Florida Insurance Law Blog : Florida Insurance Lawyer & Attorney : Mark Nation Law Firm : Orlando, Longwood, Gainesville

Agents have a special obligation to properly explain the implications of a coinsurance penalty in regards to his or her client's insurance needs.  Most insureds have no idea what a coinsurance penalty is, or how it works.  It is vitally important for agents to fully explain the coinsurance penalty to every insured. 

The risk of a total loss to a structure is fairly small.  Accordingly, many insureds may choose insurance limits that are less than what are needed to replace the entire structure.  From an actuarial standpoint this may be a very sound idea.  However, most insurance policies contain a coinsurance penalty that reduces what the insurance company has to pay in the circumstances where the structure is underinsured. 

For example, assume a $1,000,000 structure insured for $500,000.  In this case, the insured will think that the insurance company will pay for any damage up to $500,000, and the insured will be on the hook for any damage over $500,000. While this may seem like a reasonable business decision under the insured's particular circumstances, the coinsurance penalty will raise its head to thwart the insured. 

In this situation, further assume a fire which causes $200,000 in damage.  No problem right?  The $200,000 is less than the $500,000 limit and the insurance company should be on the hook for the whole loss minus the deductable.  Wrong.  Here the coinsurance penalty, depending on the penalty amount, will reduce the amount owed by the insurance company up to 90%. 

In a case I filed last week, I've sued my client's insurance agent for failing to properly explain the coinsurance penalty.  In that case, the limits of insurance are more than enough to pay for the damages caused by a fire, but because of the coinsurance penalty, my client will only be receiving about 20% of the amount needed for repairs.  Had the agent explained the coinsurance penalty to my client, he would have increased the limits of insurance, and thereby recovered all of his losses. The agent's failure to even mention the coinsurance penalty has cost my client over a half-million dollars thus far. 

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Yesterday, the circuit court in DeLand granted summary judgment in favor of our client in a first-party case where sewage backed up into a residential condo. 

Upon returning to his condo in New Smyrna after a week away, our client found that raw sewage from 7 other units had flooded his entire condo.  Needless to say, it was a mess.  The source of the back up was roots growing into and blocking a gravity fed sewage line which took the sewage from the building to the city's main sewage line. 

My client submitted the cost of cleanup and damage to his family's personal property to his condo owner's insurance carrier, Florida Family Insurance Company.  Florida Family denied the claim based on what it claimed was a clear and unambiguous exclusion for sewage backups.

However, based on the language of the policy, I believed that the policy could be read to only exclude sewage backups which originate from a sump.  As this was a gravity fed line, there was no sump involved.  The court agreed, leaving one very happy condo owner. 

Interestingly, upon reviewing the information which Florida Family had previously filed with the Department of Financial Services, Bureau of Rates and Forms, I found that the insurer's policy was a standard ISO policy; however, the insurer had modified this particular part of the policy.  By modifying the standard policy, the insurer actually created the ambiguity which led to the confusion.  Had the insurance company not modified the standard ISO form, then this loss would have been excluded. 

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In an earlier blog concerning this case, I noted we represented two large car dealerships who had been sued in major class actions.  Universal Underwriters Insurance Company insured both dealerships.  The dealers asked Universal Underwriters to defend and indemnify them for the claims in the class actions. Universal agreed to defend the claims, but advised that even though the class actions covered multiple years, the dealers were only entitled to indemnity coverage under one of policy years. Each dealer carried $500,000 in indemnity coverage per year for most of the years involved in the class actions. Therefore, it was Universal's position that the dealers were only entitled to $500,000 in coverage, while the dealers believed that they were entitled to up to the full policy limits per year for each of the years involved in the class actions.

One of my clients also sued Universal for breach of contract for failing to settle the class action when Universal could have settled the claim for slightly more than the $500,000 which it believed was available to pay for damages, but significantly less than what the court ultimately determined were the actual policy limits.  (I did not sue for "bad faith," but filed a simple breach of contract claim for breaching the contract by failing to settle when the insurer could have done so below the actual policy limits.)  Universal defended by claiming that we were actually suing for "bad faith," and could not do so given its reasonable belief concerning its available policy limits. 

Last week the 11th Circuit gave us a complete victory on the two issues involved in the case.  First, the11th Circuit agreed that the car dealers were entitled to the available policy limits for each of the years involved in the class actions.  Second, the court held that the breach of contract action for failing to settle could proceed regardless of Universal's "good faith or bad faith."  The court noted that whether Universal breached the contract can be determined "objectively" without regard to Universal's intent or belief.  A copy of the decision can be downloaded by clicking here

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The Nation Law Firm represents two large car dealerships who had been sued in major class actions.  Universal Underwriters Insurance Company insured both dealerships.  The dealers asked Universal Underwriters to defend and indemnify them for the claims in the class actions. Universal agreed to defend the claims, but advised that even though the class actions covered multiple years, the dealers were only entitled to indemnity coverage under one of policy years. Each dealer carried $500,000 in indemnity coverage per year for most of the years involved in the class actions. Therefore, it was Universal's position that the dealers were only entitled to $500,000 in coverage, while the dealers believed that they were entitled to up to the full policy limits per year for each of the years involved in the class actions.

The dealers retained The Nation Law Firm to sue Universal.  In our lawsuit, we asked the court to declare that each of the dealers had up to their full policy limits for each of the years involved in the class actions.  After intensive discovery and briefing on the issue, each party moved for summary judgment.  On March 28, 2008, the United States District Court for the Middle District of Florida ruled in the dealers' favor, and found a that each of the policies for every year involved in the class actions was triggered, and provided indemnity coverage up to the applicable liability limit. A copy of the court's ruling can be downloaded here.

This Order is a major victory for our clients, and for insureds sued in class actions throughout the United States. The federal judge who ruled in the case noted that there were no other cases which dealt with this issue, and found that this was a case of first impression.  As a result of this victory, we have been consulted by many other car dealers and their lawyers who are involved in similar battles with their insurance companies.

We thank our clients involved in this case for placing their confidence in us, and allowing us to help them in this hard fought battle.

The Nation Law Firm represent policyholders from all walks of life - from individuals with small insurance claims, to major national corporations.  We have had the pleasure of successfully representing many car dealers in claims against their insurance companies.

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For the ninth year in a row, J.D. Power & Associates ranked Amica Mutual highest in customer satisfaction among auto insurance companies. The annual study ranks customer satisfaction based on five factors: interaction with policyholder, policy offerings, billing and payment, price and claims.

Amica was followed by State Farm, Erie Insurance, Auto-Owners, American National Property Casualty, and the Automobile Club of Southern California. At the bottom of the list were AIG, GMAC, Mercury, MetLife, Safeco and Travelers.

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Mr. and Mrs. Yeates were severely injured when the vehicle Mrs. Yeates was driving was struck head-on by a livestock truck owned by Bingham Livestock.  The Yeateses sued Bingham Livestock and the truck driver.  Bingham Livestock carried two insurance policies, one issued by State Farm and one issued by Carolina Casualty. 

 

State Farm tendered its policy limits of $750,000 to the Yeateses.  The Carolina Casualty policy did not specifically cover automobile accidents, but included a federally mandated MCS-90 endorsement, which provided Carolina Casualty would pay up to $1,000,000 for "any final judgment recovered against [Bingham Livestock] for public liability resulting from negligence in the operation, maintenance or use of motor vehicles." 

 

Federal law requires interstate common carriers to carry this MCS-90 endorsement which will provide insurance coverage up to $750,000.  The endorsement prevents insurance companies from denying claims even though the vehicle in the accident is not listed in the policy.

 

Carolina Casualty sued seeking a judicial ruling that the MCS-90 endorsement does not apply here.  Carolina Casualty argued that the MCS-90 endorsement is only implicated when the motor carrier has less than $750,000 in liability protection.  In this case, since State Farm already provided the minimum $750,000 in liability protection, according to Carolina Casualty, the MCS-90 was not needed to provide the minimum mandatory coverage.

 

The US Court of Appeals for the 10th Circuit ruled that the MCS-90 did indeed provide insurance coverage for this crash.  The court ruled that the fact that State Farm paid its $750,000 policy limits did not relieve Carolina Casualty of its duty to pay.  According to the 10th Circuit, the federal regulations requiring a minimum of $750,000 in coverage provides a floor, and not a ceiling.  Carolina Casualty Company v. Yeates, 533 So.2d 1202 (10th Cir. 2008).

 

This case is a reminder to always pursue the MCS-90 coverage every time an interstate common carrier is involved.  Whenever one suspects the MCS-90 may be implicated, you should review the policy, the MCS-90 endorsement, as well as the MCS-90 implementing statute and applicable regulations, i.e. 49 U.S.C. §13906(f), and 49 C.F.R. § 387.15. 

 

Keep in mind that if the insurance company alleges that the MCS-90 has been cancelled for any reason, including failure to pay, the insurance company must make sure the cancellation procedures set forth in 49 C.F.R. § 387.15 have been strictly followed.     

 

Another issue comes up when the insurance company fails to provide an MCS-90 endorsement with the policy.  Depending on the circumstances, courts might incorporate the MCS-90 endorsement into the policy.  If the policy does not contain the MCS-90 endorsement, and the court refuses to incorporate one, then the insured may have a negligence action against its insurance agent if the agent failed to advise the insured of the need for the MCS-90, or failed to advise the insurance company of the need for the MCS-90. 

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The Nation Law Firm has recently filed a class action lawsuit against Blue Cross Blue Shield of Florida, Inc.  

Initially, the Nation Law Firm had sued the Florida Insurance Company for failing to reimburse our client for medical expenses she incurred from two separate back surgeries.  The client sought highly specialized, minimally invasive laser disc ablation as opposed to traditional, open back surgery (discectomy).  Since none of the providers on the Florida insurance company's PPO (Preferred Provider Organization) Plan performed such highly specialized surgery, the insured client was required to go out of the PPO network. 

Our client paid for the two surgeries out-of-pocket, then turned to Blue Cross Blue Shield of Florida for reimbursement.  The Florida insurance company: partially reimbursed her for some of the medical procedures, services, and supplies; approved but did not reimburse her for others; and neither approved nor reimbursed for others.  Incredibly, while the insurer approved and partially reimbursed her for laser surgery at one level of her spine, it refused payment for the identical surgery at a different level of her spine (two months later).  The reason given for the refusal was "this procedure was submitted with a similar procedure and is not payable on the same service date." 

After filing suit against the Florida insurance company, the Nation Law Firm was contacted by another Blue Cross Blue Shield of Florida PPO policyholder with the identical complaint and identical problems with reimbursement.

Research into the Blue Cross Blue Shield of Florida PPO policy and claims payments by the insurer revealed the Nation Law Firm's belief that the Florida insurance company's PPO policy violated Section 627.6044, Florida Statutes, by failing to disclosed actual the specific methodology it used to pay claims.  The Nation Law Firm also believes: the PPO insurance policy violates section  627.6471, Fla. Stat., by reimbursing non-PPO providers at a rate lower that allowed by law and also by requiring the insureds to pay coinsurance in excess of the statutory maximum; the PPO Policy states Blue Cross Blue Shield will base reimbursement of non-PPO physicians on "many factors" when in actuality the insurance company bases its reimbursement on a single factor; and the Florida insurance company simply failed to pay the amounts it was obligated to pay (and even approved for payment).

If the class gets certified, the Nation Law firm will represent Blue Cross Blue Shield of Florida PPO policy holders statewide who have obtained services from non-PPO providers.  

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The Martin County Circuit Court recently decided that an insurer did not waive the "binding appraisal" provision of its policy by disputing coverage and by not requiring appraisal until after suit was filed.  Further, although the claim involved a hurricane claim, the court determined that waiver under Section 627.7015 did not apply, since the policy at issue was surplus lines insurance (technically, an "insurance company was not involved--the coverage was provided by underwriters at Lloyds).

The Order was issued in Banat Investment Corporation v. Certain Interested Underwriters at Lloyd's, in the Circuit Court, 19th Judicial Circuit in and for Martin County, Case No. 432007CA191, on January 11, 2008.

The insured was the owner of an apartment complex in Martin County, Florida.   In exchange for premiums paid by the insured, underwriters at Lloyds issued policies of commercial property insurance covering the complex. After successive hurricanes caused damages, the insured filed suit because it could not reach an agreement with the insurer on the amount of damages related to the second hurricane.  After service, and without filing an answer to the complaint, the insurer demanded an appraisal, as provided for in the policies of insurance.

In response to the demand, the insured claimed appraisal was not appropriate because: the insurer waived appraisal because the insurer repudiate the contract (relieving the insured of all obligations under the policy, including appraisal); the action involves coverage disputes, which were for the court to decide; the insurer's delay in requesting an appraisal amounted to a waiver; appraisal was impractical because substantial repairs had been made; the insured was prejudiced by the delay in demanding appraisal because suit was already filed; and appraisal was barred by application of Florida Statute section 627.7015 since the insured failed to promptly inform the insured of the option to mediate the loss under that statute.

The court found the insurer did not repudiate the insurance contract because it had partially satisfied the claim under the insurance policy (and in fact paid the undisputed portion of the claim).  The court also noted the dispute involved the "dollar value of covered losses," an issue appropriate for appraisal.  The court found none of the insurer's activities were inconsistent with a demand for appraisal, since it didn't even answer the complaint but instead demanded appraisal.

A significant factor in the opinion is based upon the defendant's status as an "insurer."  Lloyds is comprised of members of a regulated market known as the "London Market," in which individuals offer their personal capital to underwrite insurance risks in exchange for a premium. Specifically, the court noted Lloyds sells only "surplus lines" insurance coverage, a type of insurance which insures risks which are not commonly insurable in the primary commercial market.

Normally, we see that an insurer's failure to comply with Florida Statute Section 627.7015 bars enforcement of the appraisal provision when the insurer fails to notify the insured under the statute.  However, in this case, the court noted that Florida Statute section 627.021(2)(e) specifically states that chapter 627 does not apply to surplus lines insurance.  Additionally, in this case, the Florida Department of Insurance (which is responsible for implementing the mediation program under Florida Statute section 627.7015), advised the court via affidavit and memorandum in evidence, that surplus lines insurers are exempt from the requirements of that statute, but may participate in the program voluntarily.

Ultimately, the court deemed there was no waiver and Section 627.7015 did not bar the insurer's demand for appraisal.

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    It seems axiomatic that when an insured has to institute litigation against its insurance company to determine whether or not insurance coverage exists, and insurance coverage is found to exists, the insured should be entitled to attorney's fees pursuant to Section 627.428, Fla. Stat.  However, as seen by a recent Federal Court decision, such is not always the case.
     

    In Mizner Tower Condominium Assoc., Inc. v. QBE Ins. Corp. 2008 WL 151414 (S.D.Fla. Jan. 15, 2008), the court determined that an insured is not entitled to attorneys fees and costs when a "judgment" does not result in payment of wrongfully denied benefits.

    In Mizner, the insurer conditionally extended a commercial residential policy to the condominium association.  Continuation of coverage (beyond a date certain) was based upon the condominium association's completion of certain loss prevention conditions.  Prior to the date certain, the insured condominium association complied with the notice requirements and informed the insurance company that the required loss prevention measures had been satisfactorily completed.

    However, nearly three months after the date certain, the insured association notified the insurer that seven of the condominium's shutters might not be in compliance with the insured's underwriting requirements.  The insured asked the insurance company to inspect the shutters and make a determination whether the insurance policy was still valid in light of the shutters.  In response, the insurer stated that the continuing insurance coverage had been conditioned upon the insured's representation that the loss prevention conditions were completed, and stated "the Association's coverage could be jeopardized due to a material misrepresentation."  The insurer took no further action, and apparently did not make a site visit to inspect the shutters or make any determination as to the validity of the policy.  

    The insured, over the next few weeks, repeatedly asked the insurance company to instruct whether or not the insurer still provided hurricane coverage, and threatened to file a declaratory judgment action if it received no response.  Ultimately, a little over a month after notifying the insurer about the problem shutters, the insured filed the dec action to establish coverage.  

    Eight days after the dec action was filed, the insurance company sent correspondence to the insured which confirmed that hurricane coverage would remain "in full force and effect for the remainder of the current policy period."   Shortly thereafter, the insurance company filed a motion to dismiss/motion for summary judgment.  The Trial court determined (1) it was undisputed that the insured sought judicial determination that the policy was valid and enforceable; (2) the insurance company provided the  insured with written confirmation that the policy was valid and enforceable; and (3) summary judgment was appropriate.   

    The insured disagreed, stating the insurance company's confirmation of a valid and enforceable policy--which came after suit was filed--operated as a confession of judgment, entitling the insured to attorney's fees pursuant to Section 627.428, Fla. Stat.  The court held that attorney's fees were not available under the facts of the case:

"The Court is unaware of, and the [insured] has not provided any, legal basis for awarding fees pursuant to the above Section in a case where a judgment does not result in payment of wrongfully denied benefits.  The [insured] seeks to apply this Section to any claim between an insured and an insurance company where the insurer prevails regardless of whether or not an insurer has wrongfully withheld payment of a valid claim for benefits.  I decline to extend this Section's reach so far."

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Most commercial property, and homeowners dwelling policies in are considered "all-risk" policies. "The term all-risk is given a broad and comprehensive meaning." Wallach v. Rosengerg, 527 So.2d 1386, 1388 (Fla. 3rd DCA 1988). "The purpose of an all-risk policy is to protect against all risks except those expressly excluded." Fayad v. Clarendon National Insurance Company, 899 So.2d 1082, 1089 (Fla. 2005).

"An all-risk policy provides 'a special type of coverage extending to risks not usually covered under other insurance.' And coverage is available for all loss not resulting from the insured's willful misconduct or fraud unless the policy contains 'a specific provision expressly excluding the loss from coverage.' (internal citations omitted).  "This type of contract has been said to cover every conceivable loss or damage that may happen except when occasioned by the willful or fraudulent act or acts of the insured." Egan v. Washington General Insurance Corp., 240 So.2d 875, 879 (Fla. 4th DCA 1970), See, Fayad v. Clarendon National Insurance Company, 899 So.2d 1082, 1085-86 (Fla. 2005)("The specific type of insurance policy involved in this case is ... an all-risk policy. Unless the policy expressly excludes the loss from coverage, this type of policy provides coverage for all fortuitous loss or damage other than that resulting from willful misconduct or fraudulent acts."); Phoenix Insurance Co. v. Branch, 234 So.2d 396, 398 (Fla. 4th DCA 1970)("In recent years, the so-called 'all risks' insurance policy has been used with increasing frequency. Such a policy is to be considered as creating a special type of coverage extending to risks not usually covered under other insurance, and recovery under the 'all risks' policy will as a rule be allowed for all fortuitous losses not resulting from misconduct or fraud unless the policy contains a specific provision expressly excluding the loss from coverage").

"Once the insured establishes a loss that appears to be within the terms of the all-risk policy, the burden is on the insurer to prove that the loss was caused by an excluded risk." "Starting with the well-settled law in Florida that exclusionary clauses are construed more strictly than coverage clauses, the insurer's burden is even heavier under an all-risk policy." Id.

"In deciding whether an all-risk policy excludes coverage for an insured's claimed damages, we are guided by well-established principles of insurance contract interpretation. We begin with the guiding principle that insurance contracts are construed in accordance with "the plain language of the polic[y] as bargained for by the parties." Auto-Owners Ins. Co. v. Anderson, 756 So.2d 29, 33 (Fla. 2000) (quoting Prudential Prop. & Cas. Ins. Co. v. Swindal, 622 So.2d 467, 470 (Fla.1993)) (alteration in original). However, if the salient policy language is susceptible to two reasonable interpretations, one providing coverage and the other excluding coverage, the policy is considered ambiguous. See Anderson, 756 So.2d at 34; Swire Pac. Holdings, Inc. v. Zurich Ins. Co., 845 So.2d 161, 165 (Fla. 2003).  Ambiguous coverage provisions are construed strictly against the insurer that drafted the policy and liberally in favor of the insured. See Anderson, 756 So.2d at 34; State Farm Fire & Cas. v. CTC Dev. Corp., 720 So.2d 1072, 1076 (Fla. 1998); Deni Assocs. of Florida, Inc. v. State Farm Fire & Cas. Ins. Co., 711 So.2d 1135, 1138 (Fla.1998). Further, ambiguous "exclusionary clauses are construed even more strictly against the insurer than coverage clauses." Anderson, 756 So.2d at 34; see also Demshar v. AAA Con Auto Transport, Inc., 337 So.2d 963, 965 (Fla.1976) ("Exclusionary clauses in liability insurance policies are always strictly construed."). Thus, the insurer is held responsible for clearly setting forth what damages are excluded from coverage under the terms of the policy."  Fayad v. Clarendon National Insurance Company, 899 So.2d 1082 (Fla. 2005). 

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