The Prejudicial Effect of the Passage of Time

When considering an insurance claim, establishing timing of the claim is a critical element in its proper investigation. Any delay in reporting a claim may negatively impact an insurer’s ability to: determine the scope and extent of damage; establish and evaluate the cause of damage; gather evidence that supports payment of a claim; prevent subsequent damage; and/or justify a denial pursuant to the terms of the policy. The United States Court of Appeals for the Eleventh Circuit recently evaluated this subject in its ruling in The Yacht Club on the Intracoastal Condo. Ass’n, Inc. v. Lexington Ins. Co., 2015 U.S. App. LEXIS 293 (11th Cir. 2015).

In that case, the Yacht Club on the Intracoastal Condominium Association appealed a trial court ruling granting summary judgment in favor of Lexington Insurance Company that had been based on the finding that the Yacht Club failed to provide prompt notice of a Hurricane Wilma claim—a violation of the policyholder’s obligations under the policy as a matter of law. Hurricane Wilma, a Category 5 storm, struck Florida on October 24, 2005, making landfall in Collier County, Florida. Hurricane Wilma left approximately $21 billion in damage in its wake, making it the fifth most costly storm in U.S. history. The Yacht Club, a condominium community consisting of 16 buildings and containing 380 residential units, sustained damage resulting from Hurricane Wilma. At the time of the storm, the Yacht Club held a commercial property insurance policy with Lexington Insurance Company. Although the Yacht Club Board was aware of “obvious damage” to the buildings caused by Hurricane Wilma, the Board did not believe the repair cost would exceed the $100,000 policy deductible.

As time passed, however, the Board became aware of additional damage to the buildings as residents of the Yacht Club reported various damages to the Board, including damage to roof tiles, garages and carports, stucco, interior leaks, malfunctioning windows and cracked drywall. Based on these concerns, in late 2006, approximately one year after Hurricane Wilma and one year after the Board first had knowledge of damage to insured property, the Board retained an engineer to inspect the reported damage to the community. The engineer was charged with inspecting the property to determine the nature and extent of damage and to review alleged construction and design deficiencies. In its report to the Board, the policyholder’s engineer identified damage to roofs caused by Hurricane Wilma. Despite this knowledge, the Yacht Club failed to report the damage to Lexington.

The Board later retained the services of a public adjuster in 2009, four years after the storm, to assess damage to the various buildings. In late 2009, the public adjuster determined that there was significant damage to the community resulting from Hurricane Wilma. Despite this knowledge, the Yacht Club still did not report a claim to Lexington.

For the first time, on July 27, 2010, the Yacht Club provided Lexington notice of a claim for damage resulting from Hurricane Wilma—more than four and one-half years after first becoming aware of damage to the property. Lexington denied coverage for the claim based on the Yacht Club’s failure to provide prompt notice of the claim and failure to return a sworn statement in proof of loss within 60 days, as required by the Lexington policy.

In Florida there is a rebuttable presumption of prejudice to an insurer when a policyholder fails to provide prompt notice of a loss. Bankers Ins. Co. v. Macias, 475 So. 2d 1216 (Fla. 1985); see also Kramer v. State Farm Fla. Ins. Co., 95 So. 3d 303 (Fla. 4th DCA 2012). Florida courts employ a two-part analysis to determine whether the denial of a claim based on a policyholder’s failure to provide timely notice is valid. 1500 Coral Towers Condo Ass’n v. Citizens Prop. Ins. Corp., 112 So. 3d 541 (Fla. 3d DCA 2013). The court must first determine if the notice provided by the policyholder was timely, and if that question is answered in the affirmative, the court then analyzes whether the policyholder can rebut the presumption of prejudice to the insurer.

Although there is no definite time period as to what would constitute “prompt notice,” the term has been interpreted to mean “as soon as practicable,” “immediate,” or “with reasonable dispatch and within a reasonable time in view of all the facts and circumstances of the particular case.” Am. Fire & Cas. Co. v. Collura, 163 So. 2d 784 (Fla. 2d DCA 1964); Phoenix Indem. Co. v. Anderson’s Groves, Inc., 176 F. 2d 246 (5th Cir. 1949). The court in Ideal Mut. Ins. Co. v. Waldrep, 400 So. 2d 782, 785 (Fla. 3d DCA 1981) held that notice is required when “[t]here has been an occurrence that should lead a reasonable and prudent man to believe that a claim for damages would arise.” Florida courts look to the particular facts and circumstances set forth in individual cases in determining what constitutes a reasonable time for a policyholder to report a claim to an insurer. Although typically a matter for a jury, Florida courts will make this determination when facts are undisputed. Lobello v. State Farm Fla. Ins. Co., 52 So. 3d 595 (Fla. 2d DCA 2014). When damage to an insured property is caused by a known event, such as a hurricane, Florida courts have found, as a matter of law, that timely notice was not provided. Coral Towers Condo Ass’n, Inc. v. Citizens Prop. Ins. Corp., 112 So. 3d 541 (Fla. 3d DCA 2013).

In considering the facts and circumstances before it in Yacht Club, the Eleventh Circuit determined that the Yacht Club Board had knowledge of damage to the property resulting from Hurricane Wilma at the time of the storm. This conclusion was supported by the finding that the Board implemented a special assessment to community residents to pay for repairs of storm-related damage and conducted some repairs to the property. The Board was also aware of Wilma-related damage upon retaining and obtaining a report from the engineer hired in 2006 and from the public adjuster in 2009. Despite this knowledge, the Board was dilatory in reporting the loss to Lexington, thereby prejudicing Lexington’s ability to evaluate the loss and possible liabilities; preventing a timely investigation of the claim; act to prevent fraud; and assess the damage at the time of loss.

Lexington’s ability to consider the claim was unquestionably compromised, even if it were able to determine the cause of the damage despite the late notice. The ability of a carrier to determine the cause of damage, by itself, does not rebut the presumption of prejudice due to late notice of the claim. PDQ Coolidge Formad, LLC v. Landmark Am. Ins. Co., 566 Fed. App’x 845, 849-850 (11th Cir. May 19, 2014).

The Eleventh Circuit rightfully rejected the Yacht Club’s arguments and re-established the importance of policyholder compliance with the notice provision of insurance policies. This is a victory for the insurance industry in Florida, where, nearly a decade later, claims are still being made and litigated for hurricane damage that allegedly occurred in 2004 and 2005.

*Abidemi is an associate in our Fort Lauderdale, Florida office. He can be reached at 954.847.4956 or aaoladipo@mdwcg.com.

_{Defense Digest, Vol. 21, No. 2, June 2015}

_{Defense Digest is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. Copyright © 2015 Marshall Dennehey Warner Coleman & Goggin, all rights reserved. This article may not be reprinted without the express written permission of our firm.}