Codified in Florida Statute §627.702, Florida’s Valued Policy law is one of the most insured friendly pieces of insurance legislation in the state. The Florida legislature drafted this piece of legislation seeking to protect homeowner’s after catastrophic losses. Knowing how important it is for a homeowner to recover from the devastating effects associated with losing one’s home, this piece of legislation aims to help homeowner’s recover the full benefit of their bargain. The Florida legislature drafted this legislation over a hundred years ago, and although there have been subsequent amendments the statute remains protective of the insured’s rights. In essence, the statute operates by fixing the value of the insured property at the time the insurance contract is signed, and prevents the insurance company from later contesting that value. Thus, whatever price is fixed at the time the policy is entered into will be the price the insurer will be liable to pay, irrespective of market changes or actual valuation.
This statute only applies if there has been a total loss to real property. Specifically, the statute provides that any “building, structure, mobile home...or manufacturing building” which is insured will be eligible to receive the full value of the policy. Additionally, the statute only applies if your damages was caused by a covered peril. So for example, if you have suffered a total loss to a structure as a result of a flood, then you would only be entitled to recover if you had flood insurance. Moreover, the statute will not apply if the insurance company can demonstrate that the insured committed a criminal or fraudulent act in regards to the property or claim at issue, and will also not apply if the insured has done something to increase the risk of loss on the property without the insurer’s consent.
Although the statute seems clear on its face, the real question is what constitutes a “total loss.” The Florida Supreme Court answered this question in 1987 when it adopted the so-called “identity test.” The identity test requires that the buildings “identity and specific character” be destroyed before the insurance company will be liable. However, this does not mean that every structural component of the building must be destroyed before it will be considered a total loss, but rather it means that the building or structure can no longer function as such. Thus, the replacement cost or the actual cash value of the property play no role in determining whether the structure will be considered a total loss. Indeed, the cash value or replacement cost of the structure may be far greater or far less than the policy limits, and at least in theory it shouldn’t matter to the determination of total loss status.
In addition to the traditional total loss, Florida courts consistently hold that constructive total losses are also implicated by the valued policy law, and thus are entitled to the full value of the policy. A constructive total loss occurs when a structure is destroyed – even partially – and a city ordinance or code, prevents the repair of the structure, or if the city or county condemns the structure. This means that if a fire burns part of your building and as a result the city condemns your property for safety concerns, even if the loss is only partial, the insurer will be liable for the policy limits specified in the contract. However, if an ordinance merely makes the repairs more costly then the statute will not apply and the traditional total loss rule will be the standard. So for example, if an ordinance requires any structure to be built with a specific type of material that would make the repair very costly but that does not explicitly prevent the repair, then the constructive total loss rule will not apply and the insurer will not be liable for the policy limits.
The rules are different when a total loss is caused by both a covered peril and a non-covered peril. In this situation, the statute is inapplicable and the insurer will only be liable to the extent of the damage that is actually caused by the covered peril. However, the statute goes on to state that if the covered peril would have caused the total loss even absent the uncovered peril, then the insurer will nevertheless be liable for the policy limits. In these instances, the litigation will center on causation and the court will need to determine whether the covered peril would have resulted in a total loss on its own.
Finally, the statute has a provision concerning partial losses. The statute applies to partial losses, but only in the event that the loss is caused by fire or lightning. However, in these cases the statute provides that the insurance company will only be liable for the actual amount of the loss and not for the policy limits.
Florida’s Valued Policy seeks to calculate the value and the risk of the insurance contract before it is signed. Once the contract is signed, the parties are typically be locked into those terms and neither changes in valuation, actual replacement costs, or cash value of the property will play a role in determining what the insured will recover. The only thing that matters is the characterization of the loss. The insurer retains traditional defenses, like non-payment of premiums, causation, and fraud, but absent a valid defense the insurer will be liable for the full value of the dwelling limits if a covered peril causes a total loss to real property.
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].
Fl. Stat. §627.702
Lafayette Fire Ins. Co. v. Camnitz, 503 So. 2d 1321 (Fla. 1st DCA 1987).
Netherlands Ins. Co. v. Fowler, 181 So. 2d 692 (Fla. 2d DCA 1966).
Temple v. Ins. Co. of N. Am., 352 So. 2d 1242 (Fla. 1st DCA 1977).