40 Fla. L. Weekly D123a
Association — Trial court erred in applying the statutory definition of
“covered claim” in effect when insurance policy was issued to determine scope of
FIGA’s liability instead of the more restrictive definition in effect when the
insurer was adjudicated insolvent, and confirming appraisal reward and entering
judgment in favor of the insureds — New definition governs scope of FIGA’s
liability and prohibits any direct payment to the insureds — Appraisal award as
provided for in homeowner’s policy is not the functional equivalent of the
“actual repair of the loss” which FIGA pays; hence trial court’s erroneous
requirement that FIGA participate in appraisal process is at odds with its
statutory mandate — Questions certified: Does the definition of “covered claim”
in section 631.54(3), Florida Statutes, effective May 17, 2011, apply to a
sinkhole loss under a homeowners’ policy that was issued by an insurer before
the effective date of the new definition when the insurer was adjudicated to be
insolvent after the effective date of the new definition? — Does the statutory
provision limiting FIGA’s monetary obligation to the amount of actual repairs
for a sinkhole loss preclude an insured from obtaining an appraisal award
determining the “amount of loss” in accordance with the terms of the homeowners’
policy of insurance?
and ANA DELIA GARCIA, Appellees. 2nd District. Case No. 2D13-3543. Opinion filed
January 7, 2015. Appeal from the Circuit Court for Hillsborough County;
Christopher C. Sabella, Judge. Counsel: G. William Bissett, Jr. of Kubicki
Draper, P.A., Miami, for Appellant. Robert E. Biasotti and Annette Marie Lang of
Biasotti and Associates, St. Petersburg, for Appellees.
amended final judgment requiring it to pay $130,600 — the amount of an
appraisal award for a sinkhole loss — directly to Leandro de la Fuente and Ana
Delia Garcia (the insureds). FIGA argues that the circuit court erred in
applying the statutory definition of “covered claim” in effect when the
insurance policy was issued to determine the scope of its liability instead of
the more restrictive definition in effect when the insurer was adjudicated to be
insolvent. We agree. Accordingly, we reverse the amended final judgment and the
order confirming the appraisal award. We also certify the legal issues presented
by this case to the Florida Supreme Court as questions of great public
importance.
I. THE FACTUAL AND PROCEDURAL BACKGROUND
insurance policy to the insureds covering their residence in Tampa. The period
covered by the policy was from May 7, 2009, to May 7, 2010. The amount of
coverage for the dwelling was $168,000. On or about March 1, 2010, the insureds
reported a loss from sinkhole activity at their residence. HomeWise asserted
that the condition at the insureds’ residence was not a sinkhole loss as defined
in the policy1 and denied coverage for the
claim. In November 2010, the insureds filed an action against HomeWise for
breach of the policy. HomeWise answered the complaint and raised numerous
affirmative defenses.
appointing the Florida Department of Financial Services as receiver for
HomeWise, entering an injunction, and imposing an automatic stay in favor of
HomeWise. On November 4, 2011, the Leon County Circuit Court entered an order
adjudicating HomeWise to be insolvent. As a result of HomeWise’s adjudication of
insolvency, FIGA was activated to handle the “covered claims” (as defined by
statute) of the insolvent insurer in accordance with sections 631.50 through
631.70, Florida Statutes (2011), the Florida Insurance Guaranty Association Act
(the FIGA Act).
complaint that substituted FIGA as the defendant in place of HomeWise. FIGA
answered the amended complaint, noting that its obligations were limited to the
payment of “covered claims” within the meaning of the FIGA Act.
determined that sinkhole activity was a cause of damage to their residence. FIGA
included with its letter a report from its consultant outlining the scope of the
recommended repairs and the cost of accomplishing them. FIGA offered to issue
payment for ground stabilization and cosmetic repairs to the residence once the
insureds provided FIGA with executed contracts with contractors for the
completion of the necessary repairs. However, the insureds did not proceed with
obtaining the requested contracts because their consultant disagreed with FIGA’s
consultant concerning the appropriate method for the repair of the residence.
The method recommended by the insureds’ consultant was substantially more costly
than the method recommended by FIGA’s consultant.2
a special endorsement. The appraisal paragraph provided:
6. Mediation or Appraisal. If you and we fail to agree on the
amount of loss, either may:
a. Demand a mediation of the loss . . .
b. Demand an appraisal of the loss. In this event, each party will
choose a competent appraiser within 20 days after receiving a written request
from the other. The two appraisers will choose an umpire. If they cannot agree
upon an umpire within 15 days, you or we may request that the choice be made by
a judge of a court of record in the state where the “residence premises” is
located. The appraisers will separately set the amount of the loss. If the
appraisers submit a written report of an agreement to us, the amount agreed upon
will be the amount of loss. If they fail to agree, they will submit their
differences to the umpire. A decision agreed to by any two will set the amount
of loss.
Each party will:
(2) [sic] Pay its own appraiser; and
(3) [sic] Bear the other expenses of the appraisal and umpire
equally.
. . .
c. Neutral evaluation of a “sinkhole loss” . . .
of the loss as determined by appraisal was payable to the insureds (“unless some
other person is named in the policy or is legally entitled to receive payment”)
sixty days after the filing of an appraisal award or mediation settlement.
for appraisal under the conditions of the policy. The insureds’ attorney said
that the disagreement between the parties’ consultants concerning the
appropriate method of repair to the residence “clearly evidence a documented
dispute over the ‘amount of loss,’ and therefore, appraisal is appropriate to
settle these differences.” Relying on the definition of “covered claim”
contained in a 2011 amendment to the FIGA Act, FIGA responded that appraisal was
inappropriate and declined to participate.
II. THE CIRCUIT COURT’S RULING
to participate. On May 1, 2013, the appraisers entered their award determining
the amount of the loss to be $130,600. The appraisal award included a line item
for future incurred costs for additional living expenses that was left open. The
insureds promptly filed a motion asking the circuit court to confirm the
appraisal award and to enter judgment against FIGA on the award. FIGA objected
to the confirmation of the appraisal award on the ground that the definition of
“covered claim” in effect when HomeWise was adjudicated insolvent applied to the
insureds’ sinkhole loss and should govern any payments made on the claim. The
application of the new definition of “covered claim” to the insureds’ claim
would prohibit any direct payment to the insureds for a sinkhole loss.
when the policy was issued would determine the scope of FIGA’s payment
obligation together with the loss payment provisions in the policy. In
accordance with this ruling, the circuit court entered an amended final judgment
confirming the appraisal award and entering judgment in favor of the insureds
and against FIGA in the amount of $130,600. This appeal followed.
III. FRAMING THE ISSUES
of “covered claim” in effect at the time a homeowners’ insurance policy is
issued or a more restrictive definition in effect at the time the insurer is
adjudicated insolvent governs the scope of FIGA’s liability under the FIGA Act.
If the more restrictive definition of “covered claim” in effect when the insurer
is adjudicated insolvent applies, then we must also address the question of the
availability of appraisal under the terms of the policy to determine the amount
of loss. The issues presented are questions of statutory construction that we
review de novo. W. Fla. Reg’l Med. Ctr., Inc. v. See, 79 So. 3d 1, 8
(Fla. 2012).
IV. DISCUSSION
and vested in May 2009 when HomeWise issued the subject insurance policy. In
accordance with this view, the insureds assert that the definition of “covered
claim” in the 2008 version of the FIGA Act controls the scope of their rights to
recover for their sinkhole loss. On the other hand, FIGA argues “that [the
insureds’] right to pursue a claim against FIGA under the FIGA Act could not
arise until FIGA’s statutory obligations were triggered. FIGA’s statutory
obligations were triggered, at the earliest, when HomeWise was declared
insolvent and liquidated on November 4, 2011, pursuant to the HomeWise
Liquidation Order.” Based on this reasoning, FIGA concludes that the definition
of “covered claim” in effect on November 4, 2011, the date of the liquidation
order, governs the scope of its obligations to the insureds.
issued provided:
“Covered claim” means an unpaid claim, including one of unearned
premiums, which arises out of, and is within the coverage, and not in excess of,
the applicable limits of an insurance policy to which this part applies, issued
by an insurer, if such insurer becomes an insolvent insurer and the claimant or
insured is a resident of this state at the time of the insured event or the
property from which the claim arises is permanently located in this state. For
entities other than individuals, the residence of a claimant, insured, or
policyholder is the state in which the entity’s principal place of business is
located at the time of the insured event. “Covered claim” shall not
include:
(a) Any amount due . . . as subrogation, contribution,
indemnification, or otherwise; or
(b) Any claim that would otherwise be a covered claim under this
part that has been rejected by any other state guaranty fund . . .
.
“covered claim” effective May 17, 2011, by adding a new paragraph (c) to section
631.54(3). The 2011 amendment addresses the subject of claims for sinkhole
losses. The new paragraph (c) provides:
(c) Any amount payable for a sinkhole loss other than testing deemed
appropriate by the association or payable for the actual repair of the loss,
except that the association may not pay for attorney’s fees or public
adjuster’s fees in connection with a sinkhole loss or pay the
policyholder. The association may pay for actual repairs to the property but
is not liable for amounts in excess of policy limits.
prohibit FIGA from paying an insured directly for a sinkhole loss. Instead, FIGA
may only pay a contractor for the “actual repairs to the property” for such a
loss up to the amount of the policy limits and the statutory limits on FIGA’s
obligations to pay, whichever is less. Thus the 2011 amendment to the definition
of “covered claim” is not a mere technical change; instead, the amendment
substantially changes the method by which sinkhole losses will be handled and
paid by FIGA. Underlying the parties’ legal debate in this case is a more
practical disagreement, i.e., whether the insureds can compel FIGA to pay them
directly for the amount of their sinkhole loss as determined by the appraisal,
or whether FIGA is only obligated to pay a contractor or contractors for the
cost of repairs to the property that are actually made.
presented by the case before us in Florida Insurance Guaranty Ass’n v.
Bernard, 140 So. 3d 1023 (Fla. 1st DCA 2014), review denied, No.
SC14-1416, 2014 WL 6883868 (Fla. Dec. 5, 2014). In Bernard, the First
District noted the absence of any Florida appellate decisions addressing the
legal issue presented. Id. at 1028. In the absence of any applicable
Florida authority, the First District conducted a detailed review of the history
and purpose of FIGA, the pertinent provisions of the FIGA Act, and decisions by
courts from other states that have adopted the Model Act upon which the FIGA Act
was based. After this extensive review, the First District concluded “that the
statutory definition of ‘covered claim’ in effect at the time the insurer is
adjudicated insolvent determines the scope of FIGA’s liability under the FIGA
Act.” Id. at 1031. We agree with the analysis and the holding in
Bernard. Accordingly, we hold that the definition of “covered claim” in
effect on November 4, 2011, the date that HomeWise was adjudicated to be
insolvent, governs the scope of FIGA’s liability to the insureds for the
sinkhole loss at their property. In accordance with this holding, we reverse the
amended final judgment that requires FIGA to pay $130,600 directly to the
insureds.
appraisal award. Under the 2011 definition of “covered claim,” the policy
provisions that authorize appraisal and require payment of the appraisal award
directly to the insured (or other authorized person) within sixty days of the
filing of the award are inapplicable to a sinkhole loss once FIGA is activated.
Absent FIGA’s involvement, the contract term “amount of loss” leads directly —
barring some coverage dispute — to a final settlement of the claim. But FIGA
may not “settle” a sinkhole claim with an insured; it may only pay for the cost
of “actual repairs.” And because the process of repairing sinkhole-caused damage
to a home necessarily involves several players — an engineer to determine the
existence of the sinkhole and the extent of remedial work necessary to correct
the problem, a contractor specializing in sinkhole remediation, and a second
contractor who will perform the cosmetic (above ground) repairs — attempting to
reconcile the appraisal provision with FIGA’s revised obligations under the 2011
amendment to the statute creates more questions than it answers. These questions
include such practical matters as to whom the check should be written, when the
check should be written, and whether the check represents a final payment on the
“amount of loss.” Moreover, because the final cost of the cosmetic repairs
cannot generally be determined with accuracy until after the remedial repairs to
the structure have been completed, it follows that these costs cannot be fully
taken into account when an appraisal award is made.3 Finally, in this case, the appraisal award is not
supported by any analysis or engineering cost estimates and does not appear to
be linked in any way to the method of repair, which is the crux of the parties’
dispute in this case.4
in the homeowners’ policy of insurance at issue, is not the functional
equivalent of “the actual repair of the loss,” which is the only amount that
FIGA is allowed to pay; (2) it is impractical, if not impossible, to write a
single check in the amount of the appraisal award to a single entity because at
least three entities are likely to be involved (engineer, remediation
contractor, and cosmetic repair contractor); and (3) it is unlikely that FIGA
would be able to issue a check to anyone at all within sixty days of the award
because the actual cost of repairs, including cosmetic repairs, cannot be known
until the work is completed,5 and the work
will almost certainly not be completed within sixty days. Accordingly, requiring
FIGA to participate in the appraisal process is at odds with FIGA’s statutory
mandate to pay only for the actual cost of repair for a covered sinkhole loss.
the feasibility of the new statutory scheme governing FIGA’s handling of
sinkhole losses. The insureds point to a number of practical problems that may
arise from the new statutory scheme. We are inclined to agree with the insureds
that the lack of direction in the 2011 amendment concerning how FIGA is to
administer its new statutory obligations concerning payment of sinkhole losses
can result in multiple issues that — absent agreement by the parties — may
need to be resolved by the courts. However, no such issues are currently before
us. If the insureds and FIGA are unable to resolve their differences amicably,
it will be the circuit court’s task initially to address such issues as may
arise. We also observe that both the insureds and FIGA can choose to avail
themselves of mediation or neutral evaluation to assist in reaching an agreement
without additional litigation.6
V. CERTIFYING QUESTIONS
filed in this court. The First District has already decided the issue of the
applicability of the 2011 amendment in Bernard, and we expect that other
cases involving the same issues are pending or will be filed in the other
district courts of appeal. It seems reasonable to assume that these issues will
continue to arise in numerous cases. For this reason, we certify the following
questions to the Florida Supreme Court as questions of great public importance:
I. DOES THE DEFINITION OF “COVERED CLAIM” IN SECTION 631.54(3),
FLORIDA STATUTES, EFFECTIVE MAY 17, 2011, APPLY TO A SINKHOLE LOSS UNDER A
HOMEOWNERS’ POLICY THAT WAS ISSUED BY AN INSURER BEFORE THE EFFECTIVE DATE OF
THE NEW DEFINITION WHEN THE INSURER WAS ADJUDICATED TO BE INSOLVENT AFTER THE
EFFECTIVE DATE OF THE NEW DEFINITION?
II. DOES THE STATUTORY PROVISION LIMITING FIGA’S MONETARY OBLIGATION
TO THE AMOUNT OF ACTUAL REPAIRS FOR A SINKHOLE LOSS PRECLUDE AN INSURED FROM
OBTAINING AN APPRAISAL AWARD DETERMINING THE “AMOUNT OF LOSS” IN ACCORDANCE WITH
THE TERMS OF THE HOMEOWNERS’ POLICY OF INSURANCE?
questions certified. (KHOUZAM, J., and DAKAN, STEPHEN L., ASSOCIATE SENIOR
JUDGE, Concur.)
policy is substantially identical to the definition found in section
627.706(2)(c), Florida Statutes (2008).
recommended solutions for remediation was whether an injected-grout method was
sufficient or whether “underpinning” was required in addition to the grouting.
six to eight weeks after completion of the injection of grout before commencing
cosmetic repairs to allow for settling. The Plaintiffs, on the other hand,
obtained an estimate from a contractor for cosmetic repairs in advance. This
estimate advises that it is based on visible damages at the time of inspection
plus “anticipated damages” due to the proposed stabilization repairs. However,
it also contains the caveat that “if additional damages occur . . . please
contact our office to schedule a follow up inspection so we can revise the
estimate.”
of nothing more than a dollar amount. In fairness to the appraisers, the award
may be grounded on something more than a rough estimate or a number selected
because it is somewhere near the midpoint of professional estimates prepared by
others. However, a reasoned basis for the appraisal award is not evident to this
court from our record.
the record, all of which contain caveats for unforeseen events and conditions,
the final cost of a sinkhole repair will be a moving target until all of the
work is completed.
2011 amendment is that the homeowners will generally lack sufficient cash to pay
the various contractors to start the required work. We are informed that FIGA —
to its considerable credit — has addressed this problem by adopting a policy of
issuing a check to the contractor for thirty per cent of the estimated cost of
the repair after a contract is signed and the contractor is ready to start the
job.
* * *