Florida Supreme Court Holds that the Presumption Favoring Insurers Created in Florida Statute 627.7073(1)(c) (2005) Does Not Apply in Litigation

The issue of whether the 2005 Florida Statute sections 627.7065, 627 .7072, and 627.7073 (2005), which affected sinkhole database information, testing standards, and reporting requirements, created a presumption that shifted the burden of proof to the homeowner in litigation to disprove an insurer’s expert’s opinion that damage was not caused by a sinkhole has been in question for several years. Last month, the Florida Supreme Court definitively held the statutes do not create a presumption in litigation.

In August 2005, Mr. Warfel noticed damaged walls and floors in his home. He filed a sinkhole claim under his all-risk policy with Universal, and Universal retained experts to conduct the investigation required by Florida Statute section 627.707. Universal denied the claim after the experts it retained concluded that damage was caused by shrinkage, thermal stress, and differential settlement, all of which were excluded from coverage under the policy. Mr. Warfel then filed suit.

Universal asked the trial court to determine that Florida Statute section 90.304 allowed a jury instruction based on section 627.7073(1)(c) as a rebuttable presumption affecting the burden of proof. Florida Statute section 90.304 provided:

In civil actions, all rebuttable presumptions which are not defined in s. 90.303 are presumptions affecting the burden of proof.

Section 627.7073(1)(c) provided:

The respective findings, opinions, and recommendations of the professional engineer or professional geologist as to the cause of distress to the property and the findings, opinions, and recommendations of the professional engineer as to land and building stabilization and foundation repair shall be presumed correct.

Universal argued that its expert report findings were presumptively correct, and the presumption shifted the burden of proof to Mr. Warfel to prove that the damage was caused by a sinkhole. Mr. Warfel argued that the section 627.7073(1)(c) presumption was a “vanishing” presumption, which affected the burden of producing evidence but did not shift the burden of proof to him. The trial court agreed with Universal and instructed the jury:

You must presume that the opinions, findings, and conclusion in the SD II report as to the cause of damage and whether or not a sinkhole loss has occurred are correct. This presumption is rebuttable. The Plaintiff has the burden of proving by a preponderance of the evidence that the findings, opinions, and conclusions of the report are not correct.

On appeal, Florida’s Second District Court of Appeal sided with Warfel. The Court explained that in enacting the statutes relating to the expert reports, the Legislature did not clearly state that public policy requires a homeowner to bear the burden to disprove the findings and recommendations of the insurer’s engineers and geologists. The Court also noted that all-risk policies traditionally give the insurer the burden to prove that a claimed loss is not covered. The Court then noted, it “must assume that the legislature was aware of this fact when it enacted section 627.7073(1)(c),” and that the Legislature “knows how to create burden-shifting presumptions under section 90.304.” Warfel v. Universal, 2009 WL 4640882 at *2 (Fla. 2d DCA 2009). In the absence of clear Legislative intent otherwise, the Court concluded the presumption under section 627.7073(1)(c) was a “vanishing” or “bursting bubble” presumption that affected only Mr. Warfel’s burden of producing evidence. As Mr. Warfel produced credible evidence contradicting the presumption, the presumption vanished and the issue should have been determined on the evidence as though no presumption ever existed.

Because the trial court misapplied the presumption and gave the jury an instruction that improperly shifted the burden of proof, the Court awarded Mr. Warfel a new trial. But the District Court also certified the following question as one of great public importance to the Florida Supreme Court:

DOES THE LANGUAGE OF SECTION 627.7073(1)(C) CREATE A PRESUMPTION AFFECTING THE BURDEN OF PROOF UNDER SECTION 90.304 OR DOES THE LANGUAGE CREATE A PRESUMPTION AFFECTING THE BURDEN OF PRODUCING EVIDENCE UNDER SECTION 90.303?

Finding the application of a specific provision within Chapter 627, the Insurance Code, to the evidentiary context is “both misguided and inappropriate,” the Court answered no; section 627.7073(1)(c) has no application in litigation. The Court noted that “nothing in the sinkhole claim process statutory scheme, as it appeared in 2005, applies that scheme in the litigation context,” and that Chapter 627 was designed to provide a framework for insurance companies to follow in the claim adjustment process. After analyzing all of the 2005 changes to the sinkhole claims process, the Court concluded, “[i]f anything, the presumption of correctness attached to the report appears to be aimed at shielding the engineer or professional geologist from liability for title defects and the insurance companies from claims of improper denials of claims.”

The Court further explained that “even if this Court were to hold that section 627.7073(1)(c) is applicable in the context of other litigation, the plain language of the statute precludes the application of section 90.304 to the presumption created in section 627.7073(1)(c),” as “[t]his language follows sections of legislation that establish the requirement that such a report be obtained as a condition precedent to a denial of benefits.” For a court to find that the Legislature “intended” to incorporate section 90.304 into a statutory presumption, the statute must explicitly provide for the incorporation or provide a clear expression of such intent.

The Court also rejected Universal’s argument that section 627.7073(1)(c) is an expression of public policy and should be governed by section 90.304. Universal argued that applying the presumption in litigation would reduce the number of disputed sinkhole claims and the overall costs associated with sinkhole losses. Finding that Universal’s justifications are not social policies, the Court held that the intent of the sinkhole legislation was “specifically designed to protect the public during the claims process,” and Universal’s purported social policies were not advanced by or included in the statutes.

Lastly, a review of the bill that enacted the statute (chapter 2005-111) and the staff analyses associated with that bill reveal that nothing in any of those documents indicates that the presumption articulated in section 627.7073(1)(c) is an expression of any social policy, let alone one that favors insurance companies. If at all, the statutory plan is designed to require that insurance companies have expert reports in the claims process before denying a request for benefits.

The Court found that the jury instruction was fundamental error, a rare conclusion by the Court. The instruction ordered the jury to presume that Universal’s report was correct and removed the critical factual issue from the jury’s consideration. The instruction was tantamount to a directed verdict. Accordingly, the Court approved the Second District Court of Appeal’s decision and remanded the case for a new trial.

Note:  Michelle Claverol’s series, Business Interruption Claims, will continue next Sunday.