payment of policy limits when there is a total loss as the result of a covered peril. In Mierzwa, the contributing cause of the construction loss was expressly excluded from coverage. In applying the valued policy law, the Mierzwa court relied upon Millers Mut. Ins. Assoc. v. La Pota, 197 So. 2d 21, Fla. 2d DCA 1967), a decision by the Second Circuit Court of Appeal. Despite the court's citation, the facts of the case are distinguishable from the facts of Mierzwa. More importantly, the reasoning of the La Pota court is completely inconsistent with the result reached in Mierzwa.

In La Pota one covered peril caused the total loss and thus the application of the valued policy law. Two different insurance companies provided fire insurance policies covering the same risk of fire that resulted in the application of the valued policy law. One of the carriers, Millers Mutual Association of Illinois, attempted to argue a "pro rata liability" thus reducing its coverage below its policy limits. The La Pota court held that the insurer could not pro rate liability but must pay its policy limits under the valued policy law. The court quoted Rutherford v. Imperial Ins. Co., 164 So. 2d 213, 214 (Fla. 1st DCA, 1964):

The New York Rule, which we think reflects the better view and weight of authority is that, barring any agreement to the contrary, a fire insurance policy is a contract to insure against fire loss, and its premium are assumed to represent the fair equivalent of the obligation contracted for by the insurer without knowledge of the existence of collateral remedies.

While troublesome from a perspective of the principles of indemnity, the resolution nevertheless met both the expectations of the insurer who had insured the property for fire, and the public's desire to hold insurers to their bargains with policyholders. Of course, this is exactly what does not occur under the Mierzwa facts. In Mierzwa, an insurer is suddenly compelled to pay policy limits as a result of perils and causes expressly excluded from coverage and for which premiums were never collected from the insured.

The problem with Mierzwa is clear: The court is trying to fit a 2004 fact pattern into a one hundred year old statute. The valued policy law was written for one insurance contract, one covered peril, and one occurrence resulting in a constructive total loss or actual total loss. The singular nature of the statute, upon which the Mierzwa court so heavily relies, is, paradoxically, evidence of this fact. The negative implications of the decision are just now becoming clear.

Mierzwa appears to stand for the proposition that any first party property insurer that has any coverage for any damages resulting from an occurrence, and as a result of that occurrence the structure is deemed a constructive total loss or total loss, that first party insurer must pay its policy limits. Under the court's ruling, this is true regardless of whether the damage insured against would ever had resulted in the condemnation decision. The property in Mierzwa was damaged by a combination of flood and wind, a common combination in a hurricane. After Mierzwa, the property owner who suffers a severe loss can now rely on his or her windstorm policy limits to cover contemporaneous flood damages as well. The court's decision thus invites homeowners seeking to save on insurance to forgo costly flood insurance altogether. It may also invite insurers who do not wish to be stuck for the cost of uninsured perils to simply abandon Florida for jurisdictions where the policy's limitations on covered perils will have meaning. 

The Basic Principles of Indemnity

Another significant concern raised by the Mierzwa decision is its disregard for the basic concepts of indemnity that underlie property insurance law. The general rule is that damages are compensatory in nature and, as such, provide recovery to an injured party for injuries sustained and nothing more. Damages are generally unrecoverable where a plaintiff has not paid or is not liable for such items as the insured in such a situation has suffered no loss. Jones v. Crawford, 361 So. 2d 518 (Ala. 1978). As the Third District Court of Appeal stated in Bank of Miami Beach v. Newman, 163 So. 2d 333 (Fla. 3d DCA 1964):

It is fundamental that a person is not entitled to recover damages if he has suffered no injury.

The basis for the Florida District Court of Appeal holding was the nature of property insurance itself. Unlike event policies such as life insurance, valuation policies such as the one in this case are designed to protect or indemnify the insured against loss. Under such coverage, the insured is not entitled to receive a stipulated payment merely upon the happening of a specified event. Instead, the policy provides indemnification within the limits of the policy for the insureds actual loss.

The Third District Court of Appeal distinguished between event and valuation policies in DeCespedes v. Prudence Mut. Cas. Co. of Chicago, Ill., 193 So. 2d 224 at 226 (Fla. 3d DCA 1966), aff'd 202 So. 2d 561 (Fla. 1967):

Where the feared loss is susceptible to an objective financial determination, however, the principle of indemnity is applied (with a few rare exceptions). The primary purpose of this insurance is to indemnify the insured against loss, that is, to allow him a true restitution for the loss suffered. Now that a loss may be objectively estimated financially, the possibility of undue enrichment, profit or double recovery becomes obvious if steps are not taken to limit the sources of recovery that may be available to the insured. The insured must not be encouraged to use the coverage for profit as this intends to increase moral hazard and could ultimately undermine the whole concept of insurance.

As noted by the court's decision in DeCespedes, under the laws of the majority of states, including Florida, public policy has been held to prohibit a plaintiff from recovery more than once for a particular loss. In DeCespedes, the plaintiffs were injured when their automobile was involved in an accident with another automobile owned and operated by tortfeasor. The plaintiffs admitted to having settled their claims against tortfeasor and admit to having executed releases. They then sought to recover a second time for their medical expenses under the medical payment provision of their automobile policy issued to the owner-driver of their car. The DeCespedes court rejected the insureds attempt to obtain double payments from the tortfeasor and the insurer. The court noted that there was no contention that the settlement was in any way inadequate to fully compensate them for their expenses. As such, they had no loss to claim and were not entitled to use insurance coverage for profit.

In Mosley v. American Medical Intern., Inc., 712 So. 2d 1149 (Fla. 4th DCA 1998), the court addressed the issue in a case involving an injured plaintiff who settled with the tortfeasor for all injuries and then attempted to sue the physician who treated him for alleged malpractice in treating those injuries. In rejecting the plaintiffs claim against the physician, the court held that, a victim has the option of either recovering from the initial tortfeasor for the full extent of his injuries, including any injuries caused by the subsequent negligence of health care providers, or recovering from the initial tortfeasor and the negligent health care providers separately. A victim may not recover from both the initial tortfeasor and the negligent health care providers for the same injuries. [29]

Despite the hostility of the law to insurance windfalls, the decision of the court in Mierzwa compels just such a result. That result should have signaled the court that it was misapplying the valued policy law. Instead, the court suggests that double payment to the insured is somehow not unjust because the insurer was always liable to pay policy limits under the law. In essence, the court uses its first error, a blind application of the valued policy law, to justify the result, a violation of the basic principles of indemnity. As a consequence, both the courts reasoning and the result appear inconsistent with commonly accepted legal principles. It is difficult to imagine that the impact of the Mierzwa decision will be anything but a catastrophe for those who must pay the premiums required to cover such "excluded" risks.

There is no Florida appellate court decision in conflict with Mierzwa. As a consequence, review of Mierzwa by the Florida Supreme Court is not possible. Despite the obvious limitations of the decision, an insurer who wants to challenge the holding in Mierzwa must first refuse to follow it. The trial court, bound by the Mierzwa decision, will be constrained to rule against the insurer. The insurer will then have to obtain an appellate decision in its favor or one which can be appealed to the Florida Supreme Court. Unless it obtains a decision which overturns Mierzwa, the insurer runs significant risks of a subsequent suit for "bad faith" by the insured.

It seems clear that the language of the existing statute was drafted before the current proliferation of single risk policies such as those which purport to provide coverage for flood or windstorm damage alone. The Mierzwa decision makes the limits of these policies illusory at best by compelling the payment of policy limits from each carrier were there is a total loss, regardless of the amount of damage caused by the covered peril.

Paragraph (3) of the valued policy law provides for exceptions to the statute. The Legislature could ameliorate the impact of Mierzwa, and ensure the expectations of the parties are honored, by making the following addition to those exceptions:

(d.)      Insurance policies are issued or renewed by more than one company insuring the same building, structure, mobile home, or manufactured building and those policies protect the structure against different perils.

With such an exception, the valued policy law would simply not apply to situations where more than one insurer provided coverage for the same building, structure, mobile home, or manufactured building, but did so for different perils which might damage the insured structure during a single occurrence. By eliminating the potential for double compensation for the same property, such an exception would reflect the parties expectation that the insured will be made whole for damage caused by perils insured under the property rather than enriched by a loss.

With the proliferation of single peril policies, it may be that the legislature will want to provide some measure of additional protection in situations where there are multiple policies addressing different risks which combine to cause a total loss or constructive total loss to a structure. An alternative which required the insurers to pay a pro rata share of policy limits in these cases would provide such additional protection but still prevent insurance from becoming a profit-making venture for the insured. Such an exception might appear as follows:

(d.)      Insurance policies are issued or renewed by more than one company insuring the same building, structure, mobile home, or manufactured building for a single occurrence that causes damage resulting in a total loss of the insured property. In such a case, each insurer shall pay a prorated amount of its respective policy limits based upon the percentage of the loss caused by the peril insured against under the policy issued by that insurer.


The Mierzwa decision seems inconsistent with both the principles of insurance and of contract law. Unfortunately, until the Florida Legislature amends the valued policy law, Mierzwa will continue to have an unfortunate economic impact on the cost of property insurance in Florida. 

Conclusion

The significant damage due to hurricanes can give rise to claims that an insured home or business has suffered a "total loss." The insureds in such situations may believe they are always entitled to the limits of their policies once the value of repairs or replacement approach arbitrary percentages of the property's value or policy limits. On the other side, faced with a flood of claims, insurers and adjusters may proceed as they would with more usual claims for partial loss. Despite the fact that the property has been condemned by the civil authority, they may nonetheless demand estimates or repair or withhold a portion of benefits because the repairs have not been made. [30] While errors on both sides are made in good faith, the conflict they can generate can make an already difficult environment more stressful.

Under Florida's valued policy law, the limits set in the policy become the measure of the insurer's obligation once the property is determined to be either a total loss or a constructive total loss. The Mierzwa court's interpretation of Florida's valued policy law has greatly increased the potential for conflict over that determination. After Mierzwa, the insured's conviction that his or her property home is a "total loss" may be sharply enhanced by the prospect that such a determination will result in a windfall of double policy limits. In a similar vein, an insurer's incentive to litigate whether a property is a total loss has been significantly increased. As noted above, under Mierzwa a finding that a property is a total loss may now require the insurer to tender policy limits even when virtually all the damage has been caused by a peril which is excluded under the policy.

To lessen such conflict, practitioners, adjusters and insureds should keep in mind that the term "total loss" does not appear in either Florida's valued policy law or in most policies. Instead, the term has been defined by Florida's courts. Those decisions make it clear that a property is a "total loss" when the damage is so severe that the property has lost its identity and character as a structure. A "constructive total loss" will be found if the court finds the action of civil authorities requires the condemnation and destruction of the structure. The limits set in the policy are not relevant to either determination.

Endnotes

1.   § 627.702(1), Fla. Stat. (2003).

627.702. valued policy law

(1)  In the event of the total loss of any building, structure, mobile home as defined in s. 320.01(2), or manufactured building as defined in s. 553.36(12), located in this state and insured by any insurer as to a covered peril, in the absence of any change increasing the risk without the insurer's consent and in the absence of fraudulent or criminal fault on the part of the insured or one acting in her or his behalf, the insurer's liability, if any, under the policy for such total loss shall be in the amount of money for which such property was so insured as specified in the policy and for which a premium has been charged and paid.

(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 such loss but shall not exceed the amount of insurance specified in the policy as to such property and such peril.

(3)  The provisions of subsections (1) and (2) do not apply when:

(a)  Insurance policies are issued or renewed by more than one company insuring the same building, structure, mobile home, or manufactured building, and the existence of such additional insurance is not disclosed by the insured to all insurers issuing such policies;

(b)  Two or more buildings, structures, mobile homes, or manufactured buildings are insured under a blanket form for a single amount of insurance; or

(c)  The completed value of a building, structure, mobile home, or manufactured building is insured under a builder's risk policy.

(Subparagraphs 4-8 omitted)

2.    Mierzwa v. Florida Windstorm Underwriting Ass'n, 877 So. 2d 774 (Fla. 4th DCA, 2004); Citizens Ins. Co. v. Barnes, 124 So. 722 (Fla. 1929); Regency Baptist Temple v. Ins. Co. of N. Am., 352 So. 2d 1242 (Fla. 1st DCA 1977).

3.    Springfield Fire and Marine Ins. Co. v. Boswell, 167 So. 2d 780 (Fla. 1st DCA 1964).

4.   While the valued policy law also applies to partial losses due to fire and lightning, there the statute merely requires the payment of replacement costs. Arguably the justification for this state directive is to eliminate delays in repairs that might otherwise be occasioned by disputes over the difference between replacement costs and the actual cash value of damages due to fire and lightning.

5.    Id. at 784.

6.   § 627.702(1), Fla. Stat. (2003).

7.   § 627.702(7), Fla. Stat. (2003).

* * *

(7)    Nothing herein shall be construed as prohibiting an insurer from repairing or replacing damaged property at its own expense and without contribution on the part of the insured except, as provided in subsection (6), when an insured has elected to purchase stated value coverage. Such repair or replacement of damaged property shall be in lieu of any liability created by subsection (1); and any insurer so repairing or replacing shall have no liability pursuant to subsection (1), provided such insurer returns to the named insured a portion of the premium, for all policy terms during which the policy limits were the same as those in effect on the date on which the loss occurred, equal to that portion of the premium paid for limits of insurance on the structure in excess of the cost of replacement.Nothing herein shall be construed as prohibiting an insurer from repairing or replacing damaged property at its own expense and without contribution on the part of the insured except, as provided in subsection (6), when an insured has elected to purchase stated value coverage. Such repair or replacement of damaged property shall be in lieu of any liability created by subsection (1); and any insurer so repairing or replacing shall have no liability pursuant to subsection (1), provided such insurer returns to the named insured a portion of the premium, for all policy terms during which the policy limits were the same as those in effect on the date on which the loss occurred, equal to that portion of the premium paid for limits of insurance on the structure in excess of the cost of replacement. 

8.    Mierzwa v. Florida Windstorm Underwriting Ass'n., 2004 WL 1392320, 29 Fla. L. Weekly D1528, (Fla. 4th DCA., Jun 23, 2004); valued policy law § 627. 702(1) ("[T]he insurer's liability, if any [e.s.] shall be [the face amount of insurance].")

9.    American Ins. Co. v. Robinson, 163 So. 17 (Fla. 1939).

10.    State Farm Fire and Casualty Co. v. Patrick, 647 So. 2d 983 (Fla. 3d DCA 1994), reh. den.

11.    Id.

12.   § 627.702(2), Fla. Stat. (1991)

13.    State Farm Fire and Casualty Co. v. Patrick, 647 So. 2d at 984 (Fla. 3d DCA 1994).

14.   Id.

15.    American Reliance Insurance Co. v. Perez, 689 So. 2d 290 (Fla. 3d DCA 1997).

16.    Id. at 290-91.

17.    Id. at 292.

18.   In order for a structure to be rebuilt when it is located within a flood zone it must strictly adhere t the guidelines as set out by FEMA. The guidelines prohibit rebuilding a damaged structure if it is determined to be "substantially damage."

Simply put, a substantially damaged structure is one where the cost of restoring the structure to its before damaged condition would equal or exceed fifty percent of the market value of the structure before the damage occurred.

Substantially Damaged Structures

If the costs necessary to fully repair a structure to its before damaged condition is equal to or greater than fifty percent of that structure's market value before damages, then the structure must be elevated to or above base flood elevation (BFE), and meet all other applicable NFIP requirements. Conversely, a structure determined to have less than fifty percent damage can be repaired without conforming to the BFE and other NFIP requirements.Market Value Determination (FEMA)

19.   The Florida Building Codes Study Commission was established in 1996 to evaluate the existing code system and recommend ways to improve the system. At that point, Florida building code system was a patchwork of codes and regulations developed, administered and enforced differently by more than 400 local jurisdictions and state agencies. After 16 months of analyzing the current system, the commission made recommendations that were submitted to the legislature in 1998. The legislature then adopted a plan for a single, statewide code to replace the many local and state codes which were presently in existence. The new legislation required increased education and training and created an approval process for new building products. The law also established the Florida Building Commission, which was responsible for the development of the code. The new code was required to satisfy two primary policies: (1) it must be unified and consistent yet satisfy regional and local concerns; and (2) it must allow individual jurisdictions to amend the code to make it more stringent when warranted.

After conducting a series of meetings across the state and receiving input from the public, industry and building code professionals, a new code was drafted, using the 1997 Standard Building Code as the base code. The proposed code was revised by various technical committees until the final version of the new code was completed in November 1999. The new code was submitted to the 2000 Legislature to enact into law, with an effective date of January 1, 2002. The effective date was later moved to March 1, 2002.

20.    LaFayette Fire Ins. Co. v. Camnitz, 111 Fla. 556, 149 So. 653 (1953); Paterson-Leitch Co. v. Insurance Co. of N. America, 366 F. Supp. 749 (N.D. Ohio 1973); Group Von Graupen v. Employers Mutual Fire Ins., 259 F. Supp. 934 (D. P.R. 1966); Security Ins. v. Rosenburg, 227 Ky. 314, 12 S.W.2d 688 (1928); Meccage v. Spartenburg Ins. Co., 156 Mont. 135, 477 P.2d 115 (1970); Stahlberg v. Travelers Indem. Co., 568 S.W. 2d 79 (Mo. App. 1978).

21.    Phoenix Ins. Co. v. Loetscher, 215 Ark. 23, 219 S.W.2d 629 (1949); McManus v. Travelers Ins. Co., 360 So. 2d 207 (La. App. 1978); Home Ins. v. Greene, 229 So. 2d 576 (Miss. 1969); Hochheim Prairie Mut. Ins. v. Burnett, 698 S.W.2d 271 (Tex. App. 1985); Bennett v. Imperial Ins. Co., 606 S.W.2d 7 (Tex. App. 1980).

22.    Lafayette Fire Ins. Co. v. Camnitz, 149 So. at 654 (Fla. 1933).

23.    Reliance Ins. Co. v. Harris, 503 So. 2d 1321 (Fla. 1st DCA 1987); Regency Baptist Temple v. Ins. Co. of North America, 352 So. 2d 1242 (Fla. 1st DCA 1977); Netherlands Ins. Co. v. Fowler, 181 So. 2d 692 (Fla. 2d DCA 1966). In cases decided under valued policy statutes in other states, courts have uniformly held that upon a showing that a demolition was required by law the insured may recover as for a total loss. See generally: Stahlberg v. Travelers Indemnity Co., 568 S.W. 2d 79 (Mo. App. Ct. 1978); Gambrell v. Campbellsport Mut. Ins. Co., 177 N.W. 2d 313 (Wis. 1970); Maryland Cas. Co. v. Frank, 452 P. 2d 919 (Nev. 1969); Fidelity and Guaranty Ins. Corp. v. Mondzelewski, 115 A. 2d 697 (Del. 1955).

24.    Netherlands Ins. Co. v. Fowler, 181 So. 2d 692 (Fla. 2d DCA 1966).

25.    Regency Baptist Temple v. Ins. Co. of North America, 352 So. 2d 1242 (Fla. 1st DCA 1977).

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