States have different laws that apply to property insurance agreements. This blog constantly writes about the differences between these state laws. For example, in Florida, in the absence of a provision in the insurance policy, the judges will decide that the location of the property determines which state law applies.
This “choice of law” issue came up in a hurricane Michael loss that involved an assessment.1 The insurance company claimed that the assessment and the contract were regulated under Missouri or Alabama law. The policyholder claimed that Florida law applied.
The insured property is located in Florida. The complainants state that Florida law governs and that the assessment process will thus reach issues of coverage and causation as well as the amount of dollars that can be attributed to any covered loss. Defendant has argued that Alabama or Missouri law applies because the last act required to form the insurance contract occurred in one of those states. Defendant states that these states reserve coverage and causation issues to the court, which limits the assessment to the amount of dollars that can be attributed to a covered loss.
Many insurance companies do not like that causation can be considered in the assessment process. Some states allow causality to be established in assessment, while others do not. That is why the question of “choice of law”; becomes important.
The federal court ruled that Florida law would apply because the property was located in Florida:
IN Shapiro v. Associated International Insurance Co., 899 F.2d 1116 (11th Circ. 1990), the eleventh circuit adopted an umbrella policy covering real estate in several states. The claim in question concerned property in Florida, so the court ruled that Florida law was applicable. IN LaFarge v. Travelers Indemnity Co., 118 F.3d 1511 (11th District 1997), the court extended this holding to a dispute over the coverage of property insurance. These cases are controlling.
In any case, Florida had embraced lex loci contractus as a principle applicable to other forms of insurance …. The Eleventh Circle acknowledged this but considered that the principle did not apply to property protection. The difference was this: insured persons and vehicles are temporary; real estate is not. An insured should not be able to subject an insurer to the law of any jurisdiction to which a risk may be transferred. But the insurer knows, when insuring real estate, where the property is located; there is no risk of the property moving.
Do all states follow this reasoning to determine which state’s law applies to property insurance? No. There is a whole collection of laws called “conflicts of law”, which is one of the most esoteric and exceptional studies a legal researcher can carry out.
The court actually noted this because “the place of achievement” was raised as an issue. In addition, the court noted some common sense that is not always part of resolving conflicting state laws:
This makes it unnecessary to address an additional question: whether, although Alabama or Missouri law governs the interpretation of this insurance, the scope of the assessment is a matter of performance, not interpretation. According to Florida’s choice of law principles, issues of performance of a contract, as opposed to issues of formation or interpretation of the agreement, are governed by the law of the place of performance. … The place where any assessment will be performed is Florida.
Finally, a more general observation. Hurricane Michael landed in Florida and damaged the property in Florida. The responding insurer, who knew the property was in Florida, accepted a premium to insure it. Competent appraisers will be familiar with Florida law, the standards applicable to the construction and repair of structures in Florida, and the costs of such construction and repair. The claim that Missouri law, or even Alabama law, should guide the assessment is meaningless. Florida law applies.
Shane Smith has written about “team selection” issues in Choice of Law in Florida Property Insurance Disputes.
Watch out for provisions in policies that specify which state law to apply, which I warned in Surplus management operators choose arbitration and choice of law in New York to pay less coverage and less for claims.
Change is the law of life. And those who only look to the past or the present will surely miss the future.
-John F. Kennedy
1 Wilson v. Federal Ins. Co.No. 5: 19-cv-371 (ND Fla. April 8, 2020).