Subtle Legal Changes Can Drastically Impact Policyholder Sinkhole Insurance Claims

J.P. Gonzalez-Sirgo
Founder of J.P. Gonzalez-Sirgo, P.A.

There are many complications that can arise when your insurance company refuses to pay your claim or to otherwise satisfy its obligations under your policy.  Sometimes the outcome of such an insurance dispute involves subtle legal distinctions or minor changes in the law that can have a significant impact on coverage decisions and the satisfaction of claims.  A First District Court of Appeals decision, FIGA v. Bernard, demonstrates that a successful legal claim against your insurance company involves both a clear understanding of the law, and also a determination of what version of relevant laws apply when the language of a statute is changed.

In the Bernard case, the homeowner (“Bernard”) filed a claim for loss based on sinkhole damage under her policy that was issued on May 28, 2010.  The policy covered losses caused by sinkhole activity but did not require the insurer to pay until the insured had contracted with a company to have the repair work performed.  Bernard discovered damage to the floor and walls of her home on November 20, 2010.  She filed a claim with her insurance company, and an investigation confirmed that the damage was consistent with sinkhole activity.  The investigator recommended subsurface remediation and other repairs.  The insurance company ultimately denied the claim, so Bernard filed a lawsuit for breach of contract.

The insurance company subsequently entered into a consent order indicating that the insurer was insolvent.  The insurer’s insolvency triggered intervention by the Federal Insurance Guarantee Association (“FIGA”).  One of the functions of the FIGA Act is to protect policyholders from financial loss and excessive delays when their insurance company becomes insolvent.  When an insurance company becomes insolvent, FIGA must respond to covered claims that arise prior to the insolvency of the insurer or within 30 days after a determination of insolvency.

FIGA utilized the “neutral evaluation” process, which resulted in a finding that the damage was due to sinkhole activity and that the costs to repair the loss amounted to $170,000 for the subsurface remediation and $57,000 for cosmetic repairs. The issue for the trial court was whether the $57,000 could be paid directly to the policyholder or only to the contractor who was going to perform the repairs.  While the 2010 definition of the term “covered claim” permitted the insurance company to pay the $57,000 directly to the policyholder, the more restrictive 2011 definition of the term only authorized payment to the contractor selected by the homeowner.

The trial court determined that the 2010 definition of “covered claim” was applicable because it was the definition in effect when the policy was issued and when the loss occurred.  However, the First District Appellate Court disagreed and found in favor of the insurance company.  The appellate court reasoned that the FIGA obligations were not triggered until the Bernard’s insurance company was determined to be insolvent.  Because the determination of insolvency occurred subsequent to enactment of the more restricted definition of covered claim, the court found that the insurance company was only obligated to pay the $57,000 for cosmetic damage to a contractor indicated by the insured.

The Bernard case provides an example of the speed with which relevant insurance laws can change, and the dramatic effect that these changes can have on a policyholder’s claim. 

You can reach Miami Insurance Claims Lawyer J.P. Gonzalez-Sirgo by dialing his direct number at (786) 272-5841, calling the main office at (305) 461-1095, or Toll Free at 1 (866) 71-CLAIM or email Attorney Gonzalez-Sirgo directly at [email protected].

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