Condominium Insurance Law : Condo Insurance Lawyers & Attorneys : Merlin Law Group Law Firm : Tampa, Houston, Coral Gables & West Palm Beach

Most notably, the Standard Flood Insurance Policy requires that an insured submitting a flood claim provide a sworn statement in proof of loss within sixty (60) days of the date the loss occurs. Unlike many commercial and residential policies, this requirement is mandatory and must be done even if the carrier does not request it.

The repercussions for failing to abide by this requirement can be harsh. Courts have held, almost unanimously, that failing to comply voids the policy and relieves the Program from making any payments to the insured regardless of the claim’s validity. See Dawkins v. Witt, 318 F.3d 606 (4th Cir.2003); Mancini v. Redland Ins. Co., 248 F.3d 729 (8th Cir.2001); Flick v. Liberty Mut. Fire Ins. Co., 205 F.3d 386 (9th Cir.2000); Gowland v.Aetna, 143 F.3d 951 (5th Cir.1998); Phelps v. Fed. Emergency Mgmt. Agency, 785 F.2d 13 (1st Cir.1986).

Furthermore, the Flood Insurance Program rarely waives its right to obtain a proof of loss within sixty (60) days. Absent a written waiver by the Federal Insurance Administrator, no actions or representations by an adjuster, employee, or claims handler can relieve an insured of this obligation. Even if a policyholder relies on an adjuster’s, employee’s, or claims handler’s representations in failing to submit a sworn proof of loss, coverage will likely still be void.

With the prevalence of flood damages resulting from Hurricane Irene, it is important for associations and unit owners to be proactive. Contact your flood providers early and often, ask for a certified copy of your policy, request that all necessary forms be faxed or emailed immediately, and begin estimating the damages. By working quickly, you can ensure coverage for damages and can hopefully restore your property quickly.

In 200 Leslie, a condominium association suffered a loss from Hurricane Wilma and filed a claim with its insurer. The insurer estimated the loss was below the policy deductible. The association relied on the insurer’s estimate until years later when it realized that the insurer’s estimate was incorrect, and sought to have the claim reopened and appraised. The insurer, QBE, allegedly ignored the demand to enter into appraisal. The association filed suit, and QBE moved to dismiss the lawsuit, citing Romay and alleging that appraisal was not proper because the insured had not complied with post-loss conditions. The Court stated:

QBE argues that the existence of a disagreement regarding the valuation of the loss is a precondition to the invocation of the appraisal provision. While this Court agrees, that argument takes QBE only so far.

As QBE acknowledges, on October 19, 2010, 200 Leslie did “write to QBE to express that ‘it disagreed with QBE's position’ and to ‘demand[ ] that this dispute ... be resolved through the appraisal process ....’ ” Although 200 Leslie sent this letter after filing suit in this case, it did so before filing the Second Amended Complaint in this matter, and to date—eight months later—QBE has not responded in any way: it has not disagreed with 200 Leslie's contesting of QBE's valuation; it has not requested documents from 200 Leslie; it has not sought to conduct an examination under oath; and it has not otherwise engaged in any apparent actions indicating that it is in the process of determining its position with respect to 200 Leslie's valuation of its purported Hurricane Wilma loss. Meanwhile, 200 Leslie has indicated its willingness to comply with all of its post-loss obligations as invoked by QBE to enable QBE to determine whether it disagrees with 200 Leslie's contestation of QBE's valuation. QBE contends that the October 19, 2010, letter amounts irremediably to too little, too late and, thus, that Count II should be dismissed with prejudice. But other cases suggest that there may be more to consider.

The Court considered El-Ad Enclave at Miramar Condo. Ass’n, Inc. v. Mt. Hawley Ins. Co., 752 F. Supp. 2d 1282 (S.D. Fla. 2010), which I previously wrote about in Must an Insured "Sit" for an EUO Before Filing Suit if It Has Been Requested?. In El-Ad Enclave, the Court decided that dismissal was not appropriate because the insured had not demonstrated a “willful disregard” for policy conditions. The 200 Leslie Court continued its analysis in light of El-Ad Enclave by saying:

Considering the reasoning in Enclave, the Court concludes that 200 Leslie may have been able to remedy any shortcomings in meeting its pre-filing obligations under the policy even after it filed the lawsuit in this case. Thus, 200 Leslie's October 19, 2010, letter, which predated the filing of the Second Amended Complaint and sought to determine whether a “disagreement” existed over the valuation of 200 Leslie's alleged Hurricane Wilma loss, may have fulfilled that particular prerequisite for seeking appraisal following a sufficient period within which QBE could fairly have been expected to respond. Although QBE did not respond to the October 19, 2010, letter, QBE cannot simultaneously unilaterally preclude 200 Leslie's satisfaction of the “disagreement” prerequisite by ignoring the demand letter and use 200 Leslie's alleged failure to demonstrate a “disagreement” to bar suit permanently. All that is required under Romay is that QBE be given a reasonable opportunity to determine whether it disagrees with 200 Leslie's contestation of QBE's valuation of 200 Leslie's loss. In order to make that decision, QBE is entitled to require 200 Leslie's compliance with pre-appraisal obligations, should QBE wish to do so. At some point in time, however, a complete failure to respond to 200 Leslie's contestation of QBE's valuation and to demand compliance with pre-appraisal obligations must act as an implicit “disagreement” under the policy. Otherwise, insurers could always avoid appraisal by simply ignoring demands for appraisal. Thus, 200 Leslie's post-initial-Complaint but pre-Second-Amended-Complaint demand letter may have set the stage for the required “disagreement” under the appraisal provision. (emphasis added).

Where most courts have looked only at the language of Romay that focuses on the insured’s obligations, the Honorable Judge Robin S. Rosenbaum saw through to the other side of Romay, which focuses on the insurer’s responsibilities. Romay holds that a “disagreement” for triggering appraisal cannot be unilateral. This requires both parties to act. Romay also requires a meaningful “exchange” of information, which requires both parties to work together. As Judge Rosenbaum appropriately stated, if the insurer fails to comply with its obligations under Romay, the correct result would be to find an implicit disagreement and permit an appraisal to go forward.

The El-Ad Enclave Condominium Association suffered a loss from Hurricane Wilma in 2005 and made a claim to its property insurer, Mt. Hawley. On February 4, 2009, the insurer requested that the insured sit for an EUO and produce documents to the insurer. On February 18, 2009, the insured responded to the request and attempted to coordinate the EUO and production of documents. The EUO was rescheduled a few times before finally being set for June 9, 2009. Meanwhile, on May 15, 2009, before the insured had appeared for the EUO or produced documents, it filed suit against the insurance company.

The condominium association’s insurance policy permitted the insurer to “examine any insured under oath, while not in the presence of any other insured and at such times as may be reasonably required, about any matter relating to this insurance or claim, including an insured's books and records.” The policy also required that no legal action could be taken against the insurer unless “[t]here has been full compliance” with all terms of the policy. The insurer filed a motion for summary judgment, arguing that the condominium association had not fully complied with its duties before filing suit because the EUO had not actually taken place before suit was filed.

In support of its motion, the insurance company cited case law in which insureds refused to comply with requests for or failed to appear for an EUO, and eventually never complied with the EUO request. The court distinguished those cases by saying:

In Goldman, for example, the insured had yet to submit to an EUO two years after having filed suit. See Goldman, 660 So.2d at 305. The Fourth District noted that an insured's “refusal to comply with a demand for an examination under oath is a willful and material breach of an insurance contract.” See id. at 303 (emphasis added). Accordingly, it held that the insured's refusal to comply prohibited a suit concerning the policy. See id. at 306. In another similar case cited by Mt. Hawley, the insured failed to show for scheduled EUOs, and never fulfilled the EUO requirement. The Second District held that the insureds' “failure to submit to the EUOs was a material breach of a condition precedent to [the insurer's] duty to provide coverage under the policy.” See AMICA Mut. Ins. Co. v. Drummond, 970 So.2d 456, 459 (Fla. 2d DCA 2007).

The Court found that summary judgment was not proper because the condominium association had amicably attempted to coordinate both the production of documents and the examination under oath and ultimately did both, albeit briefly, after suit was filed. Because there was an agreement in place to produce documents and sit for the examination under oath before suit was filed, the court denied the insurance company’s motion for summary judgment on the basis that there was an issue of fact as to whether the condominium association’s actions in agreeing to comply before filing suit, and complying briefly after filing suit, amounted to full compliance under the terms of the policy. The court noted that:

Moreover, if an insured has not demonstrated willful disregard of the policy preconditions, courts have either stayed the action or dismissed the suit without prejudice in order to allow belated compliance. See, e.g., Central Metal Fabricators v. Travelers Indemnity Company of America, 703 So.2d 1251, 1251 (Fla. 3d DCA 1998) (staying claim pending compliance with EUO); Southgate Gardens Condominium Association, Inc. v. Aspen Specialty Insur. Co., 622 F.Supp.2d, 1332, 1337 (S.D.Fla.2008) (dismissing suit without prejudice to allow belated compliance is “most prudent course of action”). Here, such relief is not necessary because Enclave produced the documents and the EUO was taken less than a month after the action was filed. But regardless, these cases indicate that dismissal is not appropriate here.

In the end, it is usually better to play it safe than sorry and actually sit for an EUO and produce documents before filing suit, but this case shows that the facts may permit the actual EUO to take place after filing suit, as long as there has been initial cooperation. Again, the facts and timeline will be key in the determination of whether the insured has complied, and some judges may be less inclined to find compliance under the above facts, so be sure to consult with your legal counsel regarding compliance.

Citizens appealed the Miami-Dade Circuit Court’s order compelling appraisal related to Mango Hill’s Hurricane Wilma claim. Citizens, not surprisingly, asserted at the hearing before the trial court judge that the association failed to comply with the post-loss provisions of the insurance policy issued by Citizens. A brief discussion of the facts of the case is important.

Mango Hill reported the Hurricane Wilma claim to Citizens in October of 2005. Citizens investigated the claim, acknowledged coverage for the loss and issued several checks to the association for hurricane-related damages. Mango Hill later retained a public adjuster and claimed additional funds to restore it to its pre-loss condition. Citizens demanded documentation and information from the association, and Mango Hill submitted a sworn proof of loss, an estimate of damages and an engineering report stating the damages were the result of Hurricane Wilma. The current board president appeared for examination under oath as well. Citizens made additional requests for documents and information, and refused to commence the appraisal process until that information was provided. Citizens asserted that the damages were “newly claimed,” over three years after the loss and over a year after Citizens had closed its claim file.

Mango Hill filed the lawsuit against Citizens, claiming it satisfied all policy post-loss obligations and moved to compel appraisal. Citizens filed an answer and affirmative defenses denying coverage for the claim and asserting that appraisal could not be compelled until the association complied with the policy post-loss obligations or until the court sufficiently ruled on that issue. Mango Hill argued that the issue of post-loss compliance relates to coverage and, given prior Third District Court of Appeals’ rulings, the issue of coverage could be determined after appraisal is compelled. Mango Hill essentially argued for a “dual-track” approach: letting the appraisal proceed while the court decides issues of coverage. Mango Hill asserted that the issue of post-loss compliance involves an issue of coverage since a failure to comply could jeopardize coverage for the claim.

The Third District cited Citizens v. Galeria Villas Condo. Assoc., 48 So.3d 188 (Fla. 3d DCA 2010); and Citizens v. Maytin, No. 3D10-693, 36 Fla. L. Weekly D51 (Fla. 3d DCA December 29, 2010), in support of its ruling which reversed the trial court’s order compelling appraisal and sent the case back to the trial court for an evidentiary hearing on the issue of Mango Hill’s post-loss compliance. The Third District discussed the Galeria Villas decision in some detail, and seems to be of the view that until there is a ruling that the policy’s post-loss conditions were sufficiently met by the policyholder, there is no disagreement over the amount of loss to be appraised and the trial court is unable to issue an order on the “dual track” approach of coverage and appraisal.

There are still unanswered questions after this recent decision. For example, does a disagreement over the amount of loss really only exist after an insured complies with broad and burdensome demands for post-loss compliance? Can’t there be a disagreement over the loss amount based on what the insurer previously paid and what the policyholder and its experts have estimated as the damages? Should the amount of time between the last payment by the insurer and the policyholder’s estimate of damages revealing a disagreement over the loss amount even matter where the policy does not have a time limitation and the appraisal panel determines causation of the damages anyhow?

We may revisit some of the issues in these recent cases in the upcoming weeks.

One question arises when an insurer does not request an examination under oath until the insured has filed a lawsuit for breach of contract. Insurers sometimes argue that it is a requirement under the policy that an insured sit for an examination under oath when an insurer requests it, no matter when that request occurs. Florida courts have addressed this issue and have usually found that an insured is not required to comply with an examination under oath request if the request was not made prior to the insured filing suit.

In Goldman v. State Farm Fire General Insurance Co., 660 So.2d 300 (Fla. 4th DCA 1995), the Court held that when an insured makes a claim under a policy in which one of the conditions precedent to filing suit requires that the insured comply with a request by the insurance company for an examination under oath, failure to do so may be a material breach of the policy. In Goldman, the insured filed a claim for a burglary and submitted a proof of loss setting forth the amount of losses claimed. State Farm requested an examination under oath in accordance with the policy conditions.

When the date for the examination under oath grew near, however, the insured rescheduled the examination for another more convenient time. After State Farm had agreed to this extension, the insured filed a lawsuit alleging that State Farm breached the contract by failing to pay the amounts claimed under the policy.

In the end, the Court ruled that because the insurer had requested the examination under oath prior to the lawsuit, the examination under oath was a condition precedent to filing suit. Therefore, the Court determined that the insured had breached the contract and was not entitled to payment under the policy.

A much different scenario exists when the insurer does not request an examination under oath prior to the lawsuit being filed. This situation arose in Willis v. Bankers Insurance Company, 736 So.2d 1272 (Fla. 4th DCA 1999). In Willis, the Court distinguished the facts in Goldman because of the time when the examination under oath was requested. Since the insurer did not request the examination under oath until after the suit was filed, the court held that the examination under oath was not a condition precedent to filing suit. Therefore, the insured in Willis did not breach the contract by refusing to sit for the examination under oath.

The important part of the policy language in both of these instances is the wording of the examination under oath provision. The provision generally reads that the insured must submit to an examination under oath when the insured requests it. The examination under oath is not always a requirement during the investigation of the claim. If the insurer does not request that one be taken, it would not make sense to allow them to come back after litigation is filed and claim that the insured has violated the policy conditions by not sitting for one.

Examinations under oath are important parts of insurance claims and should be taken seriously. Before making any decision about whether you or your clients must attend an examination, it is always best to check with an attorney. That way you can be fully informed about your options and do not risk the insurer claiming that there has been a material breach of the policy.

One of the most daunting tasks faced by associations is the insurer’s request for an examination under oath (EUO). An EUO is a creature of contract, thus, if there is no provision in the policy requiring an insured to sit for an examination, there is likely no obligation to do so. While it is extremely rare to find a policy that does not have such a requirement, an insured should always check before agreeing to a carriers’ request.

Most requests for an EUO come with a long list of general areas that the carrier wishes the insured to testify to. With a simple homeowner claim, determining who should be designated (if the request does not cover all of the individual homeowners) is pretty simple. For associations, however, the task of designating the person most knowledgeable about each area becomes more confusing.

Often, the requests center on the person most knowledgeable about current damages and previous repairs and construction projects. Due to the fact that many associations change boards quite frequently, there may be no current board members who have knowledge of both the current damages and previous repairs. This may lead to a situation where the board must designate more than one individual to testify to the areas requested.

Once an individual is identified as the person most knowledgeable about a certain area of inquiry, it is important to understand the basics of an EUO. First, attendance at the EUO should be taken very seriously. An insured’s refusal to submit to an examination under oath has been found to be a material breach of the insurance contract in some instances. Stringer v. Fireman’s Fund Insurance Company, 622 So.2d 145 (Fla. 3rd DCA 1993).

Second, it is important to remember that this examination is conducted under oath and will be transcribed by a licensed court reporter. Anyone sitting for an examination under oath should be careful to answer every question honestly and to the best of their ability. One problem frequently encountered is that some individuals are afraid to admit that the do not remember something that is asked. Before every EUO, I remind my client that “I don’t know” is not a bad answer if it is truthful. If you don’t understand a question, ask the individual to repeat it. If you think that the correct answer may hurt your claim, don’t attempt to hide anything. While the truth may cause problems for your claim, there are things far worse than having a claim completely denied because of an insurer’s assertions of misrepresentation or fraud. That is an uphill battle that many times could have been avoided.

Finally, anyone sitting for a 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. I never recommend that anyone sit for an EUO without their own legal representation there as well. While there are very limited instances where an attorney can jump in during an examination, having someone there to protect your rights is extremely important. When choosing an attorney for this process, it is important to pick someone who is experienced with examinations under oath. Because the rules of an examination under oath and a deposition are very different, the best way to protect yourself and your association is to find a well versed insurance attorney to accompany you.

Unfortunately for the policyholder, no such privilege exists for their documents. Unlike an insurer, a condominium association cannot make broad claims that everything created as a result of a claim is protected. As I mentioned last week in The Cooperation Clause and Document Production: A Condominium Association's Difficult Task, document production is a very intensive process, especially for an association with hundreds of thousands of pages of information to sort through. Even a small and innocent mistake could lead to an insurer screaming from the rooftops and attempting to void an otherwise valid claim.

For condominium associations in particular, many times attorneys become involved in an insurance claim from the very beginning. In many instances, the independent or insurance adjuster is moved to the side early in the process and replaced by the insurer’s attorney, who ends up directing the adjustment and making the final determination of coverage.

For many years, insurers have claimed that all of the work that these attorneys performed in the adjustment of the claim was privileged because of the work product and attorney-client privilege. When insurers acted in bad faith by denying valid claims, the insurer could refuse to produce relevant documents which reflected this improper behavior during the bad faith litigation.

Fortunately, Florida courts caught on to this tactic and have stopped the insurer’s attempts to improperly hide its bad faith conduct by invoking attorney-client and work product privilege on materials in the claim file.

The Florida Supreme Court’s ruling in Allstate Indemnity Co. v. Ruiz, 899 So. 2d 1121 (Fla. 2005) set the precedent in preventing insurer’s from concealing bad faith activities with claims of privilege. Specifically, Ruiz overruled previous case law and found that work product documents created in the breach of contract action were part of the claim file and must be turned over in subsequent bad faith litigation.

There has been some debate over whether the Court’s ruling in Ruiz prevented insurers from relying on attorney-client privilege to keep from producing documents related to the underlying breach of contract action or adjustment process.

This was the exact question which Sandalwood Estates Homeowner’s Association recently faced in the Southern District Court of Florida. After Hurricanes Frances and Wilma, Sandalwood suffered significant damages. When the insurer did not promptly pay the full amounts due under the policy, the parties proceeded to appraisal. The result of the appraisal was an award of around $5,000,000 more than was originally offered by the insurer.

Sandalwood filed suit alleging that the insurer had acted in bad faith in handling the insurance claims. During the discovery phase of the lawsuit, the insurer claimed that many of the documents requested did not have to be produced because they were protected by the attorney-client privilege.

The District Court disagreed, holding that while the documents may have privileges attached to them in a breach of contract action, documents dealing with the handling of the claim were part of the claim file and discoverable in a bad faith action. As the court stated, “…courts in Florida have consistently held that the Florida Supreme Court intended Ruiz to extend to claim file materials that would otherwise be protected by attorney-client privilege.” Sandalwood Estates Homeowner’s Assn’s Inc. v. Empire Indemnity Insurance Company, No. 09-80787, 2010 WL 411088 (S.D. Fla. January 28, 2010)

With the complexity and amount of money involved in condominium claims, there is a growing trend of insurers bringing in attorneys very early in the process. When acting in this capacity, the materials in the claims file should not be privileged simply because the attorney is involved. While this is obviously not the first time a court has found that these documents should be produced, the Sandalwood case is an important victory for condominium associations and other policyholders who are at the mercy of the insurer after a devastating loss.

Insurers typically request these inspections, and in some cases, spend countless hours sifting through all sorts of documents. This is especially true with condominium associations. In fact, if an association files an insurance claim they should expect such a request.

An insurer has numerous motives for reviewing an association’s documents. Often, the insurer is looking for evidence of pre-existing damages. One large condominium insurer in Florida, for instance, has made a practice of conducting exhaustive document inspections. When a loss is reported, the insurer’s legal team rolls into the condominium association with much the same velocity as the windstorm that caused the damage in the first place. Every document available is copied and combed through line by line. This particular insurer even has its own portable copy machines to make the process more efficient.

Condominium associations are a different animal when it comes to documents. Typical associations have a high turn over rate with employees, managers, and even board members. Many times, one hand does not know what the other is doing, and new managers may completely change the filing system. Thus, keeping track of all of the documents can be a consuming process.

Part of cooperating with an insurer in adjusting the loss involves making requested documentation available for inspection and failing to do so may give an insurer a chance to deny the entire claim. In Florida Gaming Corp. v. Affiliated FM Ins. Co., for instance, the insurer argued that Florida Gaming Corp. was not entitled to insurance proceeds for damages resulting from Hurricane Wilma because it had allegedly failed to produce some documentation requested. The policyholder responded that it had made available all documentation in its possession and that it had complied with all of its post loss obligations under the policy. Fortunately for the policyholder, the court agreed that the hundreds of pages of documents produced were sufficient, and the insurer’s motion for summary judgment was denied. Florida Gaming Corp. v. Affiliated FM Ins. Co., 502 F.Supp.2d 1257, 1264 (S.D. Fla. 2007).

While the policyholder in this instance was benefited by a favorable ruling, there was a substantial risk to the solvency of the company if the court had found differently. The claim at issue was in excess of $17,000,000, a substantial potential blow to any organization.

While the revolving door is constantly in motion when it comes to condominium association employees, owners, and directors, it is important to have a plan in place to maintain appropriate records. Some associations believe that they have great insurance and will have no problem if they submit a claim, and in some instances, this may be true. But, as we have seen with the results of the active 2004 and 2005 hurricane season, condominium associations are at great risk of large scale damage.

Having a consistent plan in place to maintain and preserve documents over the years will save a great deal of time. After a loss, the documents will be readily accessible and can be sorted through and produced when necessary to support a claim. This can help large claims be paid more quickly and can help an association get back on its feet faster after a devastating loss.