VOLUME XX, NUMBER 2
November, 2008

ONGOING INCREASE IN WATER BILLS AND WATER DAMAGE TO PROPERTY SUFFICIENT EVIDENCE IN FINDING THAT LOSS OCCURRED OVER PERIOD OF TIME

In Hoey v. State Farm Florida Insurance Company, 988 So.2d 99 (Fla. 4 th DCA 2008), the Fourth District Court of Appeal affirmed the trial court’s finding as a matter of fact that water damage to an unoccupied home, as well as a significant increase in water bills over the course of several months, was sufficient to conclude that a water leak occurred over a period of time.

The appellee, State Farm Insurance Company (“State Farm”), issued a homeowner’s insurance policy to the insureds, Edward and Helen Hoey (“Insureds”). The Insureds’ property was unoccupied from April until November of 2006. At some point during that time, water leaked from a toilet supply line, resulting in damage to the Insureds’ property.

While the house was vacant, water bills for the property, which normally reflected water usage around twenty gallons per month, rose to water usage of over eight thousand gallons in a single month. In November of 2006, the leak was discovered when the Insureds’ neighbor saw water flowing underneath a sliding glass door at the property. The Insureds’ sought coverage of the damage under their insurance policy.

At trial, State Farm relied on its policy provision that excluded coverage for loss “caused by or resulting from continuous or repeated seepage or leakage of water or steam which occurs over a period of time and results in deterioration, corrosion, rust, mold, or wet or dry rot.” In addition, State Farm also relied upon its policy provision, which states that the carrier does not insure for any loss caused by “continuous or repeated seepage or leakage of water or steam from a: plumbing system…which occurs over a period of time…”

The Insureds testified that the damage was caused by “a continuous leakage from that toilet pipe, for a course of three weeks or so” and by a “sudden accidental discharge of water.” An expert for State Farm testified that the cause of the loss was the result of a failed toilet supply line, and that the water bills for the unoccupied property had increased significantly over several months as the leak became worse. In addition, the Court found that the resulting water damage to the property, including rotted wood and mold in the drywall, was consistent with continuous water leakage, which occurred for longer than a few weeks. The Fourth District ruled that the evidence of the mold and rotted wood at the Insureds’ property, coupled with the water bills showing the ongoing increase of water usage over the course of several months, was sufficient to support a finding that the water loss had occurred over a period of time.

Although the Fourth District declined to define the exact length of “a period of time” under the policy, in this instance, the Court found that a continuous, ongoing leak in a vacant property for several months, as a matter of fact, was a loss that occurred over a period of time. As such, the Fourth District affirmed the trial court’s finding that the water loss fell within the policy exclusion for “continuous or repeated leakage or seepage of water.”

Meghan A. Wilson

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SUMMARY JUDGEMENT GRANTED IN FAVOR OF INSURER WHERE INSURED'S CIVIL REMEDY NOTICE LACKED SPECIFICITY

In Heritage Corp. of S. Florida v. Nat’l. Union Fire Ins. Co. of Pittsburgh, 21 Fla. L. Weekly Fed. D 367, (S.D. Fla. 2008), the Court held that National Union was entitled to judgment as a matter of law on Heritage Corp.’s action for bad-faith because: 1) Heritage Corp. failed to comply with conditions precedent to filing an action for bad-faith; 2) National Union did not have an opportunity to settle Heritage Corp.’s underlying claim for damages; and 3) Heritage Corp.’s damages that were allegedly incurred as a result of National Union’s bad-faith, were not reasonably foreseeable.

The claim involved a bad-faith action
filed by Heritage Corp. against National Union which was based on a previous lawsuit, wherein Heritage Corp. sued National Union to recover for losses allegedly incurred as a result of fraudulent acts committed by some of Heritage Corp.’s employees. Heritage Corp. submitted a claim for damages in excess of $3 million pursuant to fidelity bonds and errors and omissions insurance policies issued by National Union to Heritage Corp. National Union denied coverage for the full amount of Heritage Corp.’s losses, and Heritage Corp. subsequently filed suit. The jury rendered a verdict finding that Heritage Corp. suffered a loss in the amount of $80,310 resulting from the fraudulent acts of its employees. After applying the $25,000 deductible, the jury awarded Heritage Corp. $55,310 for its claim. After trial, Heritage Corp. filed a bad-faith action pursuant to Florida Statutes §§624.155 and 626.9541(1)(i), to recover for damages sustained based on National Union’s alleged bad faith handling of Heritage Corp.’s claim for losses under a fidelity bond.

The United States District Court, for the Southern District of Florida, found that Heritage Corp. failed to comply with a condition precedent to bringing a bad faith claim. Specifically Heritage Corp. failed to comply with the specificity requirements for a Civil Remedy Notice provided by §624.155(3)(b). The statute provides that the CRN must include (1) the statutory provision, including the specific language of the statute, which the authorized insurer allegedly violated; (2) the facts and circumstances giving rise to the violation; (3) the name of any individual involved in the violation; (4) reference to specific policy language that is relevant to the violation, if any; and, (5) a statement that the notice is given in order to perfect the right to pursue the civil remedy authorized by this section.

According to the Court, Heritage Corp.’s CRN did not allow National Union an opportunity to cure alleged violations that gave rise to Heritage’s statutory bad faith claim. In addressing the sufficiency of Heritage’s Civil Remedy Notice, the Court noted that: “[b]ased on Heritage’s CRN, National Union could not be expected to have been able to cure the alleged violations. The CRN is vague and ‘shotgun’ in nature – hardly the type of specific notice required by the statute that would allow National Union an opportunity to cure.”

The Court further noted that the CRN quoted large portions of Florida Statutes §§624.155 and 626.9541(1)(i), but failed to “specify which subsections were at issue, or explain how National Union violated them.” “Where the CRN did invoke the statutes, it was only to say vaguely that National Union ‘took no action whatsoever to acknowledge coverage, or to attempt to settle the claims as it should have done.’” Similarly, the Court found that Heritage Corp. failed to indicate specific facts of National Union’s actions that gave rise to the alleged violation, rather the CRN only contained a recitation of vague facts. The Court also noted that the CRN did not provide specific actions Heritage Corp. wanted National Union to take.

The Court also found that even if “Heritage’s CRN was legally sufficient, Heritage would not prevail on its bad faith claim against National Union.” In the underlying action, the jury determined that Heritage Corp. was entitled to recover $55,310. During the investigation of the claim, and the course of the underlying litigation, Herirage Corp. never gave National Union any indication that it would have settled the claim for $55,310. Rather, Heritage Corp. consistently maintained that its damages were several million dollars. It was National Union’s position, and the Court agreed, that there was no point at which it could have settled Heritage Corp.’s claim, because Heritage Corp. would never have accepted a settlement offer in the amount of $55,310. The Court found that there was no genuine issue of fact as to whether National Union could have or should have settled Heritage Corp.’s claim within the limits of liability as determined by the jury, thus National Union was entitled to judgment as a matter of law on Heritage Corp.’s bad faith claim.

The Court also granted judgment in National Union’s favor because Heritage’s alleged damages were not reasonably foreseeable from the alleged violation of Florida Statutes §624.155 . The Court noted that Heritage never offered any explanation as to how its requested damages were linked to National Union’s alleged bad faith. The Court further found Heritage’s alleged losses of $4.5 million to be excessive in light of the fact that the jury determined its damages to be $55,310. The Court determined that “National Union cannot be held liable for bad faith for not paying Heritage’s excessive demand, or investigating such demand, or taking whatever action Heritage claims it should have taken.” As such, the Court held that National Union was entitled to judgment as a matter of law on Heritage Corp.’s action for bad-faith.

Deidrie A. Buchanan

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PRESIDENT SIGNS INTO LAW NEW EVIDENCE RULE ADDRESSING DISCLOSURE OF INFORMATION PROTECTED BY THE ATTORNEY-CLIENT PRIVILEGE AND WORK PRODUCT DOCTRINE

On September 19, 2008, President Bush signed into law S.2450, creating Federal Rule of Evidence 502. Rule 502 became effective immediately after enacted, and

it applies to all cases filed after the date of enactment insofar as is just and practicable. The creation and eventual adoption of Rule 502 was a direct response to the rising costs of litigation, specifically, the cost of reviewing documents for privileged material. Rule 502 also comes in response to concerns regarding conflicting rulings on inadvertent disclosures and the scope of privileged waivers.

Rule 502 covers issues of scope of waiver, inadvertent disclosure, and the controlling effect of court orders and agreements. Under Rule 502(a), if a waiver is found, it applies only to the information disclosed (unless a broader waiver is made necessary by the holder’s intentional or misleading use of the privileged/protected information). Under 502(b), an inadvertent disclosure of privileged or protected communications or information, when made at the federal level, does not operate as a waiver if the holder took reasonable steps to prevent such a disclosure and employed reasonably prompt measures to retrieve the mistakenly disclosed communications or information.

Regarding state proceedings, if there is a disclosure of privileged or protected communications or information at the

federal level, then state courts must honor Rule 502 in subsequent state proceedings; and if there is a disclosure of privileged or protected communications or information in a state proceeding, then admissibility in a subsequent federal proceeding is determined by the law that is most protective against waiver. Rule 502 does not apply to a disclosure made in a state proceeding when the disclosed communication or information is subsequently offered in another state proceeding, thus protecting principles of federalism and comity regarding state law of privilege waiver.

Pursuant to Rule 502(d), if a federal court enters an order providing that a disclosure of privileged or protected communications or information does not constitute a waiver, the order is enforceable against all persons and entities in any federal or state proceeding. The parties in a federal proceeding may also enter into a confidentiality agreement providing for mutual protection against waiver in that proceeding. Under 502(e), these agreements bind the signatory parities; however, they are not bonding upon non-parties unless incorporated into a court order.

Morgan A. Fairthorne