Florida's "valued policy law": clarifying some recent misconceptions.

• Author: Richards, Jason R.
• Position: Response to John Garaffa, Florida Bar Journal, vol. 79, p. 8, April 2005

As an attorney who was personally affected by the hurricanes that ravaged Florida in 2004, the article, "Florida's Valued Policy' Law--The Eye of the Storm," in the April 2005 issue of The Florida Bar Journal troubled me. It is my opinion that numerous issues that are raised by the author, John Garaffa, appear to be aimed at distorting Florida's valued policy law to the disadvantage of policyholders.

First, the assertion that the valued policy law was not written to apply to a policy where covered (wind) and noncovered (flood) perils combine to create a total loss is inconsistent with Florida law. For that reason, the author is incorrect in stating that the Fourth District Court of Appeal decision in Mierzwa v. Florida Windstorm Underwriting Ass'n, 877 So.2d 774 (Fla. 4th DCA 2004), was wrongly decided. Likewise, Florida courts have for years upheld an insurers' right to recover under two separate policies in the event of a total loss under the valued policy law (VPL).

Florida's VPL

As a preliminary observation, it should be emphasized that if insurers wanted to reduce their potential liability under the VPL, they should have sought legislative amendment or repeal long ago. Instead, they waited until one of the worst, and most expensive, hurricane seasons in Florida's history to "cry foul."

The VPL has been a part of this state's law in one form or another for more than a century. (1) Although there have been several legislative amendments since then, the provision relating to "total losses" has not changed for decades. The total loss provision of the VPL that has sparked so much debate provides: "In the event of the total loss of any building ... located in this state and insured by any insurer as to a covered peril ... the insurer's liability, if any, under the policy for such total loss shall be in the amount of money for which the property was so insured...." (2)

As stated in Mierzwa, this statute is "simple and straightforward." (3) It plainly requires insurers to pay the full policy limit if a structure is deemed a total loss and damage was caused by a peril covered in the policy. And, when the language of a statute is clear, Florida courts must give effect to it. (4)

The Mierzwa Case

In Mierzwa, the policyholder's residence was damaged during a hurricane by two causes--wind and flood--only one of which was insured under his homeowner's policy. The windstorm carrier assessed the percentage amount of damage caused by wind (the covered peril) and tendered its pro rata share to the policyholder. The flood carrier likewise apportioned its liability. A local ordinance stated that when repairs and alterations amounting to more than 50 percent of the building's value were made in any one year, the building had to conform to current codes. The city determined that the insured's damage exceeded 50 percent of the value of the building and ordered it condemned. This condemnation meant that the insured's residence was deemed to be a "constructive total loss," which, in turn, resulted in the application of the VPL. (5)

The insured argued that because wind damage was "a covered peril" and because the building was a "total loss," the wind carrier should be required to pay policy limits under the VPL. Relying on plain language of the VPL, the court agreed and held that "[i]f [the wind carrier] has any liability at all, even a fractional share of the total damage, under the...