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Gonzalez v. Liberty Mut. Fire Ins. Co., No. 8:12—cv—2549—T-—23EAJ, 2013 WL 5183810 (M.D. Fla. Sept. 3, 2013)
The threshold for sinkhole loss in Florida has been an issue since the Florida Legislature attempted to limit such claims in 2005 by changing the definition of “sinkhole loss” Florida Statute 627.706 from “actual physical damage to the property” to “structural damage to the building, including the foundation.” The Legislature’s 2005 amendment to the threshold for sinkhole loss was rendered meaningless by Florida’s state and federal trial courts who found that the new statutory threshold of “structural damage” simply meant “damage to the structure.”
In Gonzalez v. Liberty Mutual Fire Insurance Company, Case 8:12—cv—02549—SDM-EAJ (M.D.Fla.), Judge Merryday found that “a complete and careful reading of the statutes governing sinkhole claims confirms (1) that the legislature intended the “plain meaning” of the phrase “structural damage” in the unambiguous statutory clause “structural damage to the building” to confine the required coverage for sinkhole damage to damage that impairs the structural integrity of the building and (2) that the word “structure” denotes the parts and material that ensure the building’s stability. Judge Merryday’s order on Liberty Mutual’s motion for summary judgment contained a pointed discussion of errors inherent to earlier opinions that had found “structural damage” simply meant “damage to the structure.” The opinion marks a clear split within Florida’s Middle District on the issue of the meaning of the contract term and further draws into question an earlier opinion from the Middle District that found the 2011 Amendments to Florida Statute 627.706 could not be applied to contracts issued before May 17, 2011.
Liberty Mutual issued a homeowner’s policy for the effective period of November 1, 2010, through November 1, 2011. The policy excluded damage caused by earth movement but, as an exception to that exclusion, provided coverage for Sinkhole Loss, adopting the following language from Florida Statute 627.706:
a. Sinkhole Loss means structural damage to the building, including the foundation, caused by sinkhole activity. Contents coverage shall apply only if there is structural damage to the building caused by sinkhole activity.
On October 14, 2011, Plaintiffs made a claim for sinkhole loss with Liberty for damage to their residence that they assert was first discovered on November 14, 2010. Five months prior to Plaintiffs’ claim, the Florida Legislature amended Florida Statute 627.706 to include a five-part definition of “structural damage.” In enacting the amendments, the Legislature advised: “Pursuant to sections 22 through 27 of this act, technical or scientific definitions adopted in the 2005 legislation are clarified to implement and advance the Legislature’s intended reduction of sinkhole claims and disputes.” Chapter 2011—39, Section 21, Laws of Florida. Consistent with the Legislation, policy and the conclusions of its engineers that the building had not suffered “structural damage,” Liberty denied Plaintiffs’ claim for sinkhole loss.
On December 7, 2011, the court in Bay Farms Corp. v. Great American Alliance Ins. Co., 835 F. Supp. 2d 1227, 1232 (M.D. Fla. 2011) found that, contrary to the statements of the Florida Legislature, the definitions for “structural damage” in the 2011 amendments were not merely clarification of the existing meaning of “structural damage” (because the previous meaning under the 2005 statute was simply “damage to the structure” and concluded that the definition of “structural damage” in the 2011 Amendment could not be applied retroactively to narrow the scope of coverage afforded Bay Farms under the Policy.
On August 6, 2012, Plaintiff’s filed suit alleging that Liberty Mutual had breached the policy of insurance by refusing to pay the amount allegedly due under the policy. Plaintiffs asserted a count for declaratory relief and seek the Court’s declaration that Plaintiffs are entitled to a subsidence investigation pursuant to the 2010 version of sections 627.707, 627.7072, and 627.7073, Florida Statutes. In its response, Liberty Mutual filed a counterclaim for declaratory judgment asking the Court to interpret the meaning of the term “structural damage,” as it is used in the policy. Liberty filed a motion for summary judgment on its counterclaim asserting that the interpretation of “structural damage” as “damage to the structure” was inconsistent with the policy provision as whole and, as a consequence, the history of the statute revealed that the 2011 amendments were merely clarification of existing law and should be applied to the policy. In the alternative, Liberty Mutual asserted that the term “structural damage” included, at minimum, the damage that impairs the structural integrity of the building. 2012 WL 7037004 (M.D.Fla.)
In his September 3, 2013 Order in Gonzalez, Judge Merryday provided his interpretation of the policy provision as a whole, noting that “a bountiful array of authority establishes that the frequently used term ‘structural damage,’ assessed correctly, is uniformly understood to denote damage to the structural integrity of a building.” Judge Merryday reviewed the State and Federal Appellate Courts that have rejected the assertion that “structural damage” in the context of damage to buildings is any damage to the structure. Those courts have held that repairs to plaster, repairs to stucco and plaster cracks in the walls and ceilings, repairs to the cabinets, sink, bathroom fixtures, and drywall, replacement of a building’s cooling system, repairs to fire escapes, painting, sprinklers, a wall radiator, and sills and trim, and window replacement were not “structural repairs.” Similarly, replacement of both a non-load-bearing wall and a masonry facade on a twenty-six-story office building and cutting three openings in a non-load-bearing wall to permit ingress and egress were found not to be structural changes.
The Court found that these decisions, and many others from other jurisdictions, are consistent with plain meaning, with the dictates of syntax, and with the Florida Existing Building Code’s definition of “structural”: “any part, material or assembly of a building or structure which affects the safety of such building or structure and/or which supports any dead or designed live load and the removal of which part, material or assembly could cause, or be expected to cause, all or any portion to collapse or fail.”
In 1981, the Florida Legislature adopted Section 627.706, Florida Statutes, which requires each authorized property insurer in Florida to provide coverage for “sinkhole loss.” As adopted in 1981, Section 627.706 defined (1) “loss” as “structural damage to the building” and (2) “sinkhole loss” as “actual physical damage to the property . . . arising out of or caused by sudden settlement or collapse of the earth supporting such property only when such settlement or collapse results from subterranean voids created by the action of water on a limestone or similar rock formation.” The 1981 statute included no definition of “structural damage.”
Finding a “dramatic increase” in sinkhole damage claims, the Legislature in 2005 removed the definition of the word “loss” and substituted the definition of the phrase “sinkhole loss,” defined as “structural damage to the building, including the foundation, caused by sinkhole activity.” According to Chapter 2011—39, Section 21, Laws of Florida, “In 2005, the Legislature revised [Sections] 627.706–627.7074, Florida Statutes, to adopt certain geological or technical terms; to increase reliance on objective, scientific testing requirements; and generally to reduce the number of sinkhole claims and related disputes arising under prior law.” Consequently, the 2005 amendment changed the definition of “sinkhole loss” from “actual physical damage to the property” to “structural damage to the building, including the foundation.” Like the 1981 statute, the 2005 amendment included no definition of “structural damage.”
After central Florida circuit courts held that “structural damage” meant only “damage to the structure,” the Legislature in 2011 and for the first time adopted a statutory definition of “structural damage.” Ch. 2011—39, § 22, Laws of Fla. Effective May 17, 2011, Section 627.706(2)(k)’s definition features terms employed by architects and engineers to identify damage that threatens the structural soundness of the building and the safety of the building’s occupants. Despite the Legislature’s statement that the 2011 definitions were merely intended to clarify the intended definition of the words “structural damage” they had inserted into the statute in 2005, Florida state and federal courts continued to find that words “structural damage” in the policy provision “Sinkhole loss means structural damage to the building, including the foundation caused by sinkhole activity” meant only “damage to the structure,” with the effect of nullifying the 2005 amendment and returning the threshold for sinkhole coverage to its previous 2005 level of “actual physical damage to the building.”
In reaching his contrary decision, Judge Merryday reviewed the legislative history and found that in 2005 the Florida Legislature removed the definition of the word “loss” and substituted the definition of the phrase “sinkhole loss,” defined as “structural damage to the building, including the foundation, caused by sinkhole activity” Quoting from the legislative history, Judge Merry noted that the Legislature had advised:
“In 2005, the Legislature revised [Sections] 627.706–627.7074, Florida Statutes, to adopt certain geological or technical terms; to increase reliance on objective, scientific testing requirements; and generally to reduce the number of sinkhole claims and related disputes arising under prior law.”
Judge Merryday observed that “[A]pparent from this legislative finding of fact and statement of legislative purpose, the legislature in 2011 sought to abrogate the central Florida circuit courts’ unfounded interpretation of “structural damage” and to “clarif[y]” certain definitions to effectuate the 2005 amendment’s “intended reduction of sinkhole claims and disputes.” According to Judge Merryday, ” a complete and careful reading of the statutes governing sinkhole claims confirms (1) that the legislature intended the “plain meaning” of the phrase “structural damage” in the unambiguous statutory clause “structural damage to the building” to confine the required coverage for sinkhole damage to damage that impairs the structural integrity of the building and (2) that the word “structure” denotes the parts and material that ensure the building’s stability.” Judge Merryday further found that Ch. 2011—-39, § 22, Laws of Fla. Effective May 17, 2011, Section 627.706(2)(k)’s definition (of “structural damage”) merely “features terms employed by architects and engineers to identify damage that threatens the structural soundness of the building and the safety of the building’s occupants.”
Judge Merryday’s opinion does not address the application of the 2011 definitions to the contract in Gonzalez. However, his factual findings that (1) the meaning of “structural damage” before 2011 amendments required coverage for sinkhole damage to damage that impairs the structural integrity of the building and (2) the definitions in the 2011 amendments merely “features terms employed by architects and engineers to identify damage that threatens the structural soundness of the building and the safety of the building’s occupants,” are consistent with the Florida Legislature’s position that the 2011 amendments merely clarified the scope of coverage provided by the earlier version of the statute. Judge Merryday’s findings apply equally to the inclusion of the entirety of the statutory provision in the contract by the parties before the Court.
In her Order in McLaughlin v. First Liberty Mutual Insurance Company, Case 6:12—cv-00502—ACC-GJK (M.D.Fla.), Judge Conway noted that “if there were any indication that the legislature intended to apply the definition of “structural” from the Florida Building Code to the new term “structural damage” in the 2005 version of 627.706, “it would be possible to conclude that the Legislature merely clarified the definition in 2011 by including citations to the Florida Building Code as part of its new definition in 627.706(k).” In his Order in Gonzales Judge Merryday found that this is precisely what the Legislature intended in 2005 when changed the threshold for sinkhole loss to “structural damage.”
It remains to be seen if other judges within the Federal District Court for the Middle District of Florida will adopt the reasoning of Judge Merryday. It is also unclear whether the implications of Judge Merryday’s factual findings prompt another court to apply the 2011 amendments to Florida Statute 627.706 to all policies using the term “structural damage”. That issue and a consistent definition of “structural damage” as used before those amendments may have to wait until the issue is reviewed by the U.S. Court of Appeals for the Eleventh Circuit.