Tear-Out Costs Get Torn Out Again

October 4, 2023

On September 13, 2023, the Third District Court of Appeal released its opinion in People’s Trust Insurance Company v. Banks.¹ The opinion is a substitute opinion for the Court’s original opinion, which was issued on August 13, 2023.² The sole issue for the Court’s decision was whether a “limited water damage endorsement,” which contained a sub-limit of $10,000 for all damages caused by water, included the cost to tear out portions of the property necessary to access the failed drain plumbing line in order to repair the line. The Court aligned itself with the Fourth and Fifth Districts and a majority of Florida federal courts and held that tear-out costs were included within the sub-limit.³ Therefore, upon payment of the $10,000 sub-limit, the insurance company’s obligations ended.

In Banks, the insureds experienced a water loss when their cast-iron drain plumbing system malfunctioned. The insurer, People’s Choice Insurance Company, paid the sub-limit of $10,000 specified under the policy. The insureds then sued, claiming that People’s Choice was still responsible for the cost to tear out the concrete slab to access the failed drain line. On cross-motions for summary judgment, the trial court found that People’s Choice was responsible for tear-out costs in addition to the sub-limit for water damage. The Third District reversed.⁴

The People’s Choice policy contained a water damage exclusion, which eliminated all coverage for water damage, and a “limited water damage” endorsement, which stated:

The Court aligned itself with the Fourth District’s decision in Panettieri v. People’s Trust Ins. Co.,⁵ and quoted from its core holding:

The Court also distinguished a decision from the Fifth District Court of Appeal in Security First Insurance Company v. Vazquez,⁸ which held that tear-out costs were a separate coverage, which was not excluded by a similar limited water damage endorsement. The critical distinction in Vazquez was the fact that the parties stipulated to coverage for tear-out costs.

Furthermore, the Fifth District’s decision in Rosa v. Safepoint Insurance Company,⁹ reached the same conclusion as the courts in Banks and Dodge v. People’s Trust Insurance Company.¹⁰ Therefore, Vazquez is clearly limited to its unique facts.

In sum, the Third District, which encompasses a vast, heavily-populated area, has eliminated any argument that similar limited water damage endorsements provide separate coverage for tear-out costs. Given the fact that tear-out costs can easily eclipse actual damage done by water, insurers may now rest easily, knowing that tear-out cost cannot be written into a clear limited water damage endorsement. That rule is now the unanimous rule in the Third, Fourth and Fifth Districts and therefore the entire state, unless and until the First, Second and Sixth Districts address the issue.