Over the last decade, policyholders and insurers have actively litigated the meaning and scope of “structural damage” under the Florida statutory sinkhole scheme. In 2011, in an effort to resolve the dispute, the Florida Legislature adopted a five-part definition of “structural damage” to be applied when interpreting insurance policies providing coverage for sinkhole losses. Fla. Stat. § 627.706 (2)(k). The 2011 Amendment went into effect on May 17, 2011. In Juan Pinzon and Jaqueline Espitia v. The First Liberty Ins. Corp, 2013 U.S. Dist. LEXIS 141676, (M.D. Fla. Sept. 30, 2013), the court applied the new statutory definition where the term was not defined in the policy.
This case involved a breach of contract action filed by the homeowners (the “Insureds”) against their insurer, The First Liberty Insurance Corporation (“First Liberty”). The Insureds argued that their property sustained damages consistent with sinkhole activity, that such damage is a covered loss under the policy, and that First Liberty refused to pay insurance benefits. First Liberty investigated the claim and, relying upon a professional engineer’s report which concluded that the subject damage was not structural damage as defined by the Florida Statutes, denied the claim. The policy defined “Sinkhole Loss” to mean “structural damage to the building, including the foundation, caused by sinkhole activity.” The policy did not define the term “structural damage,” and did not reference any statutory or other sources of definition of the term.
First Liberty filed a motion for summary judgment to address the following issue: whether the Court should apply the statutory definition of “structural damage” contained in Fla. Stat. § 627.706 (2)(k) (2011) to the term “structural damage” as it is used in the insurance policy. The Insureds opposed the motion, arguing that because the term is undefined, the Court should employ standard tenets of insurance contract interpretation and give “structural damage” the broadest possible interpretation to ensure coverage. First Liberty asserted that the narrow definition of “structural damage” contained in § 627.706 (2)(k) governs the policy, because the statutory provision was enacted twenty-three days before the policy went into effect, and insurance contracts incorporate valid laws in existence at the time a contract is executed.
The court rejected case authority presented by the Insureds in support of their position because those decisions involved insurance policies that were executed before the 2011 Amendment was enacted. The Court proceeded to identify two unpublished decisions within the 11th Circuit which refused to apply the narrow statutory definition of “structural damage” even though the 2011 Amendment was in effect before the inception of the subject insurance policies. Shelton v. Liberty Mutual Ins. Co., 2013 U.S. Dist. LEXIS 55000 (M.D. Fla. April 17, 2013), and Kittusamy v. First Liberty Ins.Co., 2013 U.S. Dist. LEXIS 133914 (M.D. Fla. June 12, 2013). The court challenged the analysis in those two cases and concluded that the applicable statutes and case precedent dictate that the 2011 Amendment establishing a definition of “structural damage” applies to this policy. The Court relied upon support from the Florida Insurance Code for its conclusion to apply the narrow statutory definition to this policy.
The decision is consistent with one of the multiple reasons behind the enactment of the 2011 Amendment: to eliminate the uncertainty associated with the identification of valid sinkhole claims given the absence of a “structural damage” definition. The Florida Legislature created a legal definition of “structural damage” based upon scientific standards. As reflected in the Court’s opinion, there remains disagreement within the Middle District of Florida regarding when to apply the statutory definition. This may ultimately prompt clarification from the U.S. Court of Appeals for the Eleventh Circuit.