Waiver of Policy Limits vs. Coverage Grants: The Estoppel Defense

If you have ever struggled with your insurance company when filing a claim, you might well be aware that insurers rely on a multitude of “defenses” (i.e. excuses) to deny paying claims.  When a policyholder does not have legal representation, insurance companies recognize they have a distinct advantage with their teams of adjuster, lawyers, investigators and experts.  A strategy often employed in this situation is to let the claims process drag on until the insured makes a critical mistake.  Insurance carriers know this tactic is particularly effective when policyholders do not have the benefit of an experienced Florida insurance claims lawyer to guide them through the process.  However, there are defenses to liability that can be waived when insurers sandbag by waiting to assert the defense until it is too late for the policyholder to respond.

The Florida 2nd District Court of Appeals case of Axis Surplus Ins. Co. v. Caribbean Beach Club Assoc., Inc. provides an example of where an insurance company failed to raise what might have been a complete defense to liability in a timely manner.  The result was that the insurance carrier was deemed to have waived the defense.

The owner of a condominium building experienced a substantial loss when the building was badly damaged by a fire.  The property was located in Lee County which had a building code that required that a structure be brought up to existing building code standards if fifty percent or more of the building was rebuilt.  The cost of these upgrades under the policy’s Ordinance or Law coverage would have significantly increased the amount required to restore the property to its pre-loss condition.  The policyholders were not aware that this coverage was subject to a restriction requiring the construction to be completed within two years of the loss.

Over the two years following the loss, the insurer continued to approve funds to rebuild the structure.  The two year time limit was not raised by anyone at the insurance company while the rebuilding process was being conducted during this two year period.  After this period had elapsed, the insured received a letter citing the two year time limit and indicating that the code improvements were not covered. 

After receiving this notice, the policyholders filed a lawsuit.  The policyholder also filed a Motion for Summary Judgment contending that the insurance company waived the time limitation provision or was estopped from asserting the provision because it did not assert the time limit until after it had expired.  The trial judge ruled in favor of the policyholders, and the appellate court affirmed.

The court’s analysis focused on the distinction between a “coverage grant” and a “limitation on coverage.”  Florida law does not permit the defense of estoppel or waiver to expand coverage beyond the scope of what is specified in the policy, so the policyholders could not prevail if the time limit constituted a grant of coverage.  The court reasoned that the provision did not involve a policy limit or deal with the scope of coverage.  Therefore, the time limit constituted a limitation on coverage.  Since “Florida law abhors forfeitures,” the court ruled that the insurer could not avoid liability under the limitation without bringing the provision to the attention of the policyholder.  The failure of the insurer to give notice of the policy limitation constituted a waiver.

This case serves as a cautionary tale for policyholders despite the court ruling in the favor of the insured.  Minor exceptions that amount to nothing more than a few words amidst a policy of many pages can have a profound impact on an insured’s rights.  This makes it important to read the policy carefully and ask questions about language that is confusing or unclear.  The insurer in this case sent a reservation of rights letter during the two year period when construction was ongoing, and a minor reference to the relevant provision in the reservation of rights letter might have meant the policyholders were out of luck.

If your insurance company refuses to pay for losses covered by your insurance policy, you might have a legal claim for financial compensation. 

An experienced homeowner's insurance claims attorney can help you counter such denials.   My law firm represents policyholders in claims disputes 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.

 

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