Engineering Report is Not a “Cost to Repair or Replace” Under Insurance Policy

Florida Senate Bill 2A revised Fla. Stat §627.7152 to state that “a policyholder may not assign…any post-loss insurance benefit under any residential property insurance policy…issued on or after January 1, 2023.” Fla. Stat. §627.7152(13). Insurance companies, however, still face lawsuits filed by Assignment of Benefits (“AOB”) companies based on assignments executed prior to January 1, 2023.

In a case arising out of roof damage caused by 2017 Hurricane Irma, the Fourth District Court of Appeals (“DCA”) addressed an insurer’s refusal to pay for an engineering report. The insurer, People’s Trust, had settled a claim for roof damage with the homeowner. Before the settlement, the homeowner had assigned benefits to The Kidwell Group d/b/a Air Quality Assessors (“AQA”). AQA provided an engineering report on the cause of the damage and sent it to People’s Trust after the settlement. People’s Trust refused to pay the $3500.00 invoice. After AQA sued People’s Trust for breach of contract and prevailed at trial, People’s Trust was denied a directed verdict and appealed. On June 28, 2023, the Fourth DCA found for People’s Trust, stating that, “no reasonable jury could have determined that the engineering report was a ‘cost to repair or replace’ the roof.” See People’s Trust Ins. Co. v. The Kidwell Group, LLC, d/b/a Air Quality Assessors of Florida a/a/o Cliff Warren, No. 4D22-1314, 3 (Fla. 4th DCA June 28, 2023). AQA had failed to demonstrate that the engineering report was included in the repair costs specified in the applicable homeowner’s policy.

While this ruling provides insurance companies with a legal basis for refusing payment for engineering reports prepared before or during litigation, it does come with some limitations.

First, in finding that the engineering report was not a “cost to repair or replace” the roof, the court noted that “from the outset of the trial, it remained undisputed that AQA’s report was not used in the roof replacement project.” Id. In fact, AQA, the homeowner and the insurance company’s general contractor all testified at trial that the engineering report was not necessary for the roof replacement. The insurance company’s expert general contractor testified that “an engineering report is not required before replacing a roof, and that in his forty-seven years of construction experience of overseeing the replacement of hundreds of roofs, including those damaged by hurricanes, he has never obtained an engineering report.” Id. Based on all the testimony, the court concluded that the evidence presented at trial actually proved that the engineering report was not a necessary cost associated with repair or replacement of the roof.

Unfortunately, the court did not go so far as to say that an engineering report could never be a necessary cost associated with repair or replacement; it left open the possibility that an engineering report could be a necessary cost if it was required for the roof replacement to be performed. In such an instance, People’s Trust makes clear that the insured or AOB company has the burden of proof to demonstrate that the engineering report is a necessary cost associated with the repair or replacement of the roof. Only after that burden is met would the insurer be required to pay for the engineer report.

The second key takeaway from the court’s ruling is that the jury instructions and verdict form must clearly set forth the insured’s or AOB company’s burden of proof. The court specifically stated, “the verdict form approved by the trial court did not ask the jury whether the engineering report’s cost was a ‘cost to repair or replace’ the property… Id. at 4. The court determined that there was reversible error; “the jury was not given the opportunity to determine if AQA’s evidence sufficiently established that the engineering report’s cost was a ‘cost to repair or replace’ the property.” Id.

While the court ruled based on these erroneous jury instructions and the improper denial of a directed verdict, it is significant that the court did not reject the possibility that this issue could be raised in a motion for summary judgment. The court noted that “the trial court denied the insurer’s motion for summary judgment on the basis that ‘there remains a genuine dispute of material fact as to whether the Plaintiff[’s] services constituted a cost of repair or replacement under the loss settlement provision of the subject policy of insurance.’  The parties do not challenge this ruling on appeal. Therefore, we do not address the propriety of this determination.” Id. at 2. If there were a genuine issue of material fact as to whether it the report was a “cost of repair or replacement,” the court may have decided otherwise.

The bottom line for insurance companies is that they now have a legal basis for disputing an insured’s or AOB company’s attempt to seek payment for an engineering report. An insured or AOB company must provide evidence, in order to meet its burden of proof, that the engineering report is a necessary cost associated with the repair or replacement of the roof. This issue is one that could potentially be raised in a motion for summary judgment, and even if that motion is unsuccessful, must be included in the jury instructions and verdict form.