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Florida’s Valued Policy Law and Its Impact on a Total Loss Claim – Changes in the Law, the Battle of Causation, and Its Impact on My Claim? Part 2

Mentioning laws the insured’s property suffered extensive wind and flood damage caused by Hurricane Irene. The insured had separate insurance policies provided by different insurance companies. They had one policy that covered wind damage, and another policy that covered flood damage. However, the wind damage policy specifically excluded any and all damage not caused by wind.

After Hurricane Irene, the property at issue was rendered a constructive total loss. As a result, the insured brought suit against the insurance company claiming that Florida’s valued policy required that the windstorm insurer tender the full policy limits due under the policy. The insurance company, however, argued that it was only liable for its pro rata share of the damage caused since flooding had also caused some damage to the property.

The Fourth District Court of Appeal agreed with the insured and ruled that the insurance company must pay the face value of the policy regardless of its pro rata share of the damage. The court opined that the meaning of the valued policy law to be “simple and straightforward.” The court reasoned that two elements were necessary to apply Florida’s valued policy law. First, the property must be insured by an insurer as to a covered peril. Second, the building must be a total loss.

The court reasoned that if both of those elements were present, then the valued policy law applied without regard to any other fact that may be present in the case.

The ruling resulted in Florida’s legislature making a significant change to Florida’s valued policy law shortly after the Mierzwa case was decided. Florida’s valued policy law was amended to state that “when a loss is covered by a peril and in part by a noncovered peril … the insurer’s loss shall be limited to the amount of the loss caused by the covered peril.”

This change is potentially problematic for Florida homeowners. As we saw with the widespread litigation in the Gulf states following Hurricane Katrina, insurance companies in Florida are now free to limit their payouts in the event of a total loss if they are able to prove that some pro rata portion of the loss was caused by a non-covered peril. In other words, insurance companies will now attempt to minimize their payouts in total loss claims, or even deny them outright, when a loss is caused by an excluded event (flood), regardless of whether a covered peril also contributed to the same loss (wind.)

Florida’s Valued Policy Law and Its Impact on a Total Loss Claim – What Is It and What is Covered? Part 1

As Stated the purpose of Florida’s Valued Policy is to fix the measure of damages in the event of a total loss.

The rationale for doing so is to facilitate prompt settlement of claims after a total loss by making it unnecessary for the insured to prove the value of the property.

The benefit of the “valued” policy is to eliminate the guesswork associated with trying to ascertain the value of the loss since that amount has been pre-determined and agreed upon.

To accomplish the objective of facilitating prompt settlement of claims the insurer must ascertain the insurable value of the property at the time of writing the policy – and before the loss occurs. In other words, the insurance company is agreeing to pay the agreed upon face value of the policy in the event of a total loss. serves to “remove what would otherwise be a very troublesome and difficult issue to resolve either between parties by negotiation by courts in litigation.”

Consequently, Florida’s valued policy law requires insurance companies to pay the policy limits in the event of a “total loss” caused by a covered peril, even though the insurance company could rebuild for less. What constitutes will be the subject of a separate blog post.

But Florida’s valued policy law has two essential requirements. First, the damage sustained to the insured property must have resulted from a covered peril. Second, that the building be a total loss. If these two elements are satisfied by the insured, then the insurance company who chooses not to repair is mandated to pay policy limits for the face amount of the policy no matter what other factors may exist as to the cost of repairs or replacement.

A simple illustration of how the valued policy works is as follows: an insured owns a property and the insurance company agrees that the property is valued at $100,000. The insured purchases a “valued” insurance policy from that insurance company for $100,000 of coverage. The insured suffers a total loss from a covered peril. The insurance company is therefore obligated to pay the pre-determined agreed upon amount of $100,000.

Florida’s valued policy law only covers real property. It does not cover personal property. It also typically does not apply to appurtenant or additional structures on the property (typically referred to as Coverage B structures.) This would include buildings like sheds, cottages, and detached garages. The primary reason why these items are not covered is because they do not have a stated value in the policy.

In future posts, we will discuss what constitutes a total loss, and pertinent amendments and Florida case authority guiding Florida’s valued policy law.

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