VOLUME XVI, NUMBER 7
July, 2004

FROM THE CORNER OFFICE

We are proud to announce that Kathleen M. Bonczyk has passed the Florida Bar exam and is now practicing as a civil litigation associate with our firm. Congratulations Kathy!

On July 21, 2004, Anna D. Torres will be a presenter at the Ft. Lauderdale Claims Association’s Educational Seminar which will be held at the Ft. Lauderdale Marriott North, Ft. Lauderdale, Florida.

TEMPORARY RELOCATION COSTS RECOVERABLE EXPENSES ON COLLAPSE CLAIM UNDER A CONDO POLICY APPRAISAL

In Three Palms Pointe, Inc. v. State Farm Fire & Casualty Co., 17 FLW Fed. C315 (March 19, 2004), the Eleventh Circuit affirmed a summary judgment decision of the United States District Court, Middle District of Florida, on the issue of whether temporary relocation costs are recoverable expenses for a collapse claim under a condominium association policy while the condominium property is undergoing repairs. We originally reported on the trial court decision in Briefly Speaking, Volume XV, Number 8 (August 2003).

Central to the analysis of the Eleventh Circuit was the fact that an appraisal had occurred. Citing the Florida controlling authority of State Farm Fire & Casualty Co. v. Licea, 685 So. 2d 1285, 1288 (Fla. 1996), the Eleventh Circuit held that Florida law mandates that if an insurer and an insured go to appraisal, the insurer can only dispute coverage for the “loss as a whole.”

The Eleventh Circuit further held that once an appraisal award has been made, the only defenses that remain for the insurer are to assert lack of coverage for the entire claim, or violation of one of the standard policy conditions (including but not limited to fraud, lack of notice and failure to cooperate), none of which were at issue in Three Palms Pointe. Interestingly, and importantly, the Eleventh Circuit noted that it did not need to and did not reach the coverage issue because there had been an appraisal involved.

State Farm issued a condominium association insurance policy under which Three Palms Pointe submitted a loss claim for “collapse” of the property. State Farm conceded the issue of “collapse” agreeing that “hidden decay” constituted “an accidental direct physical loss” of the property in accordance with the terms and conditions of the policy. State Farm further conceded that the policy covered “the cost of replacing or repairing” the buildings as a result of such loss.

As a result of the parties’ disagreement on the amount of the loss and the costs covered by the policy, Three Palms Pointe elected to enforce the binding appraisal provision of the policy. At appraisal, Three Palms Pointe was awarded $11,300,000 for the loss inclusive of $700,000 to relocate the unit contents and $560,000 relocate the residents of both buildings. The award specifically found both aspects of the relocation costs to be a “necessary and direct result of the construction and repair process.”

State Farm refused to pay the costs of temporary relocation and Three Palms Pointe filed suit to enforce payment pursuant to the binding appraisal award. On appeal, State Farm argued that temporary relocation costs were not covered expenses as contemplated by the policy in reliance on the case of Azalea, Ltd. v. American States Ins. Co., 656 So. 2d 600 (1st DCA 1995)(Under a commercial property and liability policy for a mobile home park with its own sewage treatment facility, the operator’s loss of use of the facility, as a result of damage sustained to the bacteria colony of the treatment facility because of the dumping of an unknown substance, was held to be an expense separate and apart from the repair costs and was not covered by the insurance policy.) The Eleventh Circuit rejected State Farm’s contention that Azalea was controlling because it did not involve an appraisal.

The Eleventh Circuit ultimately held, based upon Florida law as to appraisals, that since State Farm was attempting to challenge coverage with respect to only the portion of the appraisal award dealing with the temporary relocation expenses, State Farm’s appeal failed.

Stephanie H. Luongo

DAMAGES MAY BE OFFSET OR REDUCED BY EVIDENCE OF COLLATERAL SOURCE PAYMENTS

Florida Statutes §768.76(1) and §627.736(3) both provide for reduction of damage awards based upon evidence of collateral source payments. Under §768.76(1), a court is authorized to reduce a claimant’s damage award in a tort or a contract action by the total amount of collateral source payments made for the benefit of the claimant after the entry of an initial award of damages. §627.736(3) allows for recovery of collateral source payments in tort claims involving motor vehicle accidents. Under §627.736(3) a damage award may be off-set by the amount of personal injury protection benefits a claimant is paid or will be paid when the evidence of said collateral source payments is presented at trial. However, despite the apparent consistency in the language of these two statutes, a lower court recently denied a defendant’s motion for collateral source set-off when the defendant attempted to introduce evidence of the plaintiff’s personal injury protection payments post-trial.

Recently, the Fourth District Court of Appeal ruled that the trial court totally misinterpreted the law when it entered final judgment in favor of a plaintiff and denied a defendant’s motion to present evidence post-trial concerning the plaintiff’s collateral source payments. The matter of Maria Garcia v. Ana M. Arraga, 29 FLW D386 (Fla. 4th DCA February 11, 2004), involved an automobile accident where the plaintiff sued the defendant for injuries sustained from the accident and the defendant attempted to offer evidence of the plaintiff’s personal injury protection payments as part of its motion for collateral source set-off. The trial court denied the defendant’s motion when it found that Florida Statutes §768.76(1) and §627.736(3) were mutually exclusive and decided that according to the language of §627.736(3) the defendant was required to present evidence of the plaintiff’s collateral source payments during the course of the trial not post-trial.

In reversing the trial court’s decision, the Fourth District found that both statutory provisions should be given effect simultaneously. Contrary to the lower court’s interpretation, the appellate court found that §627.736(3) does not require evidence of collateral source payments to be introduced exclusively during the course of trial. Instead, the appellate court found that §627.736(3) specifies that certain collateral source payments shall reduce a damage award if such evidence is presented during trial. In rendering its reversal, the appellate court ruled that the paramount objective of both provisions is to ensure injured persons recover only reasonable damages. Since the purpose of the collateral source set-off could be achieved under the provisions of either statute, §768.76(1) and/or §627.736(3), should be read together, with each provision yielding to the other. Accordingly, the appellate court ruled that the trial court should have allowed for post-trial reduction of collateral source payments.

However, the appellate court did not stop there in its criticism of the trial court’s ruling. The appellate court also found that the trial court totally misinterpreted the facts in Garcia. According to the trial record, the parties had agreed to address the defendant’s motion for collateral source set-off post-trial. As a result, it was not unusual for the defendant to postpone its presentation of evidence of the plaintiff’s personal injury protection payments until after the trial. On the contrary, it was particularly strange that the trial court: (1) did not acknowledge said agreement between the parties and (2) instead, erroneously entered final judgment in favor of the plaintiff. The trail court’s ruling was even more unusual because the judge had been present during the plaintiff’s and the defendant’s counsels discussions regarding determining issues of collateral source set-off post-trial.

Carriers should take note of the appellate court’s criticism of the trial court’s judgment on every level in this case and remember same the next time they are faced with the proposition of appealing a trial court decision which they believe is total and absolute error.

Tana R. Sachs Copple

FLORIDA’S COUNTERSIGNATURE AND SURPLUS LINES STATUTES DECLARED UNCONSTITUTIONAL AND DISCRIMINATORY AS APPLIED TO NONRESIDENT FLORIDA-LICENSED PROPERTY AND CASUALTY AGENTS

In Council of Insurance Agents + Brokers v. Tom Gallagher, 17 FLW Fed. D86 (N.D.Fla. 2003), the court ruled on the constitutionality of Florida’s Countersignature Statutes, § 624.425(1) and 626.741(5)(a), and Florida’s Surplus Lines Statute, §626.927(1), as they are applied to non-resident, Florida-licensed, property and casualty agents. Specifically the court addressed whether the statutes’ application to nonresident Florida-licensed agents was discriminatory; and whether nonresident Florida-licensed agents were denied certain rights and privileges that are afforded to Florida-licensed resident property and casualty agents.

The lawsuit was brought by a trade association, whose members include many of the nation’s largest commercial property and casualty insurance agencies and brokerage firms. The plaintiff’s members also include corporations and partnerships that place insurance coverage in all fifty states, and have employees who are licensed as agents by the Florida Department of Insurance, but reside outside of the state of Florida. As nonresident agents, the Countersignature and Surplus Lines Statutes preclude these agents from performing services that they would normally perform as a property and casualty agent and also denied the plaintiff’s members revenue that they would have normally received.

Pursuant to the Countersignature statutes, if a nonresident agent places property or casualty insurance for a Florida risk, the policy must be countersigned by a Florida resident agent, who must also be paid fifty percent of the total commission earned for placement of the coverage.

Based on the terms of the Surplus Lines License Statute, a nonresident Florida-licensed agent was not eligible to obtain a Surplus Line License, even though a resident agent may obtain a Surplus Line License after obtaining relevant surplus lines experience and successfully passing a written examination.

The plaintiff filed suit in federal court in the Northern District of Florida, challenging the constitutionality of the Countersignature and Surplus Lines Statutes, under the Privileges and Immunities Clause and the Equal Protection Clause of the United States Constitution. The plaintiff’s contention was that the statutes drew a distinction between nonresident Florida-licensed agents and Florida-licensed resident agents. The defendant Commissioner of Insurance asserted that the statutes were constitutional, and that they made no distinction between nonresident Florida-licensed agents and Florida-licensed resident agents.

The court granted summary judgment in favor of the plaintiff. The court declared that the Countersignature Statutes and the Surplus Line Statutes violate the Privileges and Immunities Clause and the Equal Protection Clause of the United States Constitution, to the extent that they deny Florida-licensed nonresident agents the same rights and privileges that are afforded to Florida-licensed resident agents. The court further held that the discrimination against nonresident Florida-licensed agent was unconstitutional, as no purpose was served by denying nonresident Florida-licensed agents the same rights and privileges afforded to Florida-licensed resident agents.

Consequently, the Florida Commissioner of Insurance was enjoined from denying nonresident Florida-licensed agents the same rights and privileges afforded Florida-licensed resident agents.

Donna M. Wilson-Sampson