Hurricane Ian Shoreline Loss: Four Policies, Oh Joy!
October 19, 2023
Because there can be more than one individual or entity that holds an interest in the property, a property insurance policy is generally drafted in such a way to identify and protect all the individuals or entities who have an interest in the property, even a mortgagee. When there is a loss to property covered by the insurance contract, all those individuals or entities have a vested interest in the insurance claim proceeds.
After a loss and typically before the claim is ever reported to the insurance company, it has become quite commonplace in Florida that a third-party company will show up at the property and seek a signature from an insured on an assignment of benefits form. An insured, sometimes unknowingly, signs away all rights to, and control of, the claim to this third-party under the pretext that this is required for that third-party to begin work in their home.
Seeing that many of these insureds solely signed away the vested rights of other individuals/entities through assignments of benefits forms, several insurance companies implemented policy language that required the “consent” of all insureds, all additional insureds, and all mortgagees to any pre-loss or post-loss assignment of benefits. These policy provisions give each individual or entity who has an interest under the policy and the claim the opportunity to independently evaluate whether they wish to handover the benefits and control of their claim to a third-party. If all insureds or mortgagees do not execute the assignment, there is no assignment of the claim and the third-party has no standing to obtain benefits under the policy.
In 2017, the Fifth District Court of Appeal held that this policy provision violated established Florida assignment of benefits law. Security First Insurance Company v. Florida Office of Insurance Regulation, 232 So. 3d 1157 (Fla. 5th DCA 2017).
Recently on September 5, 2018, the Fourth District Court of Appeal issued an opinion pointedly disagreeing with the Fifth District Court of Appeal’s Security First decision, reasoning that the Fifth District Court of Appeal in Security First misconstrued Florida law. Restoration 1 of Port St. Lucie v. Ark Royal Ins. Co., No. 4D17-1113, 2018 WL 4211750 (Fla. 4th DCA Sept. 5, 2018). The Fourth District Court of Appeal in Restoration 1 found that these insured/mortgagee consent provisions are wholly permissible under Florida’s freedom of contract principles. Id.
In Restoration 1, the insurance policy contained a provision that required the consent of all insureds, all additional insureds, and all mortgagees to an assignment of benefits. Id. The policy named two insureds and a mortgagee. Id. Only one insured signed the third-party’s assignment of benefits form, the other insured and the mortgagee did not. Id.
In reasoning that these insured/mortgagee consent provisions are enforceable and thereby holding the purported assignment of benefits to be invalid, the Fourth District Court of Appeal in Restoration 1 noted that the Florida Supreme Court’s decision in West Florida Grocery Company v. Teutonia Fire Insurance Company, 77 So. 209 (Fla. 1917), only forbade a policy provision that requires the consent of the insurance company to the assignment of benefits. Id. Under West Florida Grocery, the insured has the absolute right to execute an assignment of benefits to a third-party entity, whether or not the insurance company consents to it. 77 So. at 210-11. Nothing in the insured/mortgagee consent provisions changes this central premise that the individual or entity that has an interest in the claim is free to assign the benefits to a third party.
The Fourth District Court of Appeal in Restoration 1 took issue and certified conflict with the Fifth District Court of Appeal’s decision in Security First, noting that the Security First decision erroneously extends the holding in West Florida Grocery to preclude enforcement of any provision that simply “imposes a condition” that all those that have an interest in the claim agree to assign the benefits of that claim to a third-party. Restoration 1 of Port St. Lucie, No. 4D17-1113, 2018 WL 4211750.
Moreover, the Fourth District Court of Appeal in Restoration 1 refused to find that this type of consent provision “causes some great prejudice to the dominant public interest.” Id. (internal quotation and citation omitted). In fact, this type of consent provision serves the public interest because it gives each individual or entity that has an interest in receiving money from the claim the opportunity to evaluate the third-party and whether their rights under the policy should be assigned to that third-party. With this policy provision, one can no longer commandeer the rights of others and speak for all.
In the end, however, the Fourth District Court of Appeal’s Restoration 1 decision and the Fifth District Court of Appeal’s Security First decision create different laws in different jurisdictions. The Fourth District Court of Appeal’s decision in Restoration 1 applies in the following Florida counties: Palm Beach, Broward, Indian River, Martin, Okeechobee, and St. Lucie. The Fifth District Court of Appeal’s decision in Security First applies in the following Florida counties: Citrus, Hernando, Lake, Marion, Sumter, Flagler, Putnam, St. Johns, Volusia, Orange, Osceola, Brevard, and Seminole.
At present, a court within the jurisdiction outside of these counties could elect to apply the holding from either the Fourth District Court of Appeal or the Fifth District Court of Appeal. Given the Fourth District Court of Appeal’s pointed criticism of the Fifth District Court of Appeal’s reasoning, however, it is very possible that other courts could align themselves with the Fourth District Court of Appeal in Restoration 1 and uphold similar insured/mortgagee consent policy provisions.
For any further questions, please contact William Collum.