Under Florida law, insurance coverage
cannot be created by estoppel; however, enforcement of a forfeiture clause may be
waived by an insurer’s conduct. Axis Surplus Ins. Co. v. Caribbean
Beach Club Association, Inc.,
164 So. 3d 684, (Fla. 2nd DCA 2014), 164 So. 3d 687. Generally, a
forfeiture clause is one that requires an insured to take specific action (e.g., a notice provision or a
cooperation clause) as a prerequisite to coverage under the policy. An insured’s failure to comply with the clause
can result in the forfeiture of coverage for a claim that otherwise would have
been covered under the policy. Lloyds
Underwriters at London v. Keystone Equip. Fin. Corp., 25 So. 3d 89, 92-93
(Fla. 4th DCA 2009).
An insurer may not be able to rely
upon forfeiture clauses to disclaim coverage, however, where its own actions
raise fairness concerns. Under Florida
law, “if an insurer intends to stand on any forfeiture reservation, it should
inform the insured as soon as practicable after it has ascertained facts upon
which it bases its forfeiture. Tiedtke v. Fid.
& Cas. Co. of N.Y., 222 So. 2d 206, 209 (Fla.1969). Further, when an insurer has knowledge of the
existence of facts justifying a forfeiture of the policy, any unequivocal act
which recognizes the continued existence of the policy or which is wholly
inconsistent with a forfeiture, will constitute a waiver. Johnson v. Life Ins.
Co. of Ga., 52 So. 2d 813, 815
(Fla.1951). For instance, when an
insurer acquiesces in an insured’s failure to strictly adhere to a timetable of
payment or performance, courts have been inhospitable to the insurer’s
invocation of forfeiture provisions.See Restatement (Second) of
Contracts: Excuse of a Condition to Avoid Forfeiture § 229 note on cmt. c
(1 981); see also Ramos v. Nw. Mut.
Ins. Co., 336 So. 2d 71, 75
(Fla.1976)
(finding that the insurer must also demonstrate
that it was substantially prejudiced by the insured’s noncompliance with the
clause in order to avoid liability through forfeiture).
In
Caribbean Beach Club, an insurer’s
conduct was the basis of a Florida court’s decision not to enforce a forfeiture
clause. That case involved a
condominium property located in Fort Myers Beach that sustained a fire loss in April
2003. Fire was a covered peril under the
insurance policy, which also contained the following language in its Ordinance or Law Endorsement form:
b. With respect to the Increased Cost of Construction:
(1) We will not pay for the increased cost of construction:
(a) Until the property is actually repaired or
replaced, at the same or another premises; and
(b) Unless the repair or replacement is made as soon
as reasonably possible after the loss or damage, not to exceed two years. We may extend this period in writing during
the two years.
The
claim was investigated and the parties diligently sought to repair
the damaged property. The insured and its
insurer agreed that repairing, not replacing, the damaged building was
preferable. Both the insured and the
insurer endeavored to convince local building officials not to enforce the 50%
rule, which would have required any reconstruction or repair to comply with the
then current building code if more than 50% of the subject property was
damaged. Through no fault of the insured
or the insurer, nineteen months after the loss occurred the local building
department finally informed the insured and its insurer that it would enforce
the 50% rule and require that property be replaced in order to satisfy the then
current flood elevation code. Five
months after the local building department’s notification and two months after the expiration of the two-year replacement period provided
for in the Ordinance or Law Coverage Endorsement - the insurance company sent
the insured a letter advising that it intended to rely on the two-year limitation
to deny payment for increased construction cost because the replacement had not
been completed. A lawsuit ensued. In finding that the insurance company waived
the two-year period in the insurance policy, the court noted that the
insurance company’s failure to bring the provision to the insured’s attention
despite knowing that the insured expected the entire claim to be paid and the
insurance company’s continued adjustment of the entire claim after the two-year
period expired “were unequivocal acts wholly inconsistent with invoking a
forfeiture.” Caribbean Beach Club, 164
So. 3d at 689 (citing Johnson, 52 So. 2d at 815); see
also Queen Ins. Co. v.
Patterson Drug Co., 74 So. 807, 809 (1917) (holding that under Florida law, an insurer, through its conduct, can
waive its right to enforce a forfeiture provision even if it has provided a reservation
of rights letter or has a nonwaiver clause in the policy.).
As Caribbean Beach Club indicates, Florida courts will scrutinize the
course of dealing between a policyholder and its insurer in determining whether
an insurer may be relieved of its coverage obligations by operation of a
forfeiture clause. While it is important
for insurers to make sure that claim communications are clear, consistent, and
current with respect to all claims, these considerations are particularly
important for insurers who intend to rely on forfeiture clauses. If
insurers are not careful, they could hear a court tell them “no backsies!”
Posted by Anaysa Gallardo Stutzman
