Axis Surplus Insurance Co. v. Caribbean Beach Club Ass'n
Docket: No. 2D13-1057
Court: District Court of Appeal of Florida; June 27, 2014; Florida; State Appellate Court
Axis Surplus Insurance Company appeals a summary judgment favoring Caribbean Beach Club Association, Inc., regarding insurance proceeds for increased construction costs following a fire at Caribbean’s time-share property in April 2003. Caribbean had insurance with Axis, which covered fire damage but limited payments related to the enforcement of ordinances. Caribbean purchased an additional endorsement for Ordinance or Law Coverage, allowing for up to $2,500,000 for increased construction costs due to ordinance enforcement, contingent upon timely repairs or replacements within two years.
After Axis inspected the property on May 1, 2003, both parties were aware of Lee County's potential enforcement of the '50% rule,' which would require compliance with current building codes if the damage exceeded 50%. In November 2004, Lee County confirmed it would enforce this rule, necessitating the replacement of Caribbean’s building to meet flood elevation codes. Axis and Caribbean cooperated in the repair efforts, with Axis acknowledging the need for full payment, including code compliance costs.
However, in late June 2005, Axis invoked the two-year limitation clause for the first time to deny payment for the increased construction costs, despite having previously indicated a willingness to cover these expenses. Caribbean contended that it acted diligently in pursuing repairs and argued that the two-year clause should not apply due to waiver, estoppel, impossibility, and lack of prejudice. Axis countered that the clause was not a forfeiture provision but a coverage provision that became relevant only after actual repairs or replacements were made. Ultimately, Caribbean sought reimbursement for the additional construction costs under the Ordinance or Law Coverage endorsement.
The trial court determined that the two-year clause in the insurance policy was a forfeiture provision that Axis waived. Caribbean and Axis agreed that the increased construction costs amounted to $1,800,000. It was established that waiver does not create coverage, as evidenced by Unijax, Inc. v. Factory Ins. Ass’n, but insurers can waive forfeiture provisions through their conduct, as noted in Lloyds Underwriters at London v. Keystone Equip. Fin. Corp. A forfeiture implies that the insured lost coverage due to their actions or inactions, with such clauses typically requiring timely notice of claims or proofs of loss. The two-year clause in question did not define the scope or limits of coverage but imposed procedural requirements for the insured to comply with in order to receive payment for existing coverage. The policy explicitly covered increased construction costs due to ordinance enforcement, with Caribbean having paid an additional premium for this expanded coverage. The coverage was lost when Caribbean could not complete the replacement building within two years due to circumstances beyond its control. Axis invoked the two-year clause too late to avoid liability, which constituted a forfeiture, a concept viewed unfavorably under Florida law. Insurers must notify insured parties promptly if they intend to enforce a forfeiture. If an insurer acknowledges the policy's existence or acts contrary to a forfeiture, it may constitute a waiver. Limited precedents, such as Edgewood Manor Apartment Homes LLC v. RSUI Indemnity Co. and Monarch, Inc. v. St. Paul Property and Liability Insurance Co., indicate support for Caribbean’s position regarding the waivability of the two-year clause.
Axis cited Snoqualmie Summit Inn, Inc. v. Travelers Property and Casualty Co. to argue a similar provision in the insurance policy was a coverage provision not subject to waiver. In that case, the court denied reimbursement for increased construction costs since the insured did not rebuild the damaged property but instead purchased a new one. The court found it illogical to provide funds for costs that were not incurred due to a failure to cite relevant ordinances. Conversely, Caribbean did rebuild and incurred increased costs due to building codes, which Axis attempted to minimize by persuading Lee County against enforcing its 50% rule.
Axis also referenced Orleans Parish School Board v. Lexington Insurance Co., where the court ruled that the policy did not cover claims until repair or replacement was complete. However, the appellate decision indicated that the two-year clause was a forfeiture provision that could be waived, and there was no evidence that the insurer had waived it in that case. Unlike in Orleans II, Axis did not adequately inform Caribbean about the two-year limitation, despite knowing Caribbean expected full payment and continued to process the claim post-expiration.
Under Florida law, an insurer can waive its right to enforce a forfeiture provision despite having a reservation of rights letter. The court found that Axis’s actions were inconsistent with enforcing the two-year limitation, leading to a conclusion that Axis waived the provision. To avoid liability, Axis needed to show it was substantially prejudiced by Caribbean's noncompliance, but the court found no evidence of such prejudice. Thus, the trial court ruled that the two-year clause was waived, entitling Caribbean to $1,800,000 for increased construction costs. The ruling was affirmed.
