The Florida Second District Court of Appeal recently concluded that an insurer’s failure to bring a policy provision to its insured’s attention waived the insurer’s right to rely on that provision. In Axis Surplus Insurance Company v. Caribbean Beach Club Association, Inc., 2014 Fla. App. LEXIS 9721 (Fla. 2nd DCA June 27, 2014), Axis Surplus Insurance Company (Axis) appealed an order granting summary judgment in favor of Caribbean Beach Club Association, Inc. (Caribbean) on its claim for insurance proceeds. Caribbean’s condominium was damaged by fire in April 2003. The Axis insurance policy issued to Caribbean included coverage for fire, but also included a limitation on damages resulting from the enforcement of an ordinance or law. Caribbean therefore paid an additional premium for coverage through an Ordinance or Law Coverage endorsement. This endorsement provided coverage for up to $2,500,000 for the increased cost of construction incurred as a result of the enforcement of an ordinance or law, provided that the repairs or replacement were made as soon as reasonably possible after the loss, not to exceed two years.
Caribbean made a claim for the fire damage. Lee County, the county in which the property was located, has a “50% rule,” mandating that if a building is more than 50% damaged, any repair or reconstruction must comply with current building codes. Thus, both parties knew that Lee County may require Caribbean to raise the entire building to meet with existing flood elevation requirements. Axis and Caribbean both tried to convince Lee County not to enforce this rule in order to effectuate repairs rather than replacement. The county did not agree, and Caribbean was therefore required to replace the building in order to comply with flood elevation requirements.
Axis continued to cooperate knowing that Caribbean intended to replace the building. However, in June 2005, Axis told Caribbean for the first time that it would rely on the two-year clause in the Ordinance or Law Coverage endorsement to deny payment for increased construction costs because the replacement was not completed. Axis did not raise this provision prior to June 2005, other than in a general reservation of rights letter. Axis tendered the actual cash value amount of insurance proceeds, but refused to tender payments for the increased cost of construction due to code compliance. Thereafter, Caribbean sued Axis for reimbursement of increased cost of construction under the Ordinance or Law Coverage endorsement.
Caribbean argued that the two-year clause was inapplicable under the doctrine of waiver, estoppel, impossibility, and lack of prejudice/immateriality. Axis argued in response that the two-year clause was not a forfeiture provision that triggered application of Caribbean’s theories. The trial court agreed with Caribbean and determined that the provision was a forfeiture clause that Axis had waived.
On appeal, the Florida Second District Court of Appeal agreed that provisions which forfeit insurance coverage can be waived by the insurer’s conduct. Florida law abhors forfeitures, and therefore, if an insurer intends to stand on such reservations, it should inform the insured as soon as practicable. Any unequivocal act that recognizes the continued existence of the policy, or that is inconsistent with forfeiture, constitutes a waiver by the insurer. In this case, Axis’s failure to bring the provision to Caribbean’s attention, even though Caribbean expected the entire claim to be paid and Axis continued to adjust the entire claim after the two-year expiration, were unequivocal acts inconsistent with invoking the forfeiture. The court concluded that Axis waived the two-year limitation and affirmed the trial court’s ruling.
The Axis decision exemplifies the need for insurers to raise all coverage defenses as early as possible. Here, a potentially valid coverage defense was rendered useless because the court found the defense was not timely brought to the attention of the insured.