Florida Courts Rule an Insurance Carrier’s Property Liability is Limited to Direct Physical Loss

For years, the plaintiff’s bar has taken the position that a replacement cost policy requires an insurance carrier’s initial coverage payment to include money for undamaged property – otherwise known as “matching.” The Third District Court of Appeal has rejected this argument. See Vazquez v. Citizens Property Insurance Corporation, 304 So. 3d 1280 (Fla. 3d DCA 2020) citing favorably to Homeowners Choice Prop. & Cas. v. Maspons, 211 So. 3d 1067, 1069 (Fla. 3d DCA 2017).

In Vazquez, the Third District concluded that an insurance carrier’s liability under a homeowner’s property insurance policy is constrained by the phrase “direct physical loss,” which limits payments for the repair of actual damages, which does not include matching.  The court held: “Based on the record before us, we find the . . . judge adhered to the plain language of the policy and Florida law in granting Citizen’s motion in limine to preclude matching costs.” Id. at 1286.  The Third District explained:

The plain language of the insurance policy explicitly covers loss that is ‘direct loss to property . . . only if that loss is a direct physical loss.

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“Direct” and “physical” modify loss and impose the requirement that the damage be actual.’ Homeowners Choice Prop. & Cas. v. Maspons, 211 So. 3d 1067, 1069 (Fla. 3d DCA 2017).[1]  

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Consistent with this plan meaning, the trial court determined that the ‘insured loss’ is the property that was actually damaged. Accordingly, the trial court limited evidence of actual cash value to the property that was actually damaged based on the contractual and statutory language requiring Citizens to “initially pay the actual cash value of the insured loss.” The court rejected Ms. Vazquez’s argument – that actual cash value included costs to replace undamaged items in order to match her continuous floors – as irrelevant in this suit for actual cash value. See § 90.401 Fla. Stat. (2019): “Relevant evidence is evidence tending to prove or disprove a material fact.” Id. at 1285.

Based on the foregoing, the Third District properly limited evidence, for trial, to the actual cash value of the property that was actually damaged.  Typically, an insurance carrier will receive an overly broad estimate with repair numbers for an entire house, including rooms with no actual damages.  Vasquez determined that this evidence is no longer permitted when an insured files suit for breach of contract contesting the initial coverage decision.

The Third District made clear that the interpretation of this phrase “direct physical loss” is based on the plain language of the policy and Florida law.  The meaning of this key phrase existed on the day the policy was originally issued.  The meaning of this phrase continues to exist irrespective of whether a claim is ever made.  The meaning of this phrase does not change simply because a claim is made and denied.   The plain language continues to have the same meaning – irrespective of whether the claim is paid or denied, covered or not. 

The plaintiff’s bar takes the position that if a claim is denied, the phrase “direct physical loss” changes, requiring insurance carriers to pay for matching.  This is incorrect.  The plaintiff’s bar cites Citizens Prop. Ins. Corp v. Tio, 304 So. 3d 1278 (Fla. 3d DCA 2020) in support of their contention.  In Tio, an insured’s claim was denied, the insured filed suit resulting in the insurance carrier raising as a defense the insured’s failure to comply with the loss settlement provision.  In Vazquez, the loss settlement provision was interpreted to preclude recovery if the insured had failed to commence repairs and incur costs of the actual damages in excess of the gross coverage amount found to exist for the claim.[2]  

In Tio, the Third District wrote: “. . . therefore section 627.7011(3) and the corresponding policy [i.e., Loss Settlement] provision are not implicated in the instant case.”  See Tio, 304 So. 3d 1278, 1280.  What does this mean?  It means that in a denied claim, the carrier cannot rely on the loss settlement provision to preclude recovery.

This decision does nothing to change the plain meaning of the phrase “direct physical loss.”  Why? Because the loss settlement provision, and its corresponding statute, do not contain the words “direct physical loss.”  This key phrase regarding a carrier’s liability is contained in the “Perils Insured Against” portion of the policy.  As such, an insurance carrier’s liability is still controlled by the initial threshold predicate decision in the Vazquez opinion - which found as a matter of law that “direct physical loss” requires payment for the repair of actual damages without the need to include “matching.”  The Third District’s initial interpretation of the plain meaning of the phrase “direct physical loss” remains in full force and effect.  

The Vazquez decision is consistent with other decisions.  See Prepared Ins. Co. v Gal., 209 So. 3d 14, 17 (Fla. 4th DCA 2016) (“A replacement cost policy does not mandate that the insurer replace the damaged property.”).  In Gal the trial court granted summary judgment in favor of the insureds on the grounds that the policy required the carrier to pay for full replacement.  On appeal, the court in Gal, concluded that “there remained disputed issues of fact as to whether the cabinets could be repaired.” Id. at 18.  The cabinets were the “actual damages” of the water leak.  The Fourth District Court of Appeal remanded the case for a new trial and wrote: “The insurer should have been permitted to present relevant testimony directed at these issues.” Id. at 18. “In fact, both the governing statute as well as the parties’ insurance policy expressly provide that an insurer may limit its liability to the ‘reasonable and necessary cost to repair the damaged . . . property.” Id. (Italicize in original). “Such a [replacement cost] policy does not prohibit repairing the damaged property.” Id. (Italicize in original).  See also Trinadad v. Florida Peninsula Ins. Co., 121 So. 3d 433, 440 (Fla. 2013) (an insurer may limit its liability to “the reasonable and necessary cost to repair the damaged . . . property.”).  See also Gal v Prepared Insurance Company, 230 So. 3d 413 (Fla. 2017)(the Florida Supreme Court accepted jurisdiction and discharged the appeal, finding that there is no conflict between the Fourth District decision and the Florida Supreme Court decision in Trinadad.).  See also Ocean View Tower Ass’n Inc v. QBE Ins. Corp, 2011 WL 6754063 (Fla. S. Dist. 2011)(“Here, QBE argues that the policy provides coverage only for ‘direct physical loss or damage’ and does not cover replacement of undamaged property to ensure ‘matching.’ The Court agrees.”).  

Whether a claim is paid, denied, covered or not, the meaning of the phrase “direct physical loss” does not change.  See Vazquez, at 1286 (“. . . judge adhered to the plain language of the policy and Florida law in granting Citizen’s motion in limine to preclude matching costs.”).  Therefore, the insurance carrier’s liability is limited to the payment for the repair of actual damages without the need to include “matching.”