Late Notice, Appraisal and Prejudice

In State Farm Florida Insurance Company v. Hernandez, 40 FLW D1433a (Fla. 3rd DCA June 17, 2005), State Farm appealed a non-final order compelling appraisal of a homeowners claim.  The lawsuit arose out of a Hurricane Wilma supplemental claim.

Hurricane Wilma struck South Florida in October of 2005.  The insured submitted a homeowner’s claim to State Farm.  State Farm paid the claim.  After this payment, the insured said he noticed additional damage.  In 2007, the insured renovated his entire home.  In 2010, five years after Wilma, the insured submitted a supplemental claim to State Farm for the work completed in 2007.  The insured did not give State Farm notice of the additional damage before, during or after making the repairs.  State Farm requested a proof of loss from the insured.  In the initial proof of loss, the insured swore he was entitled to an additional payment of $201,038.84.  This proof of loss was untrue as it, at a minimum, included items State Farm had previously paid.

After failing to come to an agreement on the supplemental claim, the insured filed suit and requested appraisal.  The insurance company objected to appraisal based on the insured’s failure to comply with his post-loss obligations, including his failure to give State Farm timely notice of his supplemental claim, failure to cooperate, failure to provide documents substantiating his claimed losses, and the insured’s concealment and/or fraud in the presentation of his claim. The trial court granted the motion to compel appraisal.  State Farm appealed.

The 3rd DCA held that it was improper to compel appraisal before there was a determination of whether there was coverage under the policy due to the insured’s alleged failure to comply with his post-loss conditions.

As this Court stated in Citizens Property Insurance Corp. v. Mango Hill Condominium Ass’n 12 Inc., 54 So. 3d 578, 581 (Fla. 3d DCA 2011) (hereinafter “Mango Hill 12”), where the insured has not complied with his post-loss obligations under the policy, a trial court is not empowered to compel appraisal:

The discretion to determine the order in which coverage and loss issues are considered does not, however, override a preliminary determination as to whether an arbitrable issue exists. Before arbitration (or appraisal) under an insurance policy such as the one at issue here may be compelled, a disagreement, or “arbitrable issue,” must be demonstrated to exist. U.S. Fid. & Guar. Co. v. Romay, 744 So. 2d 467, 469 (Fla. 3d DCA 1999). No disagreement or arbitrable issue exists unless “some meaningful exchange of information sufficient for each party to arrive at a conclusion” has taken place. Id. at 470. Thus, an “insured must comply with all of the policy’s post-loss obligations before the appraisal clause is triggered.” Id. at 471; seeFirst Home Ins. Co. v. Fleurimond, 36 So. 3d 172, 174 (Fla. 3d DCA 2010).

The Court went on to state:

The law in this district is clear and has been for nearly twenty years: the party seeking appraisal must comply with all post-loss obligations before the right to appraisal can be invoked under the contract.

Recognizing that failure to comply with post-loss conditions does not void coverage unless there is prejudice to the insurer, the 3rd DCA then discussed the prejudice to State Farm due to the insured’s failure to comply with his post-loss conditions.  The Court stated:

The prejudice to State Farm in the instant case demonstrates the prejudice that necessarily flows to the insurer when the insured fails to comply with his post-loss obligations. State Farm has been denied a meaningful opportunity to investigate Hernandez’s supplemental claim to determine if the claimed losses were, in fact, based on damages as opposed to the owner’s mere desire to renovate his home. Further, if the claimed losses were based on actual damages to the house, State Farm did not have the opportunity to investigate whether the damages were as a result of Hurricane Wilma, negligence by Hernandez, negligence by the roofer who installed the new roof, or due to some other cause.

Because Hernandez has not complied with his post-loss obligations, State Farm cannot conduct a meaningful investigation in order to adjust the claim. Accordingly, we reverse the order under review and remand this case back to the trial court for proceedings consistent with this opinion.

Interestingly, the 3rd DCA did not say that there was prejudice “as a matter of law,” and did not say that the trial court was to “enter judgment in favor of State Farm and against the insured.”  Instead, the 3rd DCA merely reversed the order compelling appraisal and remanded for proceedings “consistent with this opinion.”  That is likely because this case was before the 3rd DCA on an order compelling appraisal.  State Farm had not filed a Motion for Summary Judgment.  It seems most likely, that the 3rd was simply inviting State Farm to file a Motion for Summary Judgment on the prejudice issue in order to put the final nails in the coffin of this case.

However, in response to any State Farm Motion for Summary Judgment the insured will be allowed to argue that there was a lack of prejudice to the insurer – a tough legal and factual argument under the facts of this case.

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