Florida’s First District Court of Appeal recently decided that, when determining whether the structure is a “total loss” under Florida’s former Valued Policy Law (“VPL”), a court could consider whether the cost of repairing the building would exceed its value. State Farm Florida Insurance Company v. Ondis, 2007 WL 1385958 (Fla. 1st DCA May 14, 2007). In Ondis, the cost of repair exceeded the value of the house. Although flood, which was excluded under the policy, had damaged the house in the amount of $322,601.88, while wind, the covered peril, was responsible for only $14,073.65 of the damage, the homeowners sought their policy limits from the insurer.
The court noted that, in Mierzwa v. Florida Windstorm Underwriting Ass’n, 877 So. 2d 774, 775 (Fla. 4th DCA 2004) the fourth district characterized the VPL as consisting of only two significant inquiries: (1) whether the building was insured as to “a” covered peril; and (2) whether the building was a “total loss.” Under this interpretation of the VPL, the actual cause of the total loss was irrelevant because, if the answer to both queries was “yes,” the carrier was liable to the owner for the face value of the policy, irrespective of the cost of repairs or replacement.
The 2004 version of the VPL states:
(1) In the event of the total loss of any building, structure, mobile home as defined in s. 320.01(2), or manufactured buildings as defined in s. 553.36(12), located in this state and insured by any insurer as to a covered peril, in the absence of any change increasing the risk without the insurer’s consent and in the absence of fraudulent or criminal fault on the part of the insured or one acting in her or his behalf, the insurer’s liability, if any, under the policy for such total loss shall be in the amount of money for which such property was so insured as specified in the policy and for which a premium has been charged and paid.
Section 627.702, Florida Statutes.
According to prevailing Florida standards, a building is an “actual total loss” under the “identity test” when it no longer retains its identity and the specific characteristics that define it as a building. Lafayette Fire Ins. Co. v. Camnitz, 149 So. 653, 654 (Fla. 1933). A building is considered a “constructive total loss” when, although still standing, the building is so badly damaged that existing ordinances or regulations mandate demolition and prohibit repair. Netherlands Ins. Co. v. Fowler, 181 So. 2d 692, 693 (Fla. 2d DCA 1966); Citizens Ins. Co. v. Barnes, 124 So. 722, 723 (Fla. 1929).
The Ondis court found that a building to need not pass the “identity test” or constitute a “constructive total loss” to qualify as a “total loss” under the VPL. Other “reasonable definitions” may be applied. Because the cost to repair the home exceeded its value, the trial judge granted summary judgment in favor of the insured homeowner. The appellate court found that this was a “reasonable factor” and that the trial court was free to make a determination of total loss based on all the evidence in the record.
An earlier case, Florida Farm Bureau Cas. Ins. Co. v. Cox, 943 So. 2d 823 (Fla. 1st DCA 2006), required construction of the same version of the VPL as Ondis. The First District noted however that the VPL had been significantly revised. Effective June 1, 2005, the amendment to the VPL specified that the “total loss” must be “caused by a covered peril” to trigger the statute and that the VPL no longer applied to losses that are caused by both covered and non-covered perils.
The court in Cox acknowledged that considerations such as ease of actuarial analysis, the economics of the insurance industry, and even its own notions of fairness might have lead it to interpret the 2004 statute like the 2005 amendment. However, the 2005 amendment is not retroactive and applies only to claims filed after its effective date. Thus, the court in Cox was constrained to disregard the 2005 amendment.
Nevertheless, the court in Cox certified the following question to the Florida Supreme Court:
DOES SECTION 627.702(1), FLORIDA STATUTES (2004), REFERRED TO AS THE VALUED POLICY LAW, REQUIRE AN INSURANCE CARRIER TO PAY THE FACE AMOUNT OF THE POLICY TO AN OWNER OF A BUILDING DEEMED A TOTAL LOSS WHEN THE BUILDING IS DAMAGED IN PART BY A COVERED PERIL BUT IS SIGNIFICANTLY DAMAGED BY AN EXCLUDED PERIL?
The Ondis court certified the same question. On January 11, 2007, the Florida Supreme Court granted review in Florida Farm Bureau. The appeal is currently pending.
