Defining Occurrence – When Policy Definitions Do Not Apply To All Coverages
September 24, 2020
DOES THIS MATTER FOR INSURANCE POLICY INTERPRETATION?
Florida Governor Ron DeSantis issued an Executive Order declaring a state of emergency due to COVID-19. Many Florida cities and counties have issued their own orders to reduce the spread of the virus. At least two of the orders contained language that was curious to those connected to the property insurance industry.
Broward County Emergency Order 20-03 contained the following clause:
WHEREAS, this Emergency Order is necessary because of the propensity of the virus to spread person to person and also because the virus is physically causing property damage due to its proclivity to attach to surfaces for prolonged periods of time.
Panama City Resolution No. 20200318.1 contained the following clause:
This resolution is necessary because of the propensity of the virus to spread person to person and also because the virus physically is causing property damage due to its proclivity to attach to surfaces for prolonged periods of time.
The word choice was curious because the insuring language in most property insurance policies require property damage in order for there to be a covered loss. For instance, the insuring language may say:
We will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.
Shortly after Broward County issued its order, at least one person began to advertise a “Coronavirus Disinfection training course.” One of the topics covered:
Broward County has stated that the virus is causing property damage. Can there be insurance coverage under a $3K AOB for emergency services mitigation under HB7065.
The mention of HB7065 is a reference to a recent law passed in Florida. It is codified at Florida Statute § 627.7152. It reads, in relevant part:
If an assignor acts under an urgent or emergency circumstance to protect property from damage and executes an assignment agreement to protect, repair, restore, or replace property or to mitigate against further damage to the property, an assignee may not receive an assignment of post-loss benefits under a residential property insurance policy in excess of the greater of $3,000 or 1 percent of the Coverage A limit under such policy. For purposes of this paragraph, the term “urgent or emergency circumstance” means a situation in which a loss to property, if not addressed immediately, will result in additional damage until measures are completed to prevent such damage.
We assume, for purposes of this article, that the virus is not causing damage to property as would commonly be understood by a court. Does a county or city order that says otherwise change the analysis? In my view, the answer is no.
The interpretation of an insurance policy is a question of law for a court.
The interpretation of an insurance policy is, under Florida law, a question of law to be decided by a court. .[i] Florida courts are bound by the plain meaning of the language used when interpreting an insurance policy. [ii] It is doubtful, then, that a court would look to a city or county order when determining whether “the virus physically is causing property damage due to its proclivity to attach to surfaces for prolonged periods of time.”
A Florida court would be unlikely to look to a local ordinance or order to define an undefined term.
Insurance policies often do not define “damage” or “property damage.” However, the lack of a definition does not render a policy term ambiguous. [iii] When a term in a policy is undefined, Florida courts must give the term its plain meaning, and will look to legal and non-legal dictionary definitions to determine the meaning. [iv] A court should not look to city or county ordinances or proclamations for the meaning of a term.
This principle is seen in Glaser v. GeoVera Specialty Ins. Co., [v] In that case, the parties looked to the Florida Building Code to define terms of a policy. However, the court instead concluded that the court must look to the insurance policy and give words their ordinary meaning. The court did not rely on the Building Code.
Similarly, in Hegel v. First Liberty Ins. Corp., [vi] the court refused to look to the Florida Building Code for the definition of a policy term. Instead, the court said it must determine the plain meaning of the term by utilizing the procedure required by Florida law, which included, as stated previously, construing the insurance policy according to its plain meaning and, if necessary, consulting dictionary definitions.
In Glaser and Hegel, the court refused to look to the Florida Building Code to provide the definition of an otherwise undefined term of an insurance policy. Thus, a fortiori, a court is unlikely to refer to city or county orders or proclamations, particularly where doing so would potentially create a patchwork of coverage based on the locality of the insured property.
Florida courts only look to statutes in effect at the time the policy was written.
In Grant v. State Farm Fire & Cas. Co., [xii] the Florida Supreme Court recognized the rule that:
[W]here a contract of insurance is entered into on a matter surrounded by statutory limitations and requirements, the parties are presumed to have entered into such agreement with reference to the statute, and the statutory provisions become a part of the contract.”
Insurance is an area “surrounded by statutory limitations”. Thus, courts presume that parties enter into insurance policies with knowledge of the relevant statutory provisions. Accordingly, relevant statutory provisions are deemed part of the insurance policy. [viii]
Likewise, in Shelton v. Liberty Mut. Fire Ins. Co., [ix] the Eleventh Circuit summarized Florida law:
“It is fundamental that the laws of Florida are a part of every Florida contract.” “[A]ll existing applicable or relevant and valid statutes, … at the time a contract is made become a part of it and must be read into it just as if an express provision to that effect were inserted therein, except where the contract discloses a contrary intention.”
Accordingly, a “statute in effect at the time an insurance contract is executed governs substantive issues arising in connection with that contract.”
The Shelton case addressed the definition of “structural damage” in the sinkhole context. The insurance policy did not contain a definition for structural damage. However, a Florida statute did define that term. The statute specified that it supplied a definition for “structural damage” “as used in connection with any policy providing coverage for…sinkhole losses.” [x] The Eleventh Circuit concluded that “under Florida law, the statutory definition ‘must be read into [the … policy] just as if an express provision to that effect were inserted therein….’” [xi]
The rules articulated and discussed in Grant and Shelton apply to statutes. There is no corresponding rule for city or county orders. It would not make sense, frankly, for such a rule to exist because parties to a contract cannot be charged with knowledge of every local order, ordinance or proclamation.
In addition, even in the context of a statute, the statutory provision must be “applicable or relevant.” [xii] The local orders issued to date are not relevant or applicable to property insurance. They generally apply to “Shelter-in-Place” and “social distancing.” On the other hand, the statute addressed in Shelton expressly stated it supplied the definition for use in connection with insurance policies providing sinkhole coverage. A law dealing with one subject should not be imported to supply a rule or definition in an unrelated subject.
Finally, even in the context of a statute, the statute must exist when the insurance policy was issued. [xiii] A legislative enactment generally cannot alter existing contractual rights. [xiv] Thus, local orders, even if relevant to property insurance (which they are not, as explained above), cannot retroactively alter the definition of property damage.
Local orders regarding property insurance are preempted.
Insurance in Florida is subject to a pervasive scheme of regulations and statutes. [xv] Under Florida law, a local governmental law may be inconsistent with state law if the Legislature has preempted a particular subject area. Preemption can be expressed or implied. “Implied preemption is found where the state legislative scheme of regulation is pervasive and the local legislation would present the danger of conflict with that pervasive regulatory scheme.” [xvi]
In Classy Cycles, a Florida county and city created ordinances requiring certain minimum insurance requirements relating to rental scooters, motorcycles, and mopeds. A Florida appellate court found that these ordinances were preempted.
[T]he Legislature has created a pervasive scheme of regulation, coverage requirements, and limitation of liability, including specific requirements for coverage necessary to operate various motor vehicles in Florida. Thus, the ordinances are an attempt to regulate in an area well-covered by existing statutes. The local governments’ ordinances attempting to mandate insurance are therefore impliedly preempted.
As stated above, the doctrine of implied preemption is concerned with the danger that local legislation will conflict with a statutory scheme. That concern is particularly acute if a local order or ordinance could be read to define property damage to include exposure to COVID-19. In such a scenario, the existence of coverage could depend on the determinations of particular counties or municipalities. That is not a tenable outcome, and, in my view, a Florida court will reject it.
The orders of Broward County and Panama City are curious for their language. The language may provide intriguing advertising for a “Coronavirus Disinfection training course.” But the orders are not likely to affect the interpretation of insurance policies or §627.7152.
[i] Ergas v. Universal Prop. & Cas. Ins. Co., 114 So. 3d 286, 288 (Fla. 4th DCA 2013).
[ii] State Farm Mut. Auto. Ins. Co. v. Menendez, 70 So. 3d 566, 569 (Fla. 2011).
[iii] State Farm Fire & Cas. Co. v. CTC Dev. Corp., 720 So. 2d 1072, 1076 (Fla. 1998).
[iv] Deutsch v. Geico Gen. Ins. Co., 284 So. 3d 1074, 1076 (Fla. 4th DCA 2019).
[v] 420 F. Supp. 3d 1287, 1294 (M.D. Fla. 2019).
[vi] 778 F.3d 1214, 1222 (11th Cir. 2015).
[vii] 638 So. 2d 936 (Fla. 1994).
[viii] Geico Gen. Ins. Co. v. Schwinn, 8:04CV1485T17TBM, 2006 WL 1529092, at *6 (M.D. Fla. May 30, 2006).
[ix] 578 Fed. Appx. 841, 845 (11th Cir. 2014).
[x] Florida Statute § 627.706(2).
[xi] Shelton, 578 Fed. Appx. at 845 (citing Northbrook Prop. & Cas. Ins. Co. v. R & J Crane Serv., Inc., 765 So. 2d 836, 839 (Fla. 4th DCA 2000).
[xii] Northbrook, 765 So. 2d at 839.
[xiv] Allstate Ins. Co. v. Garrett, 550 So. 2d 22, 24 (Fla. 2d DCA 1989).
[xv] See Florida Insurance Code, Florida Statute § 624.01, et seq.
[xvi] Classy Cycles, Inc. v. Bay County, 201 So. 3d 779, 788 (Fla. 1st DCA 2016).