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.