The insurers denied coverage for Bartram’s claim, and the lawsuit ensued. The parties filed competing motions for summary judgment based on the interpretation of the policies’ terms. Bartram argued that it suffered losses separate from and the result of the faulty workmanship, triggering the ensuing loss exception. Specifically, Bartram claimed water intrusion resulted from faulty workmanship and caused damage to the buildings’ exterior and interior finishes, wood sheathing, framing, balcony systems, drywall ceilings, and stucco. These damages were separate from the work needed to simply fix the faulty workmanship.

The insurers argued that an ensuing loss exception is not applicable if the ensuing loss is directly related to the original excluded risk. They argued that since the faulty workmanship naturally led to water intrusion without any new, independent cause of loss, there was no ensuing loss and coverage was barred by the faulty workmanship exclusion.

The Court noted that the cases cited by the insurers were distinguishable because the policies in those cases contained more detailed wording preventing the loss from being brought back within coverage under the exception to the exclusion. There was no such language in the policies that Bartram obtained.

The Bartram policies simply provided that if an excluded cause of loss “results” in a covered cause of loss, then “we will pay.” This means that ensuing losses, if they resulted from a covered cause, are covered under the policy regardless of whether the loss was naturally set in motion by an excluded cause of loss. The Court held:

Given the plain meaning of the policy language, if the faulty workmanship resulted in water intrusion that subsequently resulted in ensuing losses, the cost to repair the faulty workmanship is excluded but the ensuing losses from the water intrusion are covered.

The Court granted Bartram’s motion for summary judgment and held that the ensuing losses resulting from the faulty construction were covered. As this case demonstrates, even minor changes or variances in policy terms can have drastic results on coverage.

Appoint an “Emergency Coordinator.” A current board member could be appointed, and have a chain of alternate members to fill the role in the event the coordinator is unavailable. This coordinator can take the reigns in implementing the plan and dealing with the situation at hand. This individual could also conduct a damage survey with photographs, video, etc.

Appoint someone with authority to contract for emergency repairs. This could be the emergency coordinator. Often following disasters, there will be the need for clean-up and other emergency services. The plan should have a strategy to facilitate temporary repairs and clean-up, in accordance with the association governing documents, and to start repairs as soon as possible.

Emergency telephone numbers. List emergency telephone numbers so they will be readily available when an emergency occurs. Include phone numbers that may be needed after an emergency, such as emergency repair contractors.

Utility outages and equipment failures. Include procedures for dealing with power outages. Elevators are one obstacle in this situation. If the association has an emergency backup generator, its location and operation should be described.

Utility shutoff locations. It is critical to know how to shut off water, gas, and electricity in the community to prevent further damage in the event of a disaster.

Steps to prepare. If the disaster is one where there is advance notice, such as a hurricane, there can be steps residents can take to mitigate damage, such as bringing loose items inside, securing shutters, etc.

Preparing for disasters with a detailed plan can make a difference in minimizing the impact and rebuilding after experiencing a disaster.

In October 2010, Moors announced a change in the way it would levy assessments against the owners of the condominium. Villas alleges that the change greatly increased the amount assessed against the condominium's owners, and the increase is improper and violates the Master Covenants. Some of the unit owners refused to pay the increased assessments. Villas sued as the representative of the unit owners, alleging that the increased assessments are improper and that the unit owners who have paid the increased assessments have overpaid.

The Southern District Court reviewed the complaint to see if it stated a claim or was subject to dismissal. The Court noted that an association has “associational standing” to bring a suit as the representative of its members if it shows that:

1. Its members would otherwise have standing to sue in their own right;
2. The interests it seeks to protect are germane to the organization's purpose; and
3. Neither the claim asserted nor the relief requested requires the participation of individual members in the lawsuit.

An association may have standing in the absence of injury to itself so long as a member has standing and the nature of the claim and of the relief sought does not make the individual participation of each unit owner necessary for a proper resolution of the case. The Court held that Villas failed to establish that it can bring this suit without the participation of the unit owners. The unit owners’ claims will vary based on their differing circumstances. Some unit owners paid the increased assessments while others refused to pay. Since each unit owners’ circumstances are different, the participation of Villas’ unit owners is required to properly resolve the individualized claims. The Court dismissed the case, and stated it is doubtful the Villas will be able to overcome the lack of associational standing.

The association produced its Board President and two representatives of the public adjusting firm for examination under oath. The association also submitted numerous documents responsive to the insurer’s requests and provided proofs of loss. The insurer requested additional examinations under oath and documentation, claiming that the people it had spoken with did not possess certain knowledge regarding the claim and because not all requested documentation had been received.

On January 10, 2011, Independence informed Oriole Gardens that it was standing by its initial 2005 claim determination that the amount of loss fell below the policy deductible. The association filed a lawsuit for breach of contract in Florida state court on January 10, 2011. The case was removed to the U.S. District Court for the Southern District of Florida.

The insurer filed a summary judgment in the case, arguing that Oriole Gardens did not comply with its policy duties after loss to submit to an examination under oath, provide relevant documents and give prompt notice of the loss.

After conducting a hearing and considering all of the evidence, the federal court denied the insurer’s motion in respects. Of particular significance was the court’s opinion on the notice issue. The court cited the pertinent part of the policy:

Duties in the Event of Loss or Damage

a. You must see that the following are done in the event of loss or damage to Covered Property:

(2) Give us prompt notice of the loss or damage. Include a description of the property involved.

The court held that the clause requiring Oriole Gardens to provide “prompt notice” of the loss is ambiguous. The ambiguity involves whether Oriole Gardens’ duty to notify pertains only to the initial claim, or also imposes a time limit on supplementing its claim. The insurer conceded that Oriole Gardens provided initial notice of the loss within a reasonable time after Hurricane Wilma, but argued that the duty to provide prompt notice of loss was violated because Oriole Gardens waited four years to request that the claim be re-evaluated. The court noted that the policy contains no provision delineating when an insured may submit a revised proof of loss or contest a previous claim determination.

In light of the ruling, a jury will probably resolve the question of whether the association satisfied its policy duties after loss. This opinion is important as it recognizes that insurers ask the courts to apply a meaning to policy terms that is not defined in most policies. We will continue to provide updates as additional cases are decided.

A leak from an upper unit causes water to flow into lower units and damages the ceilings and drywall within those units. Repair expenses may be significant, but there may be a fairly large deductible on the association policy of insurance, making it difficult to obtain insurance proceeds to help cover the loss.

Under the Florida condominium statute, associations are generally responsible for the repair and replacement of the drywall within the condominium units. According to Florida Statute §718.111(11)(f), the association’s policy of hazard insurance covers “all portions of the condominium property as originally installed or replacement of like kind and quality, in accordance with the original plans and specifications,” except “all personal property within the unit or limited common elements, and floor, wall, and ceiling coverings, electrical fixtures, appliances, water heaters, water filters, built-in cabinets and countertops, and window treatments, including curtains, drapes, blinds, hardware, and similar window treatment components, or replacements of any of the foregoing.”

In the leak scenario, the association’s insurance covers all drywall damage caused by a covered peril and all other damage, with the exceptions of that specifically excluded by the statute -- provided that the loss is above the association’s policy deductible.

According to Florida Statute §718.111(11)(j) “any portion of the condominium property required to be insured by the association against property loss pursuant to paragraph (f) which is damaged shall be reconstructed, repaired, or replaced as necessary by the association as a common expense.”

This means that the association pays for repairs to the items covered by the association’s insurance, even if those damages are below the association’s policy deductible, unless the members have voted to “opt-out.” Under §718.111(11)(j), the association also pays the deductible as a common expense of the association unless it has to “opted-out” of the provision of the statute. The “opt-out” provision of the condominium statute in Florida Statute §718.111(11)(k) states:

An association may, upon the approval of a majority of the total voting interests in the association, opt out of the provisions of paragraph (j) for the allocation of repair or reconstruction expenses and allocate repair or reconstruction expenses in the manner provided in the declaration as originally recorded or as amended. Such vote may be approved by the voting interests of the association without regard to any mortgagee consent requirements.

An Association can “opt-out” of part of the insurance law, but cannot “opt out” of its insurance obligations. It seems that the “opt-out” would change whether the repair expenses and deductible will be considered a common expense. If a majority of the association’s unit owners vote to “opt-out,” the requirement to pay for repairs as a common expense and the requirement to pay the deductible as a common expense can be changed and will be dealt with according to the condominium declarations. If damage was to only one unit, this “opt-out” may make it the unit owner’s responsibility to pay for the repairs and to pay the deductible.

Florida Statute §718.111(11)(m) states that if a community votes to “opt-out” of the repair and replacement and deductible requirements of the Statute, it must record a notice setting forth the date of the “opt-out” vote and the page of the official records book within the county records on which the declaration is recorded. The Statute allows an opt-out decision to be reversed by the same vote of a majority of the total voting interests of the association.

Associations considering whether to “opt-out” of the repair, replacement and deductible requirements of the Florida condominium statute should consult with their legal and insurance professionals who could likely help the board of directors weigh their options.

The Community Association Management Insider has a website devoted to topics of interest for associations. An article on the site by James Bownas, Esq. and William Granahan, Set Playground Rules to Minimize Risk of Injuries and Lawsuits, covers what playground rules should cover from a risk management perspective. 

The article discusses the following to be addressed in the rules: 

Require adult supervision. As a manager, you are generally not required by law to supervise children on your community's playground. . . . But you should require parents or other adult guardians to watch kids and make sure the rules are followed.. . . . Some associations set a certain age below which children require supervision.

Warn that those using playground do so at their own risk. Your rules should warn members that they are responsible for their activities on the playground and that the association is not responsible for injuries or accidents. . .

Set hours. It is a good idea to set reasonable hours for playground use based on when it gets dark in your area. . . . If the playground has a fence and gate, you can lock the gate during off-hours and when it is raining or snowing.

Limit use to members and guests. You should limit the use of the playground to members and accompanied guests. . .

Ban older and bigger kids. Set a maximum age or height of the children you allow to use the playground—depending on the type of equipment and the manufacturers’ instructions. . . . Equipment is usually tailored to a particular age or height.

Ban improper use of equipment. Make it clear to members that they must ensure that their kids use the playground equipment properly. . . . [Y]our rules should ban some common abuses such as:

• Standing, kneeling, or riding double on swings;

• Walking up or down the slide; and

• Climbing on top of the swing sets.

Ban in-line skates, skateboards, bicycles, and tricycles. One common dangerous misuse this rule prevents is children using skates or skateboards on the slide, which could cause injury.

Ban pets and food and drinks.

Taking recommended precautions can help to minimize risk while still preserving the residents’ ability to enjoy such an amenity. Association representatives and managers are urged to speak with their association’s attorney and insurer about adapting these rules to fit their community’s needs.

The owner shall furnish proof of such insurance to the Association at the time of purchase of a lot and shall furnish proof of renewal of such insurance on each anniversary date thereof. If the owner fails to provide such insurance the Association may obtain such insurance and shall assess the owner for the cost of the same in accordance with the provisions of this Declaration.

In June 2008, on the first anniversary of the Alordas’ purchase, the association did not receive notice that they had renewed their insurance coverage. The association sent letters requesting the proof of insurance. When the Alordas did not send proof, the association filed a complaint against the Alordas on April 9, 2009. The association sought the equitable remedy of injunctive relief, asking the trial court to “enter a permanent mandatory injunction requiring that the Defendant obtain the insurance coverages as are described in § 9.04 of the Declaration.” In response to the service of the lawsuit, the Alordas’ attorney sent the association’s attorney an email on May 6, 2009, advising that the Alordas did have the required insurance coverage. Attached to the email was a copy of the declarations page of the insurance policy, showing that it went into effect March 19, 2009. Counsel for the Alordas also asked the association to dismiss its action.

The case did not end there. The association refused to dismiss the action and ultimately obtained a judgment of attorneys’ fees and costs. The Alordas appealed that judgment, arguing that the original complaint did not state a cause of action for the injunctive relief requested.

To state a claim of injunctive relief, the requesting party must show that it does not have an adequate remedy available at law. The Alordas argued that the association acknowledged in its own pleadings that it had an available remedy at law, as the Declaration attached to the complaint provided the association with procedures to follow if an owner failed to provide the required notice of insurance coverage. The procedures specifically include allowing the association to obtain coverage and then assess the cost of obtaining that coverage against the owner. The procedures also provide that the assessment can be recorded as a lien against the owner’s real property if the assessment is not paid within thirty days and that an action at law could then be filed against the owner to collect the assessment.

The appellate court agreed with the Alordas and reversed the judgment for fees and costs, finding that the association was not the prevailing party. The court concluded:

[W]e are not unsympathetic to the Association's having incurred unnecessary fees and costs in attempting to obtain the Alordas' compliance with the terms of the Declaration. However, this opinion addresses only whether courts can award fees based on a prevailing party theory where that party can never prevail because the complaint, on its face, fails to state a cause of action. Because this impossibility prevents the award of fees to the Association in this action, we are compelled to reverse that award.

The outcome may have been different if the association had obtained insurance coverage for the Alordas’ property and then filed an action against the owner to assess the costs of that insurance against the Alordas. This case again makes clear that both associations and unit owners are bound by the terms of an associations governing documents and failure to comply with them can have detrimental consequences for both.

Boards may base the ban on nuisance provisions in the governing documents. Many, if not most, associations’ governing documents ban members from doing things that would be a nuisance or annoyance to others in the community. Secondhand smoke is a known carcinogen, and smoking in common areas, where members congregate, is certainly an annoyance to members who do not smoke and may fall within the legal definition of “nuisance.” In communities where members’ units share common walls or ventilation systems, smoking may be a nuisance even when confined to a member’s unit, because smoke often seeps through the walls.

Some municipalities have even passed ordinances preventing condominium and apartment residents from smoking in their units. The City of Larkspur, California adopted an ordinance in 2011 which bars residents from lighting up in most condominium and apartment units. County officials have said that the smoking crackdown is necessary to “preserve healthy communities.”

These measures taken by municipalities and condominium boards may be applauded by some residents, yet scorned by others. There may be a certain feeling of intrusiveness when the effects are felt in the privacy of our own homes. However, it must be remembered that condominium associations are communities where the board of directors have fiduciary duties to the residents. If things happening in the community jeopardizes the health and safety of the other residents, then the board of directors may have an obligation to take action. Whatever the board’s justification, a smoking ban will serve to reduce the risk of fire and smoke damage that can be the subject of insurance claims.

Mr. Hawkins alleged that his unit suffered mold infestation directly related to the repairs being performed in an unsatisfactory manner. In the Amended Complaint, he alleged causes of action against the association for breach of contract (Count I), negligent retention (Count II), fraud (Count IV), and conversion (Count V). The association moved for final summary judgment on all counts. This means that the association asked the Court to issue a judgment in its favor on all counts, declaring it the winner of the case.

Mr. Hawkins alleged that he entered into a “custodial contract” with the association when he vacated his unit and surrendered it to the association during the ongoing renovations to his unit. The count for breach of this “custodial contract” was the only count of the complaint on which the Court did not issue a summary judgment in favor of the association. The Court found that a jury must decide whether the association breached a “custodial contract” with the owner to repair damages, including mold, caused by the building repairs undertaken by the association.

As part of its analysis into this holding, the Court looked to the declaration of condominium and found that it gives rise to this “custodial contract” where it states:

6.1 Maintenance, Alteration, and Improvement. The responsibility for the maintenance of the condominium property and restrictions upon the alteration and improvement thereof shall be as hereinafter provided.

6.2 By the Association. The Association shall maintain, repair, and replace at the Association’s expense:

(a) All portions of a unit, except interior surfaces, contributing to the support of the unit, which portions shall include but not be limited to load-bearing columns and load-bearing walls.

(b) All conduits, ducts, plumbing, wiring, and other facilities for the furnishing of utility services contained in the portions of a unit maintained by the Association, and all such facilities contained within a unit that service part or parts of the condominium other than the unit within which they are contained.

(c) All property, real and personal, owned by the Association, the exterior wall enclosing any limited common element, and all common elements as defined in Articles 3.3(a) and 5.3(a) of the Declaration. The Association shall not be responsible for the maintenance of the interior of any limited common element as defined in Article 5.3(b).

(d) All incidental damage caused to a unit by such work shall be repaired promptly at the expense of the Association.

This decision reveals that the declaration of condominium controls the duties and obligations of the association and unit owners and can be a place where legal concepts such as the “custodial contract” take root. Association managers and boards of directors should review the declarations with representatives to ensure they are aware of the rights, duties and obligations of the association and unit owners created in their documents. Who would have thought that a concept such as a “custodial contract” could have its roots in a declaration of condominium?

In the case, the trial court ordered the parties to appraisal without conducting an evidentiary hearing on post-loss compliance with the policy duties. Citizens filed an appeal, and the policyholder’s counsel confessed error. That means that they agreed the trial court should have conducted the evidentiary hearing before compelling appraisal. Based on that confession of error and the record reviewed by the appellate court, the case was remanded for an evidentiary hearing to determine whether post-loss obligations were “sufficiently” met under the policy. Notably, the Court did not direct the trial court to determine whether all of the post-loss obligations were “specifically” met.

It almost seems that Citizens uses the duties after loss as a shield to the resolution of claims through appraisal and intends to force the parties to litigate in court. Litigation can be far more costly and time consuming than the dispute resolution process of appraisal. We will continue to provide updates on this blog, as well as on the Property Insurance Coverage Law blog, as this area of law develops.

[A]nyone sitting for an EUO should remember that while it is not a “legal proceeding,” it is about as close as you can get. The insurance company’s representative asking the questions will undoubtedly be an attorney, and you should plan for some tough questions.

Recently the Third District Court of Appeal in Florida issued an opinion addressing the unreasonableness of an insurance company’s lawyer’s questions during an examination under oath. De Leon v. Great American Assurance Co., No. 3D09-646, 2011 WL 4824135 (Fla. 3d DCA October 12, 2011). Chip Merlin wrote about this case on October 17, 2011 in his post The Games Insurance Companies Play on the Property Insurance Coverage Law Blog. Chip noted that the title to the post was actually a quote from the Third District Court’s opinion.

The De Leon case involved an insurance claim where someone stole a truck owned by De Leon and insured by Great American. When it was recovered, the truck was damaged and was missing nine large valuable tires. When the insurer demanded an examination under oath, De Leon appeared without counsel. Great American’s lawyer did not even discuss the truck and the tires. As the Court described, “[i]nstead, he insisted on probing into the details of, among other things, a prior, totally unrelated criminal conviction, and the person with whom the claimant was then living.” The Court quoted numerous pages from the examination under oath transcript and described it as “a never-to-be-emulated model of its kind.”

The Court stated in its opinion that when De Leon was asked about the unrelated questions of who he was living with and the criminal conviction, that:

With complete justification, De Leon declined to answer most of these questions, even though Diz [the insurer’s lawyer] specifically warned him that he was jeopardizing his insurance coverage and invited him to withdraw his claim in lieu of responding. In fact De Leon told Diz that if he continued on that track, he would leave, get an attorney, and see him in court. Diz did not desist. He persisted. True to his word, De Leon got a lawyer and filed suit.

In the De Leon opinion, there is a strong statement written after the majority opinion by Judge Shepherd:

This court recently admonished ‘all counsel’ who practice in the courts of this state that ‘improper conduct’ in the courtroom ‘will not be condoned by this court.’ This case involves conduct outside the courtroom, stemming from the theft of a 2000 Freightliner “eighteen wheeler” commercial truck…After suit was filed, the trial court abated the action and ordered completion of the previously begun examination under oath. The same lawyer who conducted the first aborted EUO conducted the second. It lasted over seven hours. It stains credulity to assert—as the insurer does in this case—that a seven-hour sworn statement of a single individual is necessary to the investigation of an $8000 tire loss claim, whatever may be the insurer’s suspicions. ‘Over-lawyering’ is a frequent affliction found in the legal profession. If there is any question concerning whether the insured’s instincts about the interrogator’s purpose was any different in the second EUO than in the first, the doubt can be dispelled easily by reviewing the transcript of the latter EUO.

An attorney is an officer of the court, and he plays his role badly, even outside the courtroom, if he trespasses against the obligations of his professional responsibilities. A careful review of the transcript of the second EUO reveals the role played by counsel during that EUO was performed just like the first—badly. As in the first EUO, counsel’s misunderstanding of the permissible range of inquiry in a sworn statement taken to verify a simple theft loss, whatever might have been the insurer’s suspicions, was palpable.

This is strong stuff. For an appellate court to be admonishing this behavior by the insurer and its representatives in this opinion is as if to say enough is enough. An examination under oath should not be utilized as an all day fishing expedition into detail that has nothing to do with the insurance claim and damages. The Third District Court ordered the insurer in De Leon to pay for the policyholder’s attorney’s fees for filing the lawsuit after the abusive treatment during the examination under oath because the claim was “not resolvable absent judicial intervention.” The Court ended its opinion with the statement:

We cannot permit Great American to escape the consequences of what it tried to get away with in this case.

Bravo!

Of particular importance, is Nationwide’s claim of attorney-client privilege and work product protection to one of the requests.

Request for Production No. 4 states: Copies of all correspondence, notices, reports or other communications between you and your representatives and PEPPERWOOD or its representatives regarding the hurricane damage at PEPPERWOOD'S insured property located at 4955 Pepper Circle B, 4693 Rattlesnake Hammock Road D, 4967 Rattlesnake Hammock Road E, 4957 Pepper Circle C, and 4973 Pepper Circle F, Naples, Collier County, Florida.

Response: Please see the documents produced in response to Request # 1.

Nationwide's response to Request No. 1 was:

The claim files (excluding privileged and protected documents) are being scanned and Bates Numbered, and upon return from the undersigned's vendor will be forwarded under separate cover along with a Privilege Log identifying any redactions.

Nationwide withheld approximately 24 categories of documents under claims of attorney-client privilege and work product protection. The Court discussed the elements of the attorney-client privilege: (1) Where legal service advice of any kind is sought, (2) from a professional legal advisor in his capacity as such, (3) the communications relating to that purpose, (4) made in confidence, (5) by the client, (6) are at his instance permanently protected, (7) from disclosure by himself or by the legal advisor, (8) except the protection may be waived.

Nationwide argued that none of the allegedly privileged items involve communication between Nationwide and Pepperwood. The items Nationwide claimed privilege to were communications between Nationwide and its defense counsel or notes regarding defense strategy.

The Middle District Court analyzed the Florida Supreme Court’s holding in Allstate Indem. Co. v. Ruiz, 899 So.2d 1121 (Fla. 2005), which some believe to have eliminated the attorney client privilege as a discovery shield in bad faith litigation with respect to all materials generated prior to resolution of the underlying coverage dispute. The Middle District Court noted the importance of the entire claim file, including the impressions and advice of counsel in discovery during bad faith cases.

The Court noted that even though there was no lawsuit filed related to any coverage dispute over Pepperwood’s claims, there was a period of time during which coverage was disputed by Nationwide. The Court overruled Nationwide’s claims of attorney-client privilege and work product protection with regard to documents generated prior to the filing of the bad faith lawsuit—the period during which coverage was disputed. The Court ordered Nationwide to produce those documents to Pepperwood. The Court further held that it would conduct an in camera review of documents generated after the bad faith lawsuit was filed to determine whether the objections are proper.

The rationale behind this case and Ruiz is that insurers should not be allowed to shield documents and information from discovery in bad faith cases by asserting expansive claims of privilege where insurers’ claims handling decisions are at issue.

In 2002, eighteen slip owners, about half the total number, filed a lawsuit asking the trial court to declare that they did not have to pay the special assessment. The basis for their argument was that the association failed to insure the marina and docks. The association responded to the lawsuit with foreclosure counterclaims against those slip owners who had not paid the special assessment. After an evidentiary hearing, the trial court held that the slip owners were responsible for the costs pertaining to the marina, and that the association was not obligated to insure the marina and docks.

The Third District stated that the resolution of the case required analysis of the Florida Condominium Act and the Declaration of Condominium. The Court noted that the dock slips are limited common elements and that the Declaration of Condominium allows the “owner” of a dock space to sell or transfer his or her right of use of that assigned space, but only to another unit owner. The property manager testified after Irene that a preliminary study of the marina was done by a local structural engineering firm before Hurricane Irene, which concluded the marina had outlasted its useful life. On June 2, 2000, the property manager advised the slip owners of this finding.

The Court reviewed the insurance article of the Declaration of Condominium documents and held that it was clear and unambiguous. The insurance article did not require the association to purchase and maintain insurance coverage on the docks. The plain language of the insurance provision required the association to purchase insurance only on the building and other improvements of the condominium, including the units and common elements. The word “Building” was defined in the Declaration as “the [twenty-five]-story high rise building constituting the principal improvement located on the land.”

The boat slips were expressly stated to be “Limited Common Elements” in the Declaration. The Court stated that if “Limited Common Elements” were to be included in the required insurance coverage of the Declaration, then the people that drafted the documents should have included them. Since they did not, the Court held the condominium documents were reasonably susceptible to only one interpretation: the association was not required to purchase and carry a policy of windstorm insurance on the marina and boat docks. The Third District Court of Appeal affirmed the holding of the trial court.

The opinion ended a long dispute between the association and numerous unit owners. The case reveals how interpretation of a condominium association declarations can determine a dispute over who is obligated to insure portions of condominium property. As the Third District stated:

However intuitively obvious our decision might appear, a sojourn through the not-so-intuitively-obvious interstices of the Florida Condominium Act and the Declaration of Condominium, [] is necessary to explain our decision.

Request No. 1: A copy of any and all civil remedy notices (“CRN”) and related correspondence, including Nationwide's responses to the CRN, regarding similarly situated policy holders as Pepperwood from January 2004 until the present.

Nationwide objected because it believed the request was overbroad, vague with regard to the terms “similarly situated policyholders,” harassing, irrelevant and not likely to lead to the discovery of admissible evidence. Despite the objections to the Request, Nationwide additionally stated:

Subject to these objections and without waiver of the same, this request seeks information that is publicly available online from the Florida Department of Financial Services [FDFS], and can be obtained from that source as easily by Plaintiff as by the Defendant.

Nationwide reserved its objections to the Request, yet answered it anyway. The Court stated that “if an objection to a discovery request is raised, and then the question is answered ‘subject to’ or ‘without waiving’ the objection, this court is reluctant to sustain the objection.” The Court stated that the Federal Rules of Civil Procedure do not give a party the option of sustaining objections yet filing answers to requests. In the order, the judge stated that such objections are a waste of the time and resources of both parties and the court and that answering subject to an objection “lacks any rational basis.”

The Court ordered Nationwide to respond to the Request and provide the information related to Civil Remedy Notices of similarly situated policyholders because the information is relevant to the allegations in the complaint that Nationwide “as a general business practice, intentionally and/or in such reckless disregard for the rights of the insureds, utilizes unfair claims handling practices for financial gain and profit.” The Court was not persuaded by Nationwide’s objection that the information requested was available as public information through the Department of Financial Services’ civil remedy filings on its website. Only the civil remedy notice form is available online, and the other information requested is within Nationwide’s control and unavailable to the association.

It should be noted that the opinion is by a magistrate judge who interpreted the Federal Rules of Civil Procedure. Magistrate judges typically decide discovery disputes between parties in federal court in Florida. Some federal judges in Florida, and likely other jurisdictions, issue detailed discovery orders that prohibit the parties from objecting to discovery requests on this exact basis, and they state that parties may be sanctioned for such behavior. As reflected by this order, what may be a common objection in Florida state courts can be disfavored by our federal courts. Parties may find themselves on thin ice if they assume that the same customary practices apply.

For example, in Park Country Club of Buffalo, Inc. v. Tower Ins. Co. of New York, a golf country club association presented a business income claim to its insurer for loss caused by flood damage to its golf course sand traps. Whether the sand traps were covered property depended on the terms and definitions of the policy. An endorsement titled Security for Golf Courses—Golf Course Grounds and Outdoor Property modified the terms of the policy to include golf course sand traps within “Covered Property,” and the Flood Endorsement specifically indicated that the insurer would pay for damages to “Covered Property” caused by flood or surface waters. The court held that “the only reasonable interpretation of those endorsements is that the policy covers flood damage to plaintiff's sand traps.”

This case brings the point home because it is clear that if the country club association and its professionals had not reviewed the endorsement forms that changed the standard policy language to include sand traps as “covered property” and provide coverage for flood damage to “covered property,” it may not have proceeded with a claim for the damages. Associations, businesses, individual policyholders and their claim professionals should all strive to go the extra mile in sorting through the details of their claim, documenting the claimed damages and reviewing policy forms.

Whether review of the denial of a motion to dismiss based on a claim of sovereign immunity should await the entry of a final judgment in the trial court?

The Florida Supreme Court has accepted jurisdiction, and oral argument is set for September 8, 2011. Citizens argues the substantive issue of whether it is subject to bad faith claims in its initial brief. San Perdido argued in its answer brief that the First District certified a procedural issue: whether the appellate courts can accept interlocutory appellate review of a trial court’s denial of a motion to dismiss a bad faith case based upon a claim of immunity. The First District held that interlocutory appellate review is not available to Citizens, while the Fifth District has allowed interlocutory appeals in the same circumstances.

It is uncertain at this time whether the Florida Supreme Court’s will address the substantive issues asserted by Citizens –whether it is immune from bad faith liability-- or solely the procedural issues—whether the District Courts can accept such interlocutory appeals.
The following is an excerpt from San Perdido’s Answer Brief, which demonstrates how strongly policyholder representatives feel about this important issue:

In its brief, Citizens has posited a variety of arguments why bad faith either is not a willful tort or, alternately, that the Legislature “intended” to exempt Citizens from bad faith liability, all of which are discussed in depth below. In the final analysis, San Perdido would submit that if the Court decides to take cognizance of this issue, any analysis of whether Citizens is immune from bad faith must begin with one crucial question: What is Citizens asking for in this appeal, and is the remedy that Citizens seeks congruent with the Legislature’s purpose for creating Citizens in the first place? No matter how Citizens tries to spin this issue, it is asking this Court for the ability to deny claims in bad faith with impunity, which is totally contrary to the Legislature’s stated purpose in creating it. (Emphasis in Original).

…

Citizens likes to claim that it’s an arm of the government, created to promote the welfare of the average Floridian and for that reason it is entitled to special protection. But the Legislature recognized that when it created Citizens, it was, first and foremost, creating an insurance company and checks were needed to prevent Citizens from straying off course and behaving like an insurance company…Analysis of the provisions of §627.351(6)(s)(2) shows that the Legislature clearly and unambiguously imposed a duty of good faith in regards to claims handling and settlement upon Citizens. §627.351(6)(s)(1) Florida Statutes grants Citizens general immunity then carves out specific exceptions to that immunity in order to provide a mechanism to enforce the duty of good faith.

The ultimate question that this Court must answer is this: What was Citizens created for and does it serve that purpose to allow Citizens to breach its contracts at will and engage in bad faith claims handling practices? Because when all the rhetoric is cleared away, that’s what Citizens is really arguing for: Citizens wants this Court to say that it’s ok for it to breach its contracts with the people of this State and deny their claims in bad faith.

This case could have an important widespread impact given the large numbers of policyholders in Florida insured with Citizens, particularly if the Florida Supreme Court rules that Citizens is subject to claims for bad faith. We will continue to monitor this case and provide updates as it progresses. 

QBE removed the case to federal court and contested a count of the complaint which sought a declaration from the Court on the date that QBE breached the insurance contract, and the date the statute of limitations began to run.

The Court analyzed whether there was an actual dispute or controversy between the association and QBE surrounding the facts related to the statute of limitations. The court cited a case from the Eleventh Circuit Court of Appeals which stated:

[A] justiciable controversy is . . . distinguished from a difference or dispute of a hypothetical or abstract character; from one that is academic or moot.

The Court explained that the statute of limitations is an affirmative defense which must be specifically pled and QBE had not yet raised a statute of limitations defense in the case. The Court ruled that,

If QBE has not raised the defense, there can be no ‘dispute’ that a declaratory judgment will resolve.

A unilateral concern, without a contrary position asserted by QBE, was apparently one of the decisive factors for the Court in ruling that the statute of limitations issue was not ripe for determination.

As this case and last week’s reveal, determining the date the statute of limitations begins to run in Florida is a fact specific analysis.

Because of the nationwide increase in the number of home-based businesses, some associations may consider lifting or easing restrictions on owners who want to use their units for certain business purposes. The nature of the commercial use may be a deciding factor in whether an association agrees that a business use is permissible. For example, businesses like day care centers, catering operations, and professionals who see clients in person may have the potential to congest parking, over-use utilities, create noise and even increase the potential for insurance claims. On the flip side, telecommuters’ home-based businesses may often be hard to detect and relatively unobjectionable, making enforcement of a total ban difficult.

Completely banning home-based businesses may impact potential buyers. If potential buyers must work out of their home, they would not purchase a unit. Some associations utilize surveys or application forms to determine whether owners’ or prospective owners’ proposed business use is appropriate for the community.

Condominium boards and managers considering less restrictive policy on business use of units are strongly encouraged to consult with counsel and insurance professionals regarding the potential impact such an adaptation could have on insurance policies available for the association, as well as property and liability insurance coverage.

It is important for association managers and board members to commit to a disaster plan, communicate it to residents, and test it in the community. There are various certification courses available to those in the industry interested in further information on this topic. There is even a National Board of Certification for Community Association Managers (NBC-CAM), which is an independent board that develops certification (known as the CMCA – Certified Manager of Community Associations^®) and standards for community association managers.

Interestingly enough, the insurance policy between the parties did not provide coverage for “business income,” and no claim for “business income” was ever made by Continuum. Mt. Hawley claims the reference to “business income” in the June 2007 release was a mistake, so Mt. Hawley asked Continuum to sign a second policyholder’s release that would release Mt. Hawley from “any and all actions, causes of action, claims and demands whatsoever for all loss and damages arising from Hurricane Wilma on or about October 24, 2005.” Mt. Hawley claims that Continuum’s Board President signed the second release and that it is a valid release of all claims. Continuum asserts in the lawsuit that the second release is fraudulent, and it was never authorized by Continuum or signed by its president. Continuum alleges that it never settled all of its claims with Mt. Hawley, and that it is entitled to payment for the disputed portion of the claim.

Continuum filed this action for declaratory judgment and breach of contract to determine the effect of two releases. Mt. Hawley raised settlement as an affirmative defense in the lawsuit, and even requested the court “reform” the first release to reflect the true intent of the parties if the court found the second release unenforceable.

At a later date in the litigation, the court will decide whether either release is valid; whether the first release contained a mutual mistake by both parties or a unilateral mistake on the part of the insurer. The case poses an interesting factual scenario which will require the court to rule on the sufficiency or appropriateness of the releases. Generally speaking, adjusters in Florida are guided by the Administrative Code and need to follow the Rules during a claim adjustment. The Florida Administrative Code has certain provisions related to releases during the claim process and an approval process that could be analyzed under facts such as this case. Also, some insurers have claim guidelines for their adjusters/examiners that may address when to use a policyholder release. We will update this case as it progresses through the litigation.