Mierzwa Doctrine Reaffirmed for Milton Couple

A Milton, Florida, couple has won the first Florida appeals court challenge to the Mierzwa doctrine brought after Hurricane Ivan destroyed their home in 2004.

Yesterday, a divided three-judge panel of the First District Court of Appeals sitting in Tallahassee ruled 2 to 1 in Florida Farm Bureau Casualty Insurance Co. v. Cox that under the Valued Policy Law as it existed in 2004, the wind insurer is required to pay full policy limits for a dwelling totally destroyed by a combination of both wind and water.

The full 25-page decision and 27-page dissent can be accessed on the appeal court's web site here. [pdf format]. Paige St. John has a more easily-digestible news report in today's Tallahassee Democrat. A slightly edited version also appears in the Pensacola News Journal.

Facts
In 2004, the home of Eugene and Debra Cox was insured for $65,000 against wind damage. They did not carry any flood insurance. After Hurricane Ivan destroyed the home in September 2004, they made a claim for policy limits against Farm Bureau, the wind insurer.

As yesterday's court opinion explains --

"[B]ased on [Farm Bureau's] inspection of the Coxes' home after the hurricane, there were damages to the home caused by the wind totaling $ 11,583.93. Although Farm Bureau acknowledged the dwelling was a total loss, it argued that this total loss was caused primarily by flooding, and that windstorm damage caused less than fifty percent of the total damage.

At the trial court level, judge Ron Swanson ruled in favor of the Coxes and ordered Farm Bureau to pay the $65,000 policy limits because the home was a total loss. Swanson based his ruling on the prior controlling case of Mierzwa v. Florida Windstorm Insurance Co. Had there been any, Farm Bureau then would have been able to file a claim for "contribution" from other insurance companies covering the Cox home for other perils.

In such a manner, the century-old Florida VPL cast the burden of hassling (and suing, if necessary) on state-regulated insurance companies where the company claims the damage arose from multiple causes like wind and water.

Majority Decision

In upholding Swanson's ruling, the decision of the Fourth District Court of Appeals assuredly will impact hundreds -- or possibly thousands -- of unresolved hurricane insurance claims filed before July 1, 2005. For the most part, the court's decision is an unremarkable and workman-like application of the literal language of the Florida VPL statute as it existed in 2004. Quoting the earlier Mierzwa decision, the court noted --

"The meaning of the VPL is simple and straightforward. There are two essentials in the statute. The first is that the building be 'insured by [an] insurer as to a covered peril.' The second is that the building be a total loss. If these two facts are true, the VPL mandates that the carrier is liable to the owner for the face amount of the policy, no matter what other facts are involved as to the cost of repairs or replacement. That is to say, if the insurance carrier has any liability at all to the owner for a building damaged by a covered peril and deemed a total loss, that liability is for the face amount of the policy.

The court majority also explained the purpose behind the VPL as it existed for over a century:

"An important purpose of the VPL is to reduce administrative costs. Insurance companies need not incur expenses for experts to pick through rubble to ascertain, for example, whether hurricane damage was done by wind-driven surface water spray, on one hand, or rainfall in a windstorm, on the other; nor, when experts disagree on such questions, does the VPL require the parties to bear the additional expense of litigation. Under the approach the dissenting opinion advocates, valuation questions would have to be resolved in conjunction with -- as part and parcel of -- questions of 'relative causation.' Farm Bureau has conceded in the present case, moreover, that it is liable for the full $65,000 if the Coxes can show that their home would have been destroyed by wind, even if Farm Bureau can prove its allegation that water was the primary cause of the loss in fact.

Dissenting Opinion

Dissenting judge Ricky Polston acknowledged that the former VPL law was designed to speed claim settlements. But he argued in his dissenting opinion that the VPL law was intended to reduce litigation only over "valuation" issues, not multiple causes of loss.

"In short, the entire point of the VPL statute is to prevent after-the-fact quarreling over what amount is recoverable under the policy. The insurer has received the premium commensurate with the agreed valuation, and the insured has paid the premium commensurate with the agreed valuation. Under such circumstances, each party has received that for which it bargained."

Siding with Farm Bureau, Polston also claimed he was applying the literal language of the former statute:

"I agree with Mierzwa to the extent it provides that if a covered peril is the cause of the total loss, then the insured is entitled to the face amount of the policy in accordance with the statute, the court's second alternative reason for its holding. However, I disagree with the Fourth District to the extent its decision requires an insurer to pay the face value of the policy where the covered peril, although causing some damage, did not alone cause the total loss."

To his credit, Judge Polston frankly admitted that his personal view is not supported by the Mierzwa decision. He would have preferred to see the court rule against the Coxes and simultaneously invite the Florida Supreme Court to resolve the conflict once and for all:

"I agree with Farm Bureau that it is not responsible for losses caused by water damage, a peril excluded from the policy. Therefore, I would reverse in part, and certify conflict with Mierzwa."

Future Rulings

Farm Bureau doubtless will ask the full panel of First District Court of Appeals judges to review the 3-judge panel's decision. Beyond that, there probably will be an appeal to the Florida Supreme Court. So, the issue is far from being finally resolved.

The bigger news is that yesterday's decision will provide no relief whatsoever for future Florida hurricane victims. Last year, insurance industry lobbyists bullied and bought enough Florida state legislators to eviscerate the VPL law. As it now appears, the Valued Policy Law no longer applies to insurance claims filed after July 1, 2005.

That's something home-owners and business-owners -- the very one least able to wrestle with armies of obdurate insurance company adjusters and lawyers after suffering storm damage -- might want to keep in mind when they go to the polls early next month.