Florida Court to Homeowners: You Need to Pay for Matching Before Your Insurance Company Does

On October 23rd, 2019, the Third District Court of Appeal released an opinion which negatively impacts all homeowners in the State of Florida. It’s generally understood that homeowners are not required to come out of pocket for expenses related to repairing their home for a covered loss. The exception is the homeowner is responsible for paying the policy’s deductible. This understanding was flipped on its head by the Appellate Court.

Normally, when you file an insurance claim for property damage to your property your insurance company must initially pay you the “Actual Cash Value”[1] of the loss. Then, your insurance company will pay you any amount necessary to make the repairs as work is performed and expenses are incurred. This two-step process is typically written in the “Loss Payment” provision in your policy and is also stated in Florida Statute § 627.7011(3)(a) which states:

(3) In the event of a loss for which a dwelling or personal property is insured on the basis of replacement costs:

(a) For a dwelling, the insurer must initially pay at least the actual cash value of the insured loss, less any applicable deductible. The insurer shall pay any remaining amounts necessary to perform such repairs as work is performed and expenses are incurred. If a total loss of a dwelling occurs, the insurer shall pay the replacement cost coverage without reservation or holdback of any depreciation in value, pursuant to s. 627.702.

Step 1: Initially Pay at least the actual cash value of the insured loss.

Before this opinion, Actual Cash Value was calculated by determining the Replacement Cost Value of the loss, then subtracting depreciation and the policy deductible. Replacement Cost Value of a loss considers all things necessary in order to perform the repairs like overhead and profit to hire a contractor, permitting fees, and the costs of complying with the building code and other Florida Statutes. Then you would subtract the depreciated value of the soon-to-be replaced property to determine the Actual Cash Value of the loss. The insurance company will hold on to the depreciated value until repairs are completed.

Step 2: Pay any remaining amounts necessary to perform such repairs as work is performed and expenses are incurred.

This is the part where the insurance company pays the homeowner for the depreciation it withheld in step one and makes supplemental payments for unexpected costs incurred while repairs are completed. The amount of withheld depreciation and unexpected costs are usually minimal as the purpose of insurance was to minimize the amount the insured was expected to come out of pocket in order to perform the necessary repairs to their home. If you wished to collect the withheld depreciation you could or you could choose let the insurance company keep it.

The Third District Court of Appeal interpreted the case law and Florida Statutes and held that not everything is included in calculating the initial actual cash value payment by the insurance company.

Vazquez v. Citizens Property Insurance Corporation

In Vazquez v. Citizens, the homeowner had a plumbing leak that caused damage to the kitchen cabinets and a few tiles to the floor in her home. Citizens covered the loss and issued an initial actual cash value payment of $33,759.52 for the direct physical loss of the home and the costs to have the rest of the home match those repairs. Ms. Vazquez notified the insurance company that the amount they paid was insufficient to begin making the repairs and provided them with a contractor’s estimate for repairs in the amount of $84,542.93. Citizens refused to make any further payments. Ms. Vazquez filed a lawsuit saying that Citizens did not pay at least the Actual Cash Value of her claim.

In Florida, when repairs must be made and those repairs do not match the adjoining undamaged areas, insurance companies are required by law to pay homeowners for repairs to adjoining undamaged areas so they match the repaired areas.[2] Citizens agreed with Ms. Vazquez that in order to make repairs to the home, the undamaged areas surrounding the damaged areas needed to be replaced so they would match the soon-to-be repaired areas. In the lawsuit, Citizens sought to prevent Ms. Vazquez from putting on any evidence at trial as to the cost of “matching” repairs so the home would match like it did before. Citizens argued that they are not required pay for Ms. Vazquez’s matching costs until after she begins making repairs and incurs the costs of replacing all the tile floors in her home so they would match. The trial court agreed. As a result of the trial court’s decision, Citizens argued since Ms. Vazquez could not put on any evidence related to matching damages, Ms. Vazquez could not prove that Citizens underpaid her claim. Citizens’ reasoning was Ms. Vazquez’s own contractor stated that $70,000 of her $84,542.93 estimate are costs related to matching; and since Ms. Vazquez could only prove $14,000 worth of direct physical loss to her home Citizens had overpaid $19,000 to Ms. Vazquez. In summary, Citizens argued it paid much more than they needed to pay Ms. Vazquez and she would need to pay for the matching costs before seeking any reimbursement. The trial court agreed with Citizens and entered judgement voluntarily in favor of Citizens. Ms. Vazquez appealed.

The main issue that was to be determined by the Third District Court of Appeal is whether insurance companies are required to pay for “matching” when they pay the actual cash value of the loss. After hearing the arguments of Ms. Vazquez’s attorney, Erik Barnard, and Citizens, the appellate court agreed with Citizens. The video of the oral argument can be viewed below.

[1] I discuss in a previous blog article what “actual cash value” is which can be read here.

[2] 626.9744 Claim settlement practices relating to property insurance.—Unless otherwise provided by the policy, when a homeowner’s insurance policy provides for the adjustment and settlement of first-party losses based on repair or replacement cost, the following requirements apply:

(1) When a loss requires repair or replacement of an item or part, any physical damage incurred in making such repair or replacement which is covered and not otherwise excluded by the policy shall be included in the loss to the extent of any applicable limits. The insured may not be required to pay for betterment required by ordinance or code except for the applicable deductible, unless specifically excluded or limited by the policy.

(2) When a loss requires replacement of items and the replaced items do not match in quality, color, or size, the insurer shall make reasonable repairs or replacement of items in adjoining areas. In determining the extent of the repairs or replacement of items in adjoining areas, the insurer may consider the cost of repairing or replacing the undamaged portions of the property, the degree of uniformity that can be achieved without such cost, the remaining useful life of the undamaged portion, and other relevant factors.

(3) This section shall not be construed to make the insurer a warrantor of the repairs made pursuant to this section.

(4) Nothing in this section shall be construed to authorize or preclude enforcement of policy provisions relating to settlement disputes.

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Erik Tyler Barnard, born and raised in Miami, Florida, is passionate about Insurance Law. Since 2015, Erik has played a critical role in several trials where he, alongside the talented trial attorneys at Barnard Law Offices, L.P., has recovered millions of dollars for homeowners where their insurance claims have been wrongfully denied or underpaid.
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