When condominium associations suffer millions of dollars worth of catastrophic damage from a natural disaster, most associations will need to rely on insurance proceeds to start and complete repairs. Indeed, that is why they purchased insurance in the first place. Unfortunately for condominium associations in Florida without millions of dollars in reserves, recent legal opinions may not help when it comes time to make those repairs.

Last fall, Chip Merlin and I wrote about an unpublished decision from the Eleventh Circuit Court of Appeals that limited a condominium association’s recovery to actual cash value (ACV) instead of replacement cost value (RCV) when it had not completed repairs to its property after Hurricane Wilma. In Prevention of Performance with Replacement Cost Value, I discussed the case of Buckley Towers Condo., Inc. v. QBE Ins. Corp., 395 F. Appx. 659 (11th Cir. 2010), and how the Court held that an insurance company’s delay or refusal to pay benefits did not alleviate the association’s duty to spend almost $19 million to repair its property before it was entitled to replacement cost benefits under the policy. In QBE Insurance Case Rewrites Replacement Cost Adjustment, Chip continued that discussion, noting

The practical impact of such legal reasoning is that insurers, absent consumer protection statutes requiring payment of replacement costs, can now underpay losses and get away with it. If this unpublished [opinion] is followed, federal courts will not award the full amount of replacement cost benefits until the insured actually does the work. This seems like a pretty illogical result from the policyholders view, as a replacement cost policy should pay for replacement of the property to a new condition. Where an insurer underpays a loss and refuses to acknowledge a proper amount of value for replacement, how are policyholders supposed to do the replacement?

Unfortunately for consumers — especially condominium associations, last week, Florida’s Fourth District Court of Appeal expressly followed the logic and reasoning of Buckley Towers in Florida Ins. Guar. Ass’n. v. Somerset Homeowners Ass’n, Inc., 4D10-4157, 2011 WL 6373028 (Fla. 4th DCA Dec. 21, 2011). In Somerset, an appraisal panel entered an appraisal award in the amount of $12,581,471.43 for RCV and $11,630,208.55 for ACV. When the insurer failed to pay either ACV or RCV, the association sought confirmation of the award and a judgment was entered for the RCV award. The insurer appealed on several grounds, but the appellate court reversed only on the basis that the judgment was limited to ACV. The decision was based on policy language that required the association to actually perform repairs as soon as reasonably possible after the loss before it would be entitled to replacement cost benefits.

While this decision is ultimately anti-consumer, there is some good news because the appellate court rejected several of the insurer’s arguments, including those that the insurer was entitled to discovery regarding the appraisal, that the award should have been vacated, that “matching” was legally inapplicable, that an award of impact windows was improper, that the appraiser for the association made improper submissions to the umpire, that the appraisal award included items not previously adjusted, and that the insurer was entitled to challenge coverage. Also, this decision does not prevent recovery of the difference between ACV and RCV from being recovered once the repairs are completed, and does not address homeowner’s policies or Florida Statute § 627.7011 that legislates replacement cost coverage for homeowners.