Florida adopted a stringent, five-part definition of what constitutes a covered sinkhole loss in 2011, but many policies continue to employ the 2005 statutory formulation which merely defined “sinkhole loss” as “structural damage to the building, including a foundation, caused by sinkhole activity” and importantly left the term “structural damage” undefined. The result was that Florida courts split into conflicting camps with respect to how such a contract of insurance should be read; the Middle District for example, held for policyholders in two cases and for the carrier in a third, as reported in a prior post that can found here. When one of the former decisions recently reached the Eleventh Circuit, the Court of Appeals determined that the language was to be construed in accordance with the narrow 2011 requirement, and it reversed and remanded.
Shelton v. Liberty Mutual Fire Ins. Co., 2014 WL 4100426, 2014 U.S. App. LEXIS 16120 (11th Cir., Aug. 21, 2014) arose when the insureds made a claim for sinkhole loss to their home. Their homeowner’s carrier, Liberty Mutual, denied after its experts found only cosmetic damage that did not fall within the 2011 statute’s five-part definition. Litigation followed. As noted above, the district court granted summary judgment to the policyholders, finding that the new statutory definition of structural damage was inapplicable because the policy neither referenced the 2011 statute expressly nor incorporated its language. It then read “structural damage” to mean any damage to the building.
In a unanimous per curiam opinion last week, however, three judges for the Court of Appeals disagreed. The panel stated that it is fundamental that the laws of Florida are part of every Florida contract and “must be read into it just as if an express provision to that effect were inserted” in the instrument. Accordingly, a statute in effect at the time an insurance contract is executed governs substantive issues arising in connection with that contract. The court also noted that the Florida legislature expressly stated that the statutory definition applies whenever the term structural damage is “used in connection with any policy providing coverage . . . for sinkhole losses” in the statute itself. Fla. Stat. § 627.706(2)(k). While the panel recognized that the parties to the contract could have legally agreed to a definition of structural damage that was broader than the 2011 statute, they had not, in fact, done so, and “the absence of an alternative definition means that the statutory definition fills the gap.”
The Court of Appeals also rejected the policyholders’ argument that it was incumbent upon Liberty Mutual to notify them of the legislative change when coverage was renewed only two months after the 2011 statute was enacted. Written notice of changes in policy terms is indeed required, but “the application of mandated legislative changes is not a change in policy terms” pursuant to Fla. Stat. § 627.43141(1)(a).