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Surplus Insurers, Too, Can Rely on the Application to Interpret Policy

February 16, 2017

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.

Notwithstanding § 627.419’s inapplicability to surplus lines insurers, the Southern District of Florida recently clarified that a surplus lines policy is still construed together with its underlying application. In Steadfast v. Celebration Source Inc., et al, Case No. 0:15-cv-61668 (S.D. Fla. January 26, 2017), the court reinforced that well-settled rules of contract interpretation apply to all insurance policies. Under these well-settled rules, the court affirmed that “two or more documents executed by the same parties, at or near the same time, and concerning the same transaction or subject matter are generally construed together as a single contract.”

In Celebration Source, the court found that an equipment schedule completed by the policyholder as part of the application must be considered with the policy. This equipment schedule specified that coverage did not apply to unscheduled equipment. Reading the policy and equipment schedule together, the court ultimately held that the policy did not apply to an accident caused by a newly acquired item of equipment not listed on the schedule or reported to the insurer.

The court’s acknowledgment that insurance contract documents are not always limited to the policy jacket could potentially expand the ability of insurers to enforce coverage restrictions appearing in the application, so long as those restrictions are clear and unambiguous. 

The Defendants filed a Notice of Appeal on March 10, 2017. Butler will update this blog entry with the final disposition.