The First 13 Days…

First-party property insurance claims in the state of Florida are on the rise once again due to the statewide impact from Hurricane Irma, which made landfall in September 2017. However, Hurricane Irma may be the least of insurance companies’ concerns given the February 23, 2018, opinion coming out of the Fifth District Court of Appeal of Florida.

Yes, another win for the plaintiffs’ bar in the case of Hicks v. American Integrity Insurance Company. But, before we get down to the nitty-gritty of the case, I would like to focus for a moment on the differences between an “all risks” homeowners insurance policy and a “named perils” homeowners insurance policy. An understanding of these specific types of policies is important in determining the burden of proof in a first-party property lawsuit. 

An “all risks” insurance policy “guards against all risks except those explicitly excluded by the policy.” Jones v. Federated Nat’l Ins. Co., 2018 Fla. App. LEXIS 561, *9 (Fla. 4th DCA Jan. 17, 2018). Under an “all risks” policy, the insured bears the initial burden to prove that damage occurred to the insured property during the applicable policy period. Once the insured’s burden is met, the burden then shifts to the insurer to prove that the cause of the damage is excluded from coverage under the policy. 

A “named perils” insurance policy “covers only those stated perils named as included.” Fisher v. Certain Interested Underwriters, 930 So. 2d 756, 759 (Fla. 4th DCA 2006). Under a “named perils” insurance policy, the insured bears the burden to prove not only that damage occurred to the insured property during the applicable policy period, but the insured must also prove the damage was caused by a covered cause under the policy. See Royale Green Condo. Ass’n v. Aspen Specialty Ins. Co., 2009 U.S. Dist. LEXIS 24349, *7-8 (S.D. Fla. Mar. 24, 2009). 

The traditional homeowners insurance policy issued in the state of Florida is known as a Homeowners HO-3 Special Form Policy, an “all risks” policy. Thus, under an HO-3 policy, all an insured needs to prove is that the insured property was damaged during the applicable policy period. The insurer then bears the burden to prove the damage is excluded from coverage under the policy. 

The ruling in Hicks v. American Integrity Insurance Company, 2018 Fla. App. LEXIS 2616, *2 (Fla. 5th DCA Feb. 23, 2018), just made the insured’s ability to obtain coverage under an “all risks” policy even easier and made a common HO-3 policy exclusion even more difficult to prove. The insured, Hugh Hicks, brought a first-party breach of contract lawsuit against his insurance carrier after his carrier denied his insurance claim for a water supply line leak to his refrigerator. The carrier claimed the damage was excluded under the “all risks” policy pursuant to a policy provision that states: “We do not insure … for loss … [c]aused by … [c]onstant or repeated seepage or leakage of water … over a period of 14 or more days.” Both parties moved for summary judgment, and the trial court granted summary judgment in the carrier’s favor. Hicks then appealed the summary final judgment to the Fifth District Court of Appeal, arguing that the trial court misapplied the constant or repeated seepage or leakage exclusion. 

On appeal, the Fifth DCA reversed the trial court’s ruling and found that the trial court misapplied the constant or repeated seepage or leakage exclusion. In reaching this conclusion, the Fifth DCA looked to the specific language in the exclusionary provision and determined that it was “not unambiguously clear that a provision excluding losses caused by constant leakage of water over a period of fourteen or more days likewise excludes losses caused by constant leakage of water over a period of less than fourteen days.” The Fifth DCA relied on the general principal that “insurance policy provisions susceptible to more than one interpretation should be construed liberally in favor of the insured and strictly against an insurer.” In doing so, the Fifth DCA determined that the policy exclusion should be construed in Hicks’ favor such that coverage should be afforded for the first thirteen days of the leak. Thus, Hicks merely needed to prove the damage occurred during the policy period, and the burden would then shift to the carrier to prove that the damages sustained to the insured property occurred after the thirteenth day and were, therefore, excluded from coverage under the policy. 

While it remains uncertain whether the other Florida District Courts will align with the decision out of the Fifth DCA, Hicks certainly makes it more difficult to prove the repeated leakage of water exclusion under an “all risks” policy. Engineers and other experts alike are generally able to determine causes of loss—however, conquering Mt. Everest may be a less daunting task than convincing a jury that a loss did not occur until after the thirteenth day of a leak. In light of the recent trends towards coverage in South Florida, insurance companies must consider rewriting insurance policies, which either alter the constant leakage of water exclusion or eliminate coverage for water damage altogether. We suspect the latter will drive potential consumers away, but the former may allow for multiple interpretations. 

*Aaron is an associate in our Fort Lauderdale, Florida office. He can be reached at 954.832.3957 or adsilvers@mdwcg.com.

_{Defense Digest, Vol. 24, No. 2, June 2018. Defense Digest is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2018 Marshall Dennehey Warner Coleman & Goggin. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact tamontemuro@mdwcg.com.}