Hurricane Irma and Actual Cash Value in Florida

Florida’s Third District of Appeal recently confirmed that insurance carriers are initially obligated to pay the true amount of the actual cash value (“ACV”), not just the insurance company’s estimate of the ACV.¹ This obligation exists regardless of whether policyholders intend to use the money to make repairs to their home. The court also confirmed that insurance carriers are required to pay additional amounts up to replacement value only as work is performed and repair expenses are incurred.

Section 627.7011(3), Florida Statutes, unequivocally, requires an insurance carrier to pay the full amount of the actual cash value (“ACV”), less any deductible. The statute does not require that the ACV estimate prepared by the insurance company be presumed as the correct ACV as a matter of law.

In Vazquez, the insureds purchased a replacement cost homeowner’s policy from the insurance carrier. The “Loss Settlement” provision of the policy provided:

We will initially pay at least the actual cash value of the insured loss, less any applicable deductible. We will then pay any remaining amounts necessary to perform such repairs as work is performed and expenses are incurred subject to b.(1) and b.(2)

The insureds’ home sustained interior damage from rain water that entered through the roof. The insurance carrier estimated the ACV for the loss to be $3,273.37. After it applied the $2,500 deductible, it issued a payment for $773.37. The insureds’ adjuster assessed the ACV for the loss to be $34,862.87. After receiving the insured’s ACV estimate, the insurance carrier informed the insureds it would issue no additional payments until the repairs were completed.

The policy provision requiring the insurance carrier to initially pay at least the ACV, less any deductible, is consistent with Section 627.7011(3), Florida Statutes, which provides:

(3) In the event of a loss for which a dwelling or personal property is insured on the basis of replacement cost:

(a) For a dwelling, the insurer must initially pay at least the actual cash value of the insured loss, less any applicable deductible. The insurer shall pay any remaining amounts necessary to perform such repairs as work is performed and expenses are incurred. If a total loss of a dwelling occurs, the insurer shall pay the replacement cost coverage without reservation or holdback of any depreciation in value, pursuant to s. 627.702.

Accordingly, the insurance carrier was required to pay at least the full ACV, regardless of whether the repairs have been completed. As a result of the insurance carrier’s refusal to pay more than the ACV estimated by its own adjuster, the policyholders’ filed a lawsuit for breach of insurance contract.

Relying on its interpretation of Slayton v. Universal Property & Casualty Insurance Company,² the insurance carrier moved for summary judgment. It asserted that it could not be in breach of contract as a matter of law because it was under no obligation to make any additional payments to the policyholders. The insurance carrier further argued that it fulfilled its obligation as required under the policy when it issued ACV payment based upon its own adjuster’s estimate. The trial court granted the motion for summary judgment concluding that Sayton requires that an insurance carrier’s estimate be presumed correct as a matter of law.

In an opinion filed on October 11, 2017, the Florida Third District Court of Appeal reversed³ the trial court’s decision noting that, “Based on the 2011 amendments to Section 627.7011(3), Florida Statutes, if the homeowner files a claim under a replacement value policy, the insurance company is required to initially pay the actual cash value and is required to pay additional amounts up to replacement value only as work is performed and repair expenses incurred. Ch.2011.”

With respect to whether the insurance carrier’s ACV estimate should be presumed correct as a matter of law, the appellate court recognized that, “Section 627.7011(3) requires payment of actual cash value—not merely the insurance company’s estimate of actual cash value.”

This is a significant decision because the court concluded that an insurance company does not fulfill its requirement under the policy to pay “at least the actual cash value” by simply paying the “actual cash value” estimated by its own adjuster. The court rejected the notion that an insurance company’s estimate is presumed the true “actual cash value” as a matter of law, no matter how deficient it may be. The statute imposes a clear and unambiguous obligation on the insurance carrier to initially pay the ACV and pay additional amounts up to the replacement value when work is performed and repair expenses are incurred.
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¹ Vazquez v. Southern Fidelity Property & Casualty, Inc., 2017 WL 4529692 (Fla. 3d DCA Oct. 11, 2017).
² Slayton v. Universal Prop. & Cas. Ins. Co., 103 So.3d 934 (Fla. 5th DCA 2013).
³ The Florida Third District of Appeal reversed under the authority of Siegel v. Tower Hill Signature Ins. Co., 2017 WL 3722502 (Fla. 3d DCA Aug. 30, 2017); Francis v. Tower Hill Prime Ins. Co., 224 So. 3d 259 (Fla. 3d DCA 2017); and Milhomme v. Tower Hill Signature Ins. Co., 2017 WL 4158850 (Fla. 3d DCA Sept. 20, 2017).