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Legal Updates for Insurance Services

In a Win for Insurers, the Florida Supreme Court Affirms that Carriers Are Bound Only By the Express Terms of the Contract

Legal Updates for Insurance Services - February 2, 2021

February 2, 2021

by Corey K. Setterlund

On January 21, 2021, the Florida Supreme Court rendered a decision in Citizens Property Insurance Corporation v. Manor House, LLC (No. SC19-1394) related to bad faith and consequential damages in a breach of contract action. This case came to the court from the Fifth District, which certified the following questions of great public importance: “In a first-party breach of insurance contract brought by an insured against an insurer, not involving suit under section 624.155, Florida Statutes, does Florida Law allow the insured to recover extra-contractual damages, consequential damages?”

This case involved a first-party breach of insurance contract claim where the insureds, Manor House, LLC, Ocean View, LLC and Merritt, LLC (Manor House), sought to recover extra-contractual, consequential damages for lost rental income totaling approximately $2.5 million from the insurer, Citizens Property Insurance Corporation (Citizens). In August 2007, Manor House filed suit demanding prompt payment of the allegedly “undisputed” amount of $6.4 million and requesting the court to compel Citizens to engage in the policy-provided appraisal procedures. In addition, Manor House filed suit against Citizens alleging, inter alia, breach of contract and fraud. On the breach claim, Manor House alleged that Citizens failed to: (1) properly adjust the loss; (2) pay the undisputed amount after estimates; (3) honor Manor House’s demand for appraisal; (4) provide Manor House with documents it needed to adjust the loss; and (5) timely pay the appraisal award. Manor House sought to recover extra-contractual damages related to rental income it allegedly lost due to the delay in repairing the apartment complex based on Citizens’ procrastination in adjusting and paying Manor House’s claims.

The trial court granted Citizens’ motion for partial summary judgment regarding the breach of contract claim for lost rental income. On appeal, Manor House challenged, among other orders, the trial court’s order granting Citizens’ motion for partial summary judgment to prevent Manor House from pursuing a claim for extra-contractual, consequential damages. The Fifth District reversed the partial summary judgment regarding the consequential damages claim. The Fifth District concluded that when an insurer breaches an insurance contract, the insured is entitled to recover more than the pecuniary loss involved in the balance of the payments due under the policy in consequential damages, provided the damages were in contemplation of the parties at the inception of the contract. The Fifth District further concluded that while Citizens is immune from bad faith claims, the consequential damages Manor House sought were based squarely on breach of contract claims requiring no allegation or proof that Citizens acted in bad faith.

The Florida Supreme Court quashed the Fifth District’s decision and remanded the case based on the certified question of whether Florida law allows the insured to recover extra-contractual, consequential damages in a first-party breach of insurance contract action brought by an insured against its insurer, not involving suit under section 624.155, Florida Statutes. The Florida Supreme Court concluded that extra-contractual, consequential damages are not available in a first-party breach of insurance contract action because the contractual amount due to the insured is the amount owed pursuant to the express terms and conditions of the policy. The court confirmed that extra-contractual damages are available in a separate bad faith action pursuant to section 624.155, but Citizens in the instant case was statutorily immune from first-party bad faith claims.

This case further solidifies that insurance contracts are interpreted based on their express terms and conditions and the Florida courts are not going to force insurance carriers to pay for more than they specifically bargained for when issuing insurance coverage to their insureds. Specifically, this case conveys that parties to an insurance contract cannot “contemplate” remedies but, in fact, are bound only by the express terms of the contract. Importantly, the court does not state that extra-contractual damages cannot be obtained once the carrier’s liability is determined. Consequential damages can still be sought through a bad faith action, which can only be brought once an insured is successful in their underlying breach of contract lawsuit. Only once coverage is determined and the carrier is found to have wrongfully (1) denied the claim or (2) underpaid the claim, can an insured proceed to attempt recovery of extra-contractual damages from their carrier.

The court was clear when it determined, based on Citizens’ unique position of being a government entity, that Citizens can avoid having such extra-contractual damages asserted against them as they are immune from bad faith litigation. However, private insurance companies do not receive the same immunity and can end up paying for extra contractual damages in a second lawsuit, which has a more liberal discovery process and greater exposure to damages that were not contemplated when the parties entered into the insurance contract. Thus, if insureds are seeking consequential or any other extra-contractual damages, they must first be successful in proving the insurance carrier wrongfully denied or underpaid them, and then must prove they suffered damages that were not specifically provided for under the express terms of the insurance contract.

 

Legal Updates for Insurance Services - February 2, 2021, has been prepared for our readers by Marshall Dennehey Warner Coleman & Goggin. It is solely intended to provide information on recent legal developments, and is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. We welcome the opportunity to provide such legal assistance as you require on this and other subjects. If you receive the alerts in error, please send a note to tamontemuro@mdwcg.com. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2021 Marshall Dennehey Warner Coleman & Goggin. All Rights Reserved.

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On July 23, 2026, the Ohio Supreme Court issued a rare opinion on the binding effect of an appraisal award in a property insurance policy.  The Court in One Church held: A binding appraisal award will not be set aside unless an error is so palpably wrong that it undermines the intent of the agreement, such as corruption or gross mistake, not a mere error of judgment—To plead a claim of mistake with particularity as required by Civ.R. 9(B), facts alleged in a complaint must constitute the elements of mistake—Allegation that additional, hidden damage was discovered after appraisal award failed to state a claim of mistake that could justify setting aside binding appraisal.  The case arose out of a claim brought by One Church against its insurer, Brotherhood Mutual Insurance Company for roof damage from a storm. Pursuant to the terms of the insurance policy, the parties agreed to submit the matter to appraisal. The two appraisers inspected the building, and both appraisers agreed that the damages were $313,271.98. The insurer paid the agreed appraised amount.  Thereafter, the insured submitted a claim for an additional $206,663.09 in damages. The insured argued that these additional damages were not discovered until after the repairs began, and that they should be permitted to submit an additional claim, even though there had already been a binding appraisal of damages. The insurer refused to pay the additional damages, and the insured sued for breach of contract and bad faith.  In the trial court, the insurer moved to dismiss for failure to state a claim, arguing that the binding appraisal award barred any further claims. The insured took the position that additional hidden damages could not be discovered until after the repairs began, and therefore there was a mutual mistake. The trial court dismissed the case on the insurer’s motion, because there was no “evidence of fraud, misfeasance, or mistake”. The Court of Appeals agreed that appraisal awards are generally binding, but noted that an appraisal award can be set aside for fraud or manifest mistake. The Court of Appeals reversed and remanded the case to the trial court, finding that the insured had pled mistake with sufficient particularity. The insurer appealed to the Ohio Supreme Court. On appeal, the Ohio Supreme Court reversed the Court of Appeals, and reinstated the trial court decision dismissing the case for failure to state a claim upon which relief can be granted. The Supreme Court found that since the insured had already demanded appraisal, and the appraisal award was binding, “something more than error of judgement, such as corruption in the arbitrator, or gross mistake” must be pled with particularity, and proven for the insured to override the appraisal award. Since the complaint did not allege fraud or manifest mistake with sufficient particularity, something more than a mere error of judgment, the complaint was insufficient to state a claim.  The complaint in this case did not challenge the appraisal award. It pled that additional damages were discovered that were not apparent when the appraisal was done. It did not specify “who discovered the damages, how they were discovered, where they were found, why they were previously hidden, or why they rise to the level of a manifest mistake that the “appraiser would have corrected...had it been called to his attention”. Id at ¶22 citing Lakewood Mfg. Co. v. Home Ins. Co. of New York, 422 F.2d 796, 798 (6th Cir. 1970). Cases deciding the effect of appraisal awards are unusual. The Ohio Supreme Court’s decision in One Church relies primarily on 19th century case law for its conclusion. This emphasizes the fact that there is minimal case law deciding the effect of binding appraisal clauses in property insurance policies, and makes this case all the more significant. A lengthy dissent was written by Justice Fisher, who would have affirmed the Court of Appeals decision reversing and remanding the case for a decision on the merits. Of course, the decision works both ways, and an insurer dissatisfied with a binding appraisal award will likewise be without further recourse absent evidence of corruption, fraud, misfeasance, or manifest mistake, which must be pled with particularity. To constitute manifest mistake, “the mistake must be of such character that the arbitrator or appraiser would have corrected it had it been called to his attention.”  Lakewood Mfg. Co. v. Home Ins. Co. of New York, 422 F.2d 796, 798 (6th Cir. 1970).  The majority opinion does not specifically identify what would have been sufficient to plead mistake with particularity, or if the insured could have amended the complaint to overcome the deficiencies. The dissent argues that this was not really a case alleging mistake, but rather a question of contract interpretation. The insured did not challenge the appraisal, but argued that the hidden damage was not part of the appraisal, and the appraisal only covered the known damages.  However, this argument did not carry the day with the majority. 

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