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Florida Supreme Court Ruling Mandates Insurance Companies to Pay a Contractor’s Profit as Part of the Replacement Costs Coverage

overhead and profit.jpgIn Trinidad v. Florida Peninsula Insurance Company, the Florida Supreme Court reversed the Third District Court of Appeal, and concluded that insurers must pay a contractor’s overhead and profit as part of the expense of repairing a homeowner’s property despite the fact that the repairs may not have been made. Florida Peninsula Insurance Company (“FPIC”) believed that they did not owe money for the overhead because that is not covered under replacement cost insurance. As we previously discussed, the facts of the case are fairly straight forward. Amado Trinidad filed a claim with his homeowner’s insurance company, FPIC, for fire damage that occurred to his home in 2008. FPIC admitted coverage and made a payment for completion of the repairs, even though Trinidad did not make repairs to the home or hire a general contractor. FPIC’s payment did not, however, include an amount for a general contractor’s overhead and profit, claiming that it was entitled to withhold payment of overhead and profit until Trinidad actually incurred those particular expenses. Trinidad then filed a breach of contract lawsuit against FPIC. The trial court agreed with FPIC, and Trinidad appealed to the Third District Court of Appeal. The Third District Court of Appeal also agreed with FPIC, and Trinidad appealed to the Florida Supreme Court. Citing a conflict with Goff v. State Farm, 999 So.2d 684 (Fla. 2d DCA 2008), the Florida Supreme Court agreed to render a ruling on the case. One of the issues that the Florida Supreme Court was forced to address was whether or not Fla. Stat. Sec. 627.7011 was applicable to this case. That statute, as it existed in 2008, provided that in the case of a replacement cost policy, the insurer shall pay the replacement cost without reservation or holdback of any depreciation in value, whether or not the insured replaces or repairs the damaged property, limited to the reasonable and necessary cost to repair or replace the damaged property. The Court went on to hold that if overhead and profit are “reasonable and necessary” to the repair, Fla. Stat. § 627.7011 mandates their payment as replacement costs. Overhead and profit are no different than any other costs of repair that an insured is reasonably likely to incur. Therefore, the Florida Supreme Court concluded that an insurer is required to pay overhead and profit under a replacement cost policy, where the insured is likely to need a general contractor in order to make the repairs to their home. State lawmakers in 2011 sought to address cases like Trinidad’s and grant insurers more control over monies actually used to make repairs. Under current state law in the event of a loss under a replacement cost policy, the insurer must initially pay at least the actual cash value of the insured loss, less any applicable deductible. Then as repairs are performed, the insurer must pay the full replacement cost of those repairs.

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