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Can foreseeable consequential damages for breach of a property insurance contract be recovered? | Legal insurance blog for property insurance



The Florida Supreme Court will hear arguments as to whether foreseeable consequential damages can be recovered when an insurance company violates its contract on Tuesday. 1 Law360 is an excellent publication to keep up to date with the latest legal issues related to insurance and this is how it described the upcoming case: 1

The Supreme Court of Florida will to deal with arguments on Tuesday about a policyholder who claims a breach of his policy – but not bad faith – can pursue damages beyond the insurance limits of an insurer's delay in paying a claim in a high-stakes dispute over state insurer Citizens Insurance Corp.

What & # 39 ;s At Stake

Citizens seeks to uphold a state appellate court in May 201

9 that allows a trio of apartment builders to seek "consequential damages" in the form of lost rental income based on the insurer's alleged breach of its policy obligations to properly adjust and pay their hurricanes claim. Consequential damages are losses that go beyond the policy limits that can be attributed to the insurer's policy violation.

In the eyes of citizens, property owners' claims for damages are an "unfaithful claim dressed in breach of contract." And the Florida Supreme Court found earlier in the case Citizens v. Perdido Sun that state legislators granted citizens immunity from bad faith claims when it created the company as the state's real estate insurer ultimately.

While Citizens is unique because of its state-sponsored status and immunity in bad faith, the Florida Supreme Court's decision on policyholders to recover consequential damages in pure breach of contract can also have a far-reaching impact on private insurers across the sunshine. 2

The Lower Board of Appeal noted that consequential damages for breach of contract are generally permissible:

[T] his decision of the trial court ignores the more general proposal that & # 39; the injured party in breach of contractual action has the right to reclaim damages will put it in the same position as it would have been if the other party had not breached the agreement. & # 39; Capitol Envtl. Servs., Inc. v. Earth Tech, Inc. ., 25 So.3d 593, 596 (Fla. 1st DCA 2009). When an insurer violates an insurance contract, the insured has & # 39; & # 39; the right to recover more than the financial loss associated with the remaining payments under the insurance & # 39; & # 39; in consequential damages, provided that the damages & # 39; & # 39; was considered by the parties at the start of the contract. & # 39; Life Inv & # 39; rs Ins. Co. of Am. v. Johnson 422 So.2d 32, 34 (Fla. 4th DCA 1982). T.D.S. Inc. v Shelby Mutual Insurance Co. Eleventh Circle noted that Florida courts "allow recovery of [consequential] damages if they were under consideration by the parties at the time of the creation of the insurance contract." 760 F.2d 1520, 1532 n.11 (11th Cir 1985). Similarly, in Rondolino v. Northwestern Mutual Life Insurance Co. ., The court held that & # 39; [i] a party can prove loss of profit [from breach of an insurance contract] with reasonable certainty, then damages will be awarded. & # 39; 788 F .Supp. 553, 555 (M.D. Fla. 1992). While T.D.S. and Rondolino are federal cases, we find that they are well justified and consistent with the court's view in Travelers Insurance Co. v. Wells who argued that in a claim for breach of an insurance contract, & # 39; [c] subsequent or resulting security damage can … be recovered if sufficiently proven. & # 39; 633 So.2d 457, 461 (Fla. 5th DCA 1993). 3

Of course, the insurance companies do not want to be held responsible for anything when they do not pay in full, on time and no matter how much extra damage they cause their customers. Liability is important and insurance companies simply refuse to be held responsible for the mistakes they make – even for the customers they promise to pay in full and on time.

Hugh Lumpkin of Reed Smith is a major policyholder advocate and co-wrote. amicus brief for United policyholders. He emphasizes that the traditional rule of contract law makes the parties breach their contracts liable to pay for the foreseeable damages they cause to the non-infringing party:

"The basic principle of tort law is that the person injured by breach of contract or wrong or negligent act or omission shall have a fair and equitable compensation commensurate with the loss incurred as a result of the defendant's act giving rise to the action. In other words, the damages awarded should be equal to and exactly in proportion to the damage. ” Hanna v Martin 49 So. 2d 585, 587 (Fla. 1950); see also Hodges v. Fries 15 So. 682 (1894). Among the damages that are typical of an insurance dispute from the first party are those that are liable under insurance policy, interest and common law Hadley v. Baxendale consequential breaches of contractual damages.

& # 39; The basic rule for recovering damages for breach of contract appears from the often cited English case of Hadley v. Baxendale 9 Exch. 341, 156 Eng. Rope. 145 (1854), which claims that appropriate damages are those that occur naturally as a result of the infringement, or those that were under consideration by the parties at the conclusion of the agreement. ” Life Investors Ins. Co. v. Johnson 422 So. 2d 32, 33-34 (Fla. 4th DCA 1982). In measuring the damage caused by breach of contract, since at least 1874, Florida has complied with the principles of the law set forth in Hadley

While the insurance limits provide a ceiling on the carrier's liability during performance of the contract, & # 39; [u] under the justification to Hadley v. Baxendale which is currently applied to insurance contracts, consequential damages are considered to arise as a result of breach of contract and are therefore not limited simply to the execution of the contract. Bob G. Jr. Freemon, Reasonable and foreseeable damages for breach of an insurance contract 21 TORT & INS. LJ 108, 113 (1985) … A policyholder's right to consequential damages as a result of breach of contract depends on his ability to show: (1) breach of contract by the insurer, and (2) the occurrence of damages arising naturally from the breach or were in the parties' consideration when the agreement was made – not based on a demonstration of the insurer's lack of good faith.

Citizens Property Insurance Company claims that these traditional contractual rules do not apply to it. It is already exempt from private enforcement by Florida's unfair commercial law, as it is a quasi – government entity. Now it does not want any responsibility. It claims that it can break its contracts with impunity in addition to the dollars owed under the policy, no matter how many wrecks it causes.

Chris Mammel of Merlin Law Group has been involved in this case even before joining our company. It has been a long legal battle. The oral argument on Tuesday morning will be interesting to say the least.

Thought for the day

We must reject the idea that every time a law is broken, society is guilty rather than the offender. It is time to restore the American rule that every individual is responsible for his or her actions.
—Ronald Reagan
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1 Citizens Prop. Ins. Corp. v. Manor House LLC No. SC19-1394.
2 Jeff Sistrunk. Fla. Courts to address citizens' delay in injuries . Lag360. September 4, 2020. Available online (paid subscription) at https://www.law360.com/florida/articles/1295237/fla-justices-set-to-tackle-citizens-delay-damages-clash?copied=1 [19659021] 3 Manor House v. Citizens Prop. Ins. Corp 277 So. 3d 658 (Fla. 5th DCA 2019).


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