FPCA Homeowners Division: Court Holds That Insurers Must Pay for Sinkhole Damages Within Period Set Forth In Policy

Many standard homeowners’ insurance policies obligate an insurance company to pay its insured 60 days after the insurance company receives the insured’s proof of loss and an appraisal award is filed with the insurance company.  Typical policy language provides “Loss will be payable:  a.  20 days after we receive your proof of loss and reach an agreement with you; or b.  60 days after we receive your proof of loss and:  (1) there is an entry of final judgment; or (2) there is a filing of an appraisal award with us.” 

In connection with sinkhole damages, section 627.707(5)(b), Florida Statutes, seems to imply that an insurance company does not have to pay the insured until after the insured enters into a contract to repair the sinkhole damage.  Section 627.707(5)(b) provides “After the policyholder enters into the contract, the insurer shall pay the amounts necessary to begin and perform such repairs as the work is performed and the expenses are incurred.”  § 627.707(5)(b), Fla. Stat. (2009).

This issue was addressed on appeal by Florida’s Fifth District Court of Appeal in State Farm Fla. Ins. Co. v. Nichols, No. 5D08-2873, 5D08-4199, 5D08-4200, 5D08-4201, 5D08-4202 (Fla. 5th DCA Nov. 6, 2009).  After submission of a claim for loss, State Farm promptly paid its insureds for above-ground damages, but did not tender the amount for subsurface damages.  State Farm defended its action on the basis that the language of section 627.707(5)(b) only obligated it to pay for the damages after the insureds entered into a contract for repair.  The insureds argued that the standard policy language which required payment upon delivery of a proof of loss and rendition of an appraisal award should prevail. 

The court held that the insureds were entitled to payment within 60 days after the amount of the loss was settled by appraisal.  In essence, the court relied on rules of general statutory construction finding the language in the statute to be permissive, not mandatory.  Since the State Farm policy did not provide that sinkhole claims would be paid after the insured entered a contract for repair, the policy language that required payment upon rendition of an appraisal award should control over the statutory language.

In this context, all insurers should carefully review their homeowners’ policies to ensure that appropriate language is inserted to address the court’s decision in the Nichols case.  

Should you have any questions or comments, please contact Colodny Fass.