The failure to strictly follow the requirements for providing policyholders with information about their hurricane deductible does not mean the deductible is unenforceable, Florida’s high court has ruled.
The Florida Supreme Court recently issued the ruling in a case [QBE Insurance Corp v. Chalfonte Condominium Association Inc., SC09-441 (FL 2012)] that could have widespread implications for insurers and policyholders around the state.
Initially, Chalfonte was awarded $8.2 million in federal court based on several points including that QBE failed to follow the state’s hurricane disclosure requirement. That amount was later reduced by the judge to $7.2 million, partially because the judge disagreed with the jury’s finding on the deductible issue.
By law, homeowners and property insurance policies must contain the warning, “This policy contains a separate deductible for hurricane losses, which may result in high-out-pocket expenses to you.” Lawmakers specified the warning must be printed in bold face with an 18-point font size.
In the case of QBE, the insurer used the term “windstorm” instead of “hurricanes” and several words were printed in a slightly smaller type.
In essence, however, the court ruled that it was not the legislature’s intent to penalize insurers for failing to strictly follow the disclosure’s requirements and since there is no legislative penalty for failure to do so, a policyholder cannot bring suit against the insurer.
QBE attorney Raoul Cantero said the ruling is important because it could have exposed insurers to a slate of lawsuits in even minor instances where someone inadvertent didn’t follow the law.
“This decision has wide implications for insurers underwriting insurance in Florida,” said Raoul Contero, who represented QBE. “Had the court ruled otherwise, any policy in Florida would have been voided, resulted in an incalculable loss to insurance companies.”
Authored by Justice Peggy Quince for the court, the opinion notes that in the section of the law in question (Chapter 627.701, Florida Statues), the legislature specifically said its intent was to “encourage higher hurricane deductibles as a means of increasing the effective capacity of the hurricane market.”
As a result, the court ruled the deductible notice was merely a “by-product” to inform policyholders. Further, the court found that when such a notice “merely makes provisions to secure the safety or welfare of the public it will not be construed as establishing civil liability.”
Daniel Rosenbaum, representing Chalfonte, disagreed with the court’s finding.
“It doesn’t make sense that if you mandate certain wording that the policyholder has no rights when the insurer doesn’t,” said Rosenbaum. “The court shouldn’t be worried about economics; it should be focused on contracts.”
While the court spoke at length about the legislative intent of the hurricane deductible disclosure requirements it also briefly commented on the possible impact it would have it had ruled against QBE Insurance. It said that despite the absence of a legislative penalty for not following the disclosure requirements the court would nevertheless be levying a severe penalty against insurance companies.
Namely, it would change the terms of an insurance contract so that the insured would have to provide coverage outside of the scope of the contract. It is a step the court has consistently refused to take in other cases where it found that an insurer inadvertently failed to meet all of its statutory requirements. And a step that in previous cases the court said would be against the intent of the law.
The court citing another case [AIU Ins. Co. v. Block Marina Inv. Inc. 544 So.2d. 998 (FL. 1989)], where the court refused to void a surplus lines commercial general liability policy endorsement for failing to fully follow the laws governing the approval of policies and forms.
“The legislature did not intend to give an insured coverage which is expressly excluded for the policy simply because an insurer fails to comply with the terms of the aforementioned statute,” the court opined.
The court’s ruling, however, does leave one question unanswered. The judges noted that in the Chalfonte case, QBE did substantially comply with the disclosure requirements. However, how would the court react if the insurer failed to follow the disclosure requirements at all? Would the court maintain its position that absent a legislative penalty there is no recourse for policyholders?
“That is a good question,” said Contero, who served as a Florida Supreme Court Justice between 2002 and 2008. “We don’t know what the court would do about that.”
What the court would do is one thing, what insurers may do is another, said Rosenbaum.
“If it is not going to be enforced, why would it be followed?” he said.
The disclosure requirements were not the only questions facing the court in the Chalfonte Condominium case.
The court rejected on a technical basis Chalfonte’s claim that QBE failed to act in good faith by failing to investigate and assess its claim within a reasonable period of time. Chalfonte filed the claim on a first-party basis, but the legislature in 1988 enacted a law saying that all such claims are in fact third-party claims and must be adjudicated based on state law.
That ruling only applied to some $270,000 of the claim.
The court also rejected a claim by Chalfonte that QBE should pay the amount rendered by the trial court under a policy provision that called for all amounts to be paid in the event of a final judgment on a claim. The court cited its Florida Rule of Civil Procedures that states if a judgment is solely for the payment of the claim, an insurer is granted an automatic stay if they appeal the ruling and post a bond covering the amount.
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