Florida Insurance Guaranty Association v. de la Fuente

NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING
MOTION AND, IF FILED, DETERMINED
IN THE DISTRICT COURT OF APPEAL
OF FLORIDA
SECOND DISTRICT
FLORIDA INSURANCE GUARANTY )
ASSOCIATION, )
)
Appellant, )
)
v. ) Case No. 2D13-3543
)
LEANDRO de la FUENTE and )
ANA DELIA GARCIA, )
)
Appellees. )
)
Opinion filed January 7, 2015.
Appeal from the Circuit Court for
Hillsborough County; Christopher C.
Sabella, Judge.
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.
WALLACE, Judge.
Florida Insurance Guaranty Association (FIGA) appeals an 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
HomeWise Preferred Insurance Company (HomeWise) issued a
homeowners' 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 policy 1
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.
On September 2, 2011, the Leon County Circuit Court entered an order
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
1The definition of "sinkhole loss" in the policy is substantially identical to
the definition found in section 627.706(2)(c), Florida Statutes (2008).
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insurer in accordance with sections 631.50 through 631.70, Florida Statutes (2011), the
Florida Insurance Guaranty Association Act (the FIGA Act).
After HomeWise was adjudicated to be insolvent, the insureds filed an
amended 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.
On May 16, 2012, FIGA wrote the insureds and notified them that it had
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
The HomeWise policy included a provision for appraisal of sinkhole losses
in 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 . . .
2Theprimary difference between the two recommended solutions for
remediation was whether an injected-grout method was sufficient or whether
"underpinning" was required in addition to the grouting.
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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" . . .
The loss payment provision of the policy provided that payment of the amount 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.
On November 21, 2012, the insureds' attorney made a written demand on
FIGA 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
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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
Over FIGA's objection, the circuit court ordered appraisal and compelled
FIGA 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.
The circuit court rejected FIGA's argument and ruled that the law in effect
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
In this case, we are called upon to decide whether the statutory definition
of "covered claim" in effect at the time a homeowners' insurance policy is issued or a
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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
The insureds argue that their rights to recover against FIGA were
established 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.
The definition of "covered claim" that was in effect when the policy was
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
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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 . . . .
§ 631.54(3), Fla. Stat. (2008). The legislature amended the definition of "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.
Ch. 2011-39, § 30, at 584, Laws of Florida (2011) (emphasis added).
The effect of the 2011 amendment to the definition of "covered claim" is to
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
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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.
The First District Court of Appeal recently addressed one of the legal
issues 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.
In addition, we reverse the amended final judgment's confirmation of the
appraisal award. Under the 2011 definition of "covered claim," the policy provisions that
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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
3FIGA's consultant recommended a delay of 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."
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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
Based on the above, we conclude that (1) an appraisal award, as provided
for 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.
In their answer brief, the insureds raise a number of questions concerning
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
4The appraisal award in this case consists 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.
5Based on our review of the estimates in 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.
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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
The legal issues presented in this case have arisen in several other cases
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
6Oneof the problems resulting from the 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.
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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?
Reversed and remanded for further proceedings consistent with this
opinion; questions certified.
KHOUZAM, J., and DAKAN, STEPHEN L., ASSOCIATE SENIOR JUDGE, Concur.
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