Most individuals and businesses that pay extra premiums to insure against an otherwise uncovered peril presume their insurance carrier will cover such losses when a catastrophe occurs. At the very least, policyholders do not expect that their insurance company will sandbag its denial until $1.8 million in extra expenses from the peril have been incurred. A recent case from the Florida Court of Appeals for the Second District, Axis Surplus Insurance Company v. Caribbean Beach Club Association, Inc., N0. 2D13-1057 (Fla. 2d DCA June 27, 2014), provides an example of how this type of sandbagging strategy can backfire on the insurance carrier.
Caribbean purchased a property damage policy from Axis that covered fire damage, but expressly excluded the increased cost of construction incurred because of enforcement of a law or ordinance by a public entity. A separate endorsement for Ordinance or Law Coverage up to $2,500,000 was purchased for an additional premium amount. The provision provided:
b. With respect to the Increased Cost of Construction:
(1)We will not pay for the increased cost of construction:
(a)Until the property is actually repaired or replaced,
at the same or another premises; and
(b)Unless the repairs or replacement are made as soon
as possible after the loss or damage, not to exceed
two years. We may extend this period in writing during
the two years.
Caribbean and Axis initially cooperated when Caribbean’s building was devastated in a fire. The insured had some concern that Lee County would enforce the “50 percent rule” embodied in its ordinances. The rule required a building to be brought into compliance with existing building codes if more than fifty percent of the building was damaged. This requirement would necessitate raising the entire building to comply with flood elevation requirements.
Nineteen months after the fire, Lee County notified Caribbean that the 50 percent rule was being enforced. The insured and carrier continued to cooperate during this time. Axis indicated that the repairs, which included bringing the building up to code, would require an additional year. Axis retained a contractor who provided a $2.8 million estimate for replacement. Axis was aware that Caribbean intended to replace the building and that the insured expected Axis to pay for the full cost, including the additional cost of bringing the building to code.
The repairs continued until 26 months following the fire when Axis suddenly notified Caribbean that it would not pay for additional repair costs because the construction was not completed within two years of the fire. With the exception of a general reservation of rights letter, the insurance carrier had not previously raised the two-year time limit clause.
The appeals court upheld summary judgment in favor of the insured because of a lack of prejudice to the insurance company from the delay and waiver of the time limit by the carrier. The court found that the condition was essentially a forfeiture requirement, which is viewed unfavorably. The court also noted that the failure to comply with the timing requirement was not the fault of the insured. Because the insurance company did not invoke the forfeiture clause earlier in the process, the court found the time limit was waived.
Both the insurance company and insured stipulated that the additional cost of repair because of the ordinance was $1.8 million. In this case, the insured paid a higher premium for special coverage. This case demonstrates how insurance companies may attempt to sandbag policyholders. As an experienced Florida property insurance claims attorney, I am familiar with these tactics and can help to counter such strategies.
My insurance claims law firm handles disputed claims in Miami and throughout Florida. The Law Firm of J.P. Gonzalez-Sirgo, P.A. offers free consultations and case evaluations. No Recovery, No Lawyer Fees. Call 305-461-1095 or Toll Free 1-866-71-CLAIM.