By Steven Geller, ESQ., Shareholder

July 2012

Hurricane season brings with it regular reminders to prepare. Most hurricane preparedness plans focus on physical supplies such as flashlights, extra batteries, bottled water, and medical supplies. What most plans don't include are preparations for making an insurance claim. Unfortunately, these days one also needs to prepare for making an insurarance claim. Simply having insurance premuims paid up to date and a copy of the policy in safe deposit box is not enough. Policyholders need to make sure the insurance they purchased will actually protect them. Understanding what the policy requires from policyholders, both before and after a loss, including the coverage that is actually afforded, is something that cannot be easily discerned by asking the sales agent or reading the policy.

Before a Loss

Today, more than ever, policyholders must be prepared to battle insurance companies that guard profits with armies of well-trained adjusters and skilled attorneys. This battle is often lost by policyholders before the claim is even reported. Recently, there has been a growing trend by a number of insurers to defeat legitimate claims through a practice known as "post-loss underwriting". Post-loss underwriting occurs when the insurance company decides to scrutinize the insurance application for errors after a claim is made by the policyholder. If anything appears out of place in the application, the insurance company may attempt to void the policy from inception, even if the errors were innocent. To the surprise of many policyholders, insurance companies may be able to do this pursuant to section 627.409, Florida Statutes. Again, the statute does not require that application mistakes be intentional, rather the insurance company need only claim that it would have charged a higher premium for the policy if it had known the additional facts. Sadly, a number of these post-loss underwriting cases may result in forfeiture of the benefits a policyholder bargained for.

To illustrate how problematic application errors can be, consider the case of a condominium that was recently denied coverage after sustaining a fire. Years earlier, the condominuim collected almost two million dollars in insurance benefits from its Hurricane Wilma claim. The benefits were paid for the replacement of condominuim roofs, windows, and a number of other damaged building components. The Wilma claim was almost four million dollars; however, the condominuim had a sizeable deductible that reduced the net benefit paid to the condominum by nearly half. The condominium elected to make do with the two million dollars it collected and not levy any assessments on its unit owners for the deductible. Some of the damaged roofs were replaced, but some that insurer had included as being replaced in the four million dollar calculation were only repaired because they were no longer leaking. Other building components, including some damaged windows and patio doors, were never replaced.

After repairs were made to make the building functional, the condominuim sought new insurance. The insurance application asked for the condominuim's claim history, and the condominium listed the hurricane claim and stated that all necessary repairs had been made. Months later, the condominium suffered a fire loss and submitted a new claim. During its extensive post-loss investigation, the insurance company discovered that some repairs on the four million dollar hurricane claim had not been made. Thereafter, claiming that it would have never issued the insurance policy had it known that the damage roofs were never replaced, the policy was rescinded and the premiums returned, even though the alleged misrepresentation had nothing to do with the loss.Many condominiums affected by the 2004 and 2005 hurricanes did not complete all of the hurricane related repairs that insurers included in their damage assessments. They may want to take another loo at the insurance application that they have on file.

After a Loss

After a loss, policyholders must often navigate a veritable minefield of duties and obligations that could potentially forfeit policy benefits for an otherwise covered loss. Standard insurance policies require policyholders to make reasonable temporary repairs, mitigate the damages, and attempt to prevent further losses. Typically, the insurer may impose additional requirements on the policyholder, such as exhibition of the property, submission to sworn testimony through recorded statements and examination under oath (EUO), as well as production of documentation related to the property, incident, and repairs performed or needed. While the policyholder may only required to comply with many of these conditions upon request by the insurer, some policies require policyholders to take more proactive approach to providing information to the insurer.

Failure to comply with any of these conditions may be ground for denial of policy benefits, and it is not uncommon for unwary policyholders as well as seasoned professionals to stumble while attempting to comply. For example, "cottage industry of EUO litigation" recently prompted Florida's Fifth District Court of Appeals to lament that the actual purpose of the examination under oath - verification of the loss - is increasingly becoming a tool used by insurers to avoid paying claims. The Fifth District Court cited a 2011 opinion from Florida's Third District Court of Appealin which the court admonished the insurer's legal counsel for "never-to-be-emulated" conduct at an examination under oath involving probing questions on topics unrelated to the insurance claims such as unrelated criminal convictions and the person the claimant was living with at the time.

Policies also set strict time deadlines for many of these obligations. If these deadlines are not met, it may relive the insurer from its obligation to pay for covered damage. Depending on the policy, policyholders must usually submit "sworn statements in proof of loss" to the insurer within sixty days of either the date of loss or the insurer's request. One of Florida's largest property insurers has been defending many cases by arguing that the insured's failure to file a sworn statement in proof of loss within sixty days of the damage occurring, even without a request or notification by the insurer, was a breach of the insurance contract, eliminating the insurer's obligation to pay policy benefits. In  many commercial property policies, if the policyholder elects replacement cost benefits instead of the actual depreciated cash value benefit, the policyholder must notify the insurer of its intent to make repairs within 180 days of an actual cash value claim, or risk losing the extra benefits.

Beyond the Fine-Print

Insurance policies are confusing contracts that contain highly technical language that is not always clear, resulting in a continuous stream of judicial opinions that regularly redefine policyholders’ rights and obligations. Today, the wave of litigation that followed the 2004 and 2005 hurricane season continues to reshape the legal landscape of Florida’s insurance law. Our Legislators in Tallahassee pass insurance laws almost every legislative session, further modifying the rights and obligations of policyholders. The result of the ever-expanding body of judicial opinions and legislative changes to Florida insurance law is that only lawyers can really tell you what may or may not be covered by your policy, and even lawyers frequently disagree. Policyholders that rely on their own understanding of their insurance policies may be in for an unpleasant surprise.  Both before and especially after disasters, it is important to consult with a qualified lawyer with experience in handling property insurance claims.

Steve Geller Chairs the First Party Property Insurance Practice Group at Greenspoon Marder.  He is an “A-V” rated lawyer practicing for 30 years, the Former Minority Leader of the Florida Senate, Former National President of the National Conference of Insurance Legislators, served on the Insurance Committees of the Florida House of Representatives and Senate for 17 years, and has been a frequent speaker  on Insurance matters.  He can be reached"> of 954-491-1120.

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