Repairs Must Be Made Prior To Recovery For Replacement Cost Coverage Claim In Florida

In Buckley Towers Condominium, Inc. v. QBE Insurance Corporation (No. 09-13247), the Eleventh Circuit reversed the portions of the district court's 20 million dollar judgment relating to replacement cost coverage and ordinance and law and affirmed the actual cash value portions of the judgment.

After sustaining damage from Hurricane Wilma:

Buckley submitted its first Sworn Proof of Loss in April 2006. When QBE rejected the first claim due to various errors, Buckley Towers in June 2006 submitted a second Sworn Proof of Loss, consisting of a form that contained information applicable to both RCV damages and ACV damages. Buckley Towers designated the 'Full Cost of Repair or Replacement' as $5,187,388.03, the 'Applicable Depreciation' as $12,503.43, and the 'Actual Cash Value Loss' as $5,174,885.50. Buckley Towers designated the 'Net Amount Claimed' as $4,238,708.50. QBE never paid the claim, nor fully rejected it, construing it to be a demand for RCV damages and, therefore, not due until repairs were complete.

After determining that QBE was unlikely to pay its claim, Buckley Towers sued QBE in the United States District Court for the Southern District of Florida, invoking its diversity jurisdiction and seeking ACV damages, RCV damages, law and ordinance damages, and a declaratory judgment. Buckley Towers conceded that it had not completed repairs before requesting damages and that repair was required under the contract before claiming RCV damages. Nevertheless, the trial court instructed the jury that QBE may be obliged to pay RCV damages if it found that QBE had prevented Buckley Towers’ performance under the RCV provision of the contract by denying ACV damages.  

After trial, the jury found that Buckley Towers had submitted a request for ACV damages and awarded the building $11,395,665 in ACV damages. Pursuant to the trial court’s prevention of performance instruction, the jury also awarded Buckley Towers $18,708,608 for RCV damages. The jury also awarded Buckley Towers $803,500,000 in law and ordinance damages per building.

With regard to the law and analysis, the court stated:

In the first place, the insurance contract unambiguously requires the insured to repair its property before receiving RCV damages. The insurance contract specifically provides that QBE “will not pay on a replacement cost basis for any loss or damage (1) Until the lost or damaged property is actually repaired or replaced; and (2) Unless the repairs or replacement are made as soon as reasonably possible after the loss or damage.”....Both parties agree, and the record undeniably establishes, that Buckley Towers never completed repairs and, thus, would be barred from recovering RCV damages under the plain terms of the contract.

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Applying the doctrine of prevention of performance in this case would impermissibly rewrite the insurance contract on the equitable theory that it would be too costly for Buckley Towers to comply with the terms of the agreement. Under Florida’s binding law, however, courts are not free to rewrite the terms of an insurance contract and where a policy provision “is clear and unambiguous, it should be enforced according to its terms.”....Nor is it a defense to say that it would be costly for Buckley Towers to comply with the insurance contract as written. “Inconvenience or the cost of compliance [with contractual terms], though they might make compliance a hardship, cannot excuse a party from the performance of an absolute and unqualified undertaking to do a thing that is possible and lawful.”...Although Buckley Towers may be unable to receive the full range of benefits of their contract without an advance payment under Florida law, that cost and inconvenience may not relieve them of repairing the building prior to claiming RCV damages.....Indeed, the Florida courts have upheld similar contracts that expressly require repair before claiming RCV damages....Ceballo v. Citizens Prop. Ins. Corp., 967 So. 2d 811, 815 (Fla. 2007)...State Farm Fire and Cas. Co. v. Patrick, 647 So. 2d 983, 983 (Fla. Dist. Ct. App. 1994)...Citizens Prop. Ins. Corp. v. Hamilton, -- So. 3d --, No. 1D09-4128, 2010 WL 2671808, *8 (Fla. Dist. Ct. App. July 7, 2010).

With regard to Ordinance and Law coverage, the court stated:

Having held that the doctrine of prevention of performance cannot excuse Buckley Towers from its obligation to repair to obtain RCV damages, it follows that Buckley Towers’ award of law and ordinance damages must also be reversed. Under the terms of the insurance contract, Buckley Towers is not entitled to law and ordinance damages unless “such damage results in enforcement of the ordinance or law.”...However, under Florida law and under the terms of the contract, Buckley Towers is not entitled to law and ordinance damages because it never repaired the property and never actually incurred increased damages due to the enforcement of laws or ordinances.

Finally, with regard to prejudgment interest the court held:

Under Florida law, “for the purpose of assessing prejudgment interest, a claim becomes liquidated and susceptible of prejudgment interest when a verdict has the effect of fixing damages as of a prior date.”...Not surprisingly, Florida law holds that prejudgment interest is governed by the terms of the insurance contract....This insurance contract provides that damages are only due [under two conditions]....Because neither of those conditions were satisfied until final judgment, Buckley Towers is not entitled to prejudgment interest under Florida law.

The court affirmed the district court's decision with regard to the application of actual cash value damages and the district court's decision relating to juror misconduct.