VOLUME XV, NUMBER 8
August, 2003

FROM THE CORNER OFFICE

Mark your calendars!
Anna D. Torres has been invited to speak on Advanced Personal Injury Practice in Florida at the National Business Institute Seminar to be held at the Crowne Plaza Hotel in West Palm Beach, Florida on November 5, 2003, with co-speaker Theodore J. Leopold, from the Law Firm of Ricci, Leopold, Farmer & McAfee, P.A.

PERSONAL RELOCATION COSTS MAY BE RECOVERABLE EXPENSES

A federal court recently determined that personal relocation costs may be recoverable repair expenses under a condominium association policy when incurred as a necessary and direct result of repairs. The principal issue in Three Palms, Inc. v. State Farm Fire and Cas. Ins. Co., 16 FLW D231 was whether condominium residents’ personal temporary relocation costs constituted a covered expense under the terms of a condominium association policy.

Subsequently, Three Palms instituted a declaratory judgment action in the federal court for the middle district of Florida seeking a determination that the policy included such coverage. The Three Palms court noted that the central controversy in the parties’ pleadings, motions and responses was whether or not coverage existed for the condominium residents’ personal relocation expenses. In its analysis of this issue, the court noted that Florida courts have regarded insurance policies as contracts. The court noted that an insurance policy must be enforced as written where the language is plain and unambiguous. See Siegle v. Progressive Consumers Ins. Co., 788 So. 2d 355, 359 (Fla. 4th DCA 2001). The court also found that Florida courts interpret the terms of a policy in favor of the insured. See Northbrook Property & Casualty Ins. Co. v. R&J Crane Service, Inc., 765 So. 2d 836, 840 (Fla. 4th DCA 2000).

Although the Three Palms court found no Florida case directly on point where the issue of what costs constitute repair costs, it relied on Azalea Ltd. v. American States Ins. Co., 656 So. 2d 600 (Fla. 1st DCA 1995), which stands for the proposition that repair costs may include much more than expenses associated with structural repairs. There, the trial court found that no coverage existed where there was no “direct physical loss” to a sewage treatment plant because there was no structural damage to the property. On appeal, however, the First District reversed upon finding that the vandalism destroyed bacteria that was central to the plant’s operation. Thus, the appellate court held that the cost of the a new bacteria colony constituted a covered repair cost. Id.

With these principles in mind, the Three Palms court found that the condominium policy stated that State Farm would cover the “cost of replacing or repairing the lost or damaged property.” This, according to the court, was unambiguous and interpreted it to mean that the carrier would cover all costs directly related to restoring the property associated with a covered loss. The court held that where repairs cannot be safely conducted while the residents are still inhabiting the property, relocation expenses constitute a part of the repair costs. Moreover, if the repairs are more economical with the residents removed from the property than if they remained on site and the insurer chooses this lower-cost alternative, then relocation expenses are to be regarded as part of the overall repair cost. Consequently, the court held that the displacement of residents was both directly caused by the repairs and made necessary by those repairs. The court ruled in favor of the plaintiffs upon concluding that where relocation expenses are the “necessary and direct result of the construction and repair process” and not merely caused by the collapse itself, said expenses are recoverable as part of repair costs.

Steven C. Teebagy

HMO CONTRACTUAL DISCOUNT CONSTITUTES A PAYMENT AS A COLLATERAL SOURCE BENEFIT TO BE SETOFF AGAINST DAMAGES AWARD

In Goble v. Frohman, 28 FLW D1494 (June 25, 2003), the Second District Court of Appeal ruled that an HMO contractual discount rendered on behalf of a claimant in the course of payment of his medical bills constituted a “payment made” on the claimant’s behalf pursuant to his health insurance contract. The court reached this conclusion because the discounted amount discharged the claimant’s obligation to pay his medical providers any further amounts for his treatment and because the providers were prohibited from seeking reimbursement elsewhere. However, the court further ruled that since the discount is a collateral source of payment, under the “collateral source rule” evidence of the discount could not be presented to the jury during the trial. Evidence as to the reasonableness or necessity of the claimant’s medical bills could still be presented. Post-trial, an opposing party can move for a setoff against the damages award in an amount equal to the contractual discounted amount.

The court stated that its rationale was consistent with the legislative intent to fully compensate the injured party without requiring insurers to pay damages beyond what the injured party actually incurred. Any requirement to that extent would be a windfall to the injured party and would undermine the purpose of tort reform.

The underlying facts are simple. Goble was riding a motorcycle and was severely injured when he was hit by Frohman’s vehicle. At the time of the incident, Goble subscribed to Aetna U.S. Healthcare, an HMO. At the trial, the jury awarded past medical expenses relating to the incident in the amount of $574,554.31, the amount billed by Goble’s medical providers. As a result of contractual fee schedules in existence between Aetna and the medical providers, Aetna paid to the providers $145,970.76 for the medical treatment. Goble paid $15,000.00 in co-payments. The difference between the total amount billed and the total amount paid, referred to by the court as “the contractual discount,” was written off by the medical providers in the amount of $413,583.55. (The medical providers had no right to seek reimbursement from Goble or any third parties. See § 641.315(3), Fla. Stat. (1999).

Post-trial, Frohman successfully moved for setoff under section 768.76, Florida Statutes (1999) (providing for collateral sources of indemnity enacted in 1986 pursuant to the Tort Reform and Insurance Act. ch. 86-160, § 1, 55, Laws of Fla.) Pertinent language from the statute states that the court shall reduce the amount of an award by the total of all amounts otherwise available to the claimant, from all collateral sources, defined as any payments made to the claimant, or made on the claimant’s behalf by an organization whose contract or agreement provides for reimbursement of medical costs.

Citing precedental case law, the Second District determined that while the statute is an alteration of common law and would generally be narrowly construed because it is remedial in nature, in this circumstance the statute should be liberally construed to give effect to the legislature’s express intent to ensure the widest possible availability of liability insurance at reasonable rates, to ensure a stable market for liability insurers, to ensure that injured persons recover reasonable damages and to encourage the settlement of civil actions prior to trial. The court ultimately determined that regardless of whether construed narrowly or liberally, the end result was the same: a setoff was proper.

In support of its reasoning, the court looked to the commonplace definition of “payment” as evidenced by the Webster’s Third New International Dictionary, 1659 (1986), which defined “payment” as “the act of paying or giving compensation,” “the discharge of a debt or obligation,” “something given to discharge a debt or obligation or to fulfill a promise.” Payment was also defined as “(p)erformance of an obligation, usually by the delivery of money. Performance may occur by delivery and acceptance of things other than money, but there is a payment only if money or other valuable things are given and accepted in partial or full discharge of an obligation.” Black’s Law Dictionary, 1150 (7th ed. 1999).

Considering the matter one of great public importance because it will affect the billing practices of medical providers and HMOs, the Second District certified the following question to the Florida Supreme Court--the answer to which may be landmark in tort reform law in Florida:

Under section 768.76, Florida Statutes (1999), is it appropriate to setoff against the damages portion of an award the amounts of reasonable and necessary medical bills that were written off by medical providers pursuant to their contracts with a health maintenance organization?

Stephanie H. Luongo

CLAIM FILES CONTINUE TO BE PROTECTED

The Fifth District Court of Appeal reaffirmed the cases which protect insurance companies from disclosing their claim files until a determination has been made that coverage was required. In Old Republic National Title Insurance Company, etc., v. HomeAmerican Credit, Inc., etc., 28 FLW D1214 (5th DCA May 16, 2003), the court held that a party was not entitled to the discovery of an insurer’s claim file or documents relating to a insurer’s business policies or practices regarding the handling of claims in an action for insurance benefits that was combined with a bad faith action.

In Old Republic, Old Republic issued a title insurance policy to HomeAmerican’s interests in a parcel of real property located in Orange County, Florida. Subsequently, HomeAmerican acquired the property and attempted to sell it. However, a title search revealed that there was a recorded encumbrance that Old Republic failed to discover. HomeAmerican sought damages from Old Republic, stating that the encumbrance was a defect in title that made the property unmarketable. After Old Republic failed to pay for any damages, HomeAmerican filed a complaint alleging that Old Republic refused to pay damages under the policy and that the failure to pay was in bad faith.

During discovery, HomeAmerican sought production of documents from Old Republic relating to Old Republic’s business policies and claims handling practices and any documents which related to any title claim litigation filed against Old Republic from January 1, 1999 to the present in the State of Florida. Old Republic objected to this request, stating that the discovery was overbroad, vague, burdensome, and not reasonably calculated to lead to the discovery of admissible evidence. However, the trial court disagreed with Old Republic’s position, and granted HomeAmerican’s motion to compel discovery, ordering Old Republic to produce the policy and business practice documents. The Fifth District granted cert review of the order and quashed the order.

The Fifth District relied upon Florida Statute 624.155(1)(b)(1) and Vest v. Travelers Ins. Co., 753 So.2d 1270, 1276 (Fla. 2000); Liberty Mut. Ins. Co. v. Farm Inc., 754 So.2d 865 (Fla. 3d DCA 2000); American Bankers Ins. Co. of Fla. v. Wheeler, 711 So.2d 1347 (Fla. 5th DCA 1998); State Farm Fire and Cas. Co. v. Martin, 673 So.2d 518 (Fla. 5th DCA 1996); Blanchard v. State Farm Mut. Auto Ins. Co., 575 So.2d 1289 (Fla. 1999) for its conclusion that a cause of action for statutory bad faith is premature unless there has already been a determination of liability and the extent of damages owed the insured under a first party insurance policy. Since Old Republic’s obligation to provide coverage had not been determined, the Fifth District determined that the trial court erred in granting HomeAmerican’s motion to compel.

Jacqueline A. Grady