DO NOT FORFEIT COVERAGE UNDER YOUR PROPERTY INSURANCE POLICY

Posted on February 6, 2021February 6, 2021 by Edward Garber

If you have read prior articles (see here and here as an example), then you know that when it comes to first-party property insurance policies, an insured must comply with post-loss obligations in the policy. Failure to comply with a post-loss obligation gives the insurer the argument that the insured materially breached the policy and, therefore, forfeited rights to coverage. Naturally, this is avoidable by ensuring post-loss obligations are complied with, ideally under the guidance of counsel and qualified public adjusters to ensure your rights are being preserved and maximized.

[W]hen an insurer has alleged, as an affirmative defense to coverage, and thereafter has subsequently established, that an insured has failed to substantially comply with a contractually mandated post-loss obligation, prejudice to the insurer from the insured’s material breach is presumed, and the burden then shifts to the insured to show that any breach of post-loss obligations did not prejudice the insurer.

Universal Property & Casualty Ins. Co. v. Horne, 46 Fla.L.Weekly D201b (Fla. 3d DCA 2021) quoting American Integrity Ins. Co. v. Estrada, 276 So.3d 905, 916 (Fla. 3d DCA 2019).

This means when an insured fails to comply with a post-loss obligation (e.g., sworn statement in proof of loss, examination under oath), the property insurer will assert this failure as an affirmative defense. There is an “if-then” framework to determine whether there is “to be a total forfeiture of coverage under a homeowner’s insurance policy for failure to comply with post-loss obligations.” Horne, supra. First, the insurer has the burden to establish that its insured failed to substantially comply with a post-loss obligation in the policy. If the insurer establishes this, prejudice to the insurer is presumed. Then the burden shifts to the insured to demonstrate the breach (failure to comply with post-loss obligations) did NOT prejudice the insurer.

In Horne, the property insurer raised as an affirmative defense that its insured failed to timely comply with its post-loss obligation of submitting a sworn statement in proof of loss within 60 days. The insured argued, and the trial court agreed, that the insurer waived this argument by acknowledging coverage by tendering some payment to its insured for the loss. The appellate court held this was incorrect because “[i]nvestigatig any loss or claim under any policy or engaging in negotiations looking toward a possible settlement of any such loss or claim does not constitute a waiver of a ‘sworn proof of loss’ requirement.” Horne, supra (internal citations and quotation omitted). Without waiver applying, this means the insured’s failure to timely submit its sworn statement in proof of loss must fall within the “if-then” framework discussed above to determine prejudice to the insurer and, thus, total forfeiture under the policy.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

DID THE INSURED FORFEIT PROPERTY INSURANCE COVERAGE BY FAILING TO COMPLY WITH POST-LOSS POLICY OBLIGATIONS?

Posted on June 30, 2019April 23, 2020 by Edward Garber

Have you complied with your property insurance policy’s post-loss policy obligations? Has your property insurer argued that your failure to comply with post-loss policy obligations has resulted in you forfeiting insurance coverage? Have you filed a lawsuit against your property insurer for coverage and the property insurer has asserted affirmative defenses based on your material breach of the policy by failing to comply with post-loss policy obligations?

These are common questions when an insured submits a claim under a property insurance policy. Knowing how to address these questions (and a property insurer’s coverage defenses relating to these questions) is important when pursuing a property insurance claim.

The Third District Court of Appeal in American Integrity Insurance Company v. Estrada, 44 Fla. L. Weekly D1639a (Fla. 3d DCA 2019), does a good job addressing these questions in a property insurance coverage dispute involving vandalism. The property insurer in this case raised various forfeiture of coverage affirmative defenses relating to its insured’s failure to comply with post-loss policy conditions, e.g., (i) failure to appear for an examination under oath, (ii) failure to promptly notify the insurer of the vandalism (the loss), (iii) failure to submit a sworn proof of loos, (iv) failure to provide all requested records, and (v) failure to protect the property from further damage by making repairs. These are fairly routine affirmative defenses raised by a property insurer. The procedural argument in this case is not relevant; what is relevant is the Court’s discussion of an insurer’s affirmative defenses based on its insured’s failure to comply with post-loss policy obligations.

As shown below, an insured’s breach of a post-loss policy obligation MUST be material and MUST prejudice the insurer. An insured’s material breach of a post-loss obligation will result in a presumption of prejudice to the insurer, however, an insured can REBUT the presumption by showing the insurer was not prejudiced, which is a question of fact for the trier of fact.

1. Breach of Post-Loss Obligations Must be “Material”

The Third District explained:

Florida law “abhors” forfeiture of insurance coverage. See Axis Surplus Ins. Co. v. Caribbean Beach Club Ass’n, Inc., 164 So. 3d 684, 687 (Fla. 2d DCA 2014). “Moreover, ‘[p]olicy provisions that tend to limit or avoid liability are interpreted liberally in favor of the insured and strictly against the drafter who prepared the policy . . . .’ ” Bethel v. Sec. Nat’l Ins. Co., 949 So. 2d 219, 223 (Fla. 3d DCA 2006) (quoting Flores v. Allstate Ins. Co., 819 So. 2d 740, 744 (Fla. 2002)).

With these basic principles in mind, it is, unsurprisingly, well settled that, for there to be a total forfeiture of coverage under a homeowner’s insurance policy for failure to comply with post-loss obligations (i.e., conditions precedent to suit), the insured’s breach must be material. See Drummond, 970 So. 2d at 460 (concluding that the insured’s failure to comply with a post-loss obligation “was a material breach of a condition precedent to [the insurer’s] duty to provide coverage under the policy”) (emphasis added); Starling, 956 So. 2d at 513 (“[A] material breach of an insured’s duty to comply with a policy’s condition precedent relieves the insurer of its obligations under the contract.”) (emphasis added); Goldman v. State Farm Fire Gen. Ins. Co., 660 So. 2d 300, 303 (Fla. 4th DCA 1995) (“An insured’s refusal to comply with a demand for an examination under oath is a willful and material breach of an insurance contract which precludes the insured from recovery under the policy.”) (emphasis added); Stringer v. Fireman’s Fund Ins. Co., 622 So. 2d 145, 146 (Fla. 3d DCA 1993) (“[T]he failure to submit to an examination under oath is a material breach of the policy which will relieve the insurer of its liability to pay.” (quoting 13A Couch on Insurance 2d (Rev. 3d) § 49A:361 at 760 (1982) (footnote omitted) (emphasis added))).

Further, while the interpretation of the terms of an insurance contract normally presents an issue of law, the question of whether certain actions constitute compliance with the contract often presents an issue of fact. See State Farm Fla. Ins. Co. v. Figueroa, 218 So. 3d 886, 888 (Fla. 4th DCA 2017) (“Whether an insured substantially complied with policy obligations is a question of fact.”) (emphasis added); Solano v. State Farm Fla. Ins. Co., 155 So. 3d 367, 371 (Fla. 4th DCA 2014) (“A question of fact remains as to whether there was sufficient compliance with the cooperation provisions of the policy to provide State Farm with adequate information to settle the loss claims or go to an appraisal, thus precluding a forfeiture of benefits owed to the insureds.”) (emphasis added).

Estrada, supra.

2. If the Breach was Material, was the Property Insurer “Prejudiced”

Although there is a split between Florida’s Fourth and Fifth District Courts of Appeal on this prejudicial element (the Fourth District has taken a more pro-insurer friendly approach), the Third District agreed with the Fifth District’s more insured-friendly approach that “the insurer must be prejudiced by the insured’s non-compliance with a post-loss obligation in order for the insured to forfeit coverage.”

3. Party Bearing Burden to Establish Property Insurer was “Prejudiced”

The Third District held that while prejudice to an insurer will be presumed when an insured materially fails to comply with a post-loss policy obligation, the insured can rebut this presumption by showing the insurer was not prejudiced:

Estrada, supra.

TIMELY WRITTEN NOTICE TO INSURER AND COOPERATING WITH INSURER

Posted on June 16, 2017June 16, 2017 by Edward Garber

I harp on notifying a liability insurer in writing once a claim is asserted against you. As soon as possible. I harp on this because as an insured you want to remove any doubt or argument that the insurer was prejudiced due to a lack of timely notice.

In a recent opinion, Zurich American Insurance Co. v. European Tile and Floors, Inc., 2017 WL 2427172 (M.D.Fla. 2017), the insurer moved for summary judgment in a coverage action arguing that its insured failed to provide it timely written notice. Specifically, the insurer argued that the insured violated the clause in the liability policy that states:

2. Duties in the Event of Occurrence, Offense, Claim or Suit

b. If a claim is made or “suit” is brought against any insured, you must:

1. Immediately record the specifics of the claim or “suit” and the date received; and

2. Notify us as soon as practicable.

You must see to it that we receive written notice of the claim or “suit” as soon as practicable.

c. You and any other insured must:

1. Immediately send us copies of any demands, notices, summonses or legal papers received in connection with the claim or “suit”;

2. Authorize us to obtain records and other information;

3. Cooperate with us in the investigation, settlement or defense of the claim or “suit”; and

4. Assist us, upon our request, in the enforcement of any right against any person or organization which may be liable to the insured because of injury or damage to which this insurance may also apply.

Here, the insured claimed it orally called the insurer about the nature of the suit and a representative told it that there would be no coverage for the lawsuit. The insurer, however, claimed it has no record of such a call and only learned of the lawsuit after a judgment had already been entered against the insured. Particularly, a seven-figure judgment was entered against the insured and the judgment creditor then sued the insurer which prompted the insurer to file a coverage lawsuit.

The insurer argued that there should be no coverage because the insured violated the clause regarding being provided timely written notice of the lawsuit. An insured can forfeit otherwise valid coverage by failing to provide timely notice to the prejudice of the insurer.

Under Florida law, if an insured’s notice is untimely, a presumption of prejudice arises. European Tile and Floors, supra, at *5. The insured can only prevail if it rebuts the presumption of prejudice by demonstrating with competent evidence that the insurer was not prejudiced by the untimely notice. Id. However, although the policy required written notice, this requirement can be waived when the insurer has actual notice of the claim. Id.

In this case, the Middle District denied the insurer’s motion for summary judgment because there was a material fact dispute as to whether the insured provided notice of the lawsuit to the insurer—the insured claims it did so through an oral call which the insurer disputes.

The insurer also moved for summary judgment arguing the insured failed to cooperate with it. An insurer may deny coverage for an insured’s failure to cooperate when “(1) the lack of cooperation was material, (2) the insurer exercised diligence and good faith in bringing about the cooperation of its insured and itself complied in good faith with the terms of the policy and (3) the lack of cooperation substantially prejudiced the insurer.” European Tile and Floors, supra, at *6 quoting Mid-Continent Cas. Co. v. Basdeo, 477 Fed.Appx. 702, 706-07 (11^th Cir. 2012).