Sturctural Damage Is Damage Which Impedes the Structural Components from Supporting the Loads That They Are Intended to Support
Sinkholes are a serious problem in Florida. Without warning the earth beneath a structure simply opens up and swallows structures, cars and people. As a result homeowners policies in Florida, by statute, are required to insure against structural damage caused by a sinkhold.
In Hegel v. First Liberty Ins. Corp., — F.3d —-, 2015 WL 821146 (C.A.11 (Fla.) 2/27/15) the Eleventh Circuit Court of Appeal was asked by an insurer to reverse a trial court judgment finding that damage to the insured’s house was “structural damage” and thus covered by the insurance policy.
Severin and Stephanie Hegel (the Hegels) sued The First Liberty Insurance Corporation (First Liberty) claiming improper denial of their claim for “sinkhole loss” that had been defined under their homeowner’s insurance policy as “structural damage to the building, including the foundation, caused by sinkhole activity.” The Hegels claim that First Liberty improperly denied their claim for a “sinkhole loss.” First Liberty argued that the damage to the Hegels’ residence does not qualify as “structural damage,” a term that was not defined in either the policy or the version of the Florida sinkhole-insurance statute applicable to their claim. In February 2014, the district court granted summary judgment for the Hegels, finding that “structural damage” meant any “damage to the structure” and awarding them $166,518.17 in damages. First Liberty timely appealed.
The Hegels had a homeowner’s insurance policy with First Liberty for their Spring Hills, Florida residence. This policy insured against “Sinkhole Loss” as an exception to the policy’s exclusion for damage caused by earth movement. Under the policy, “Sinkhole Loss means structural damage to the building, including the foundation, caused by sinkhole activity.” (Emphasis added.)
The version of the Florida statute governing sinkhole insurance that was in effect in 2010 contained the same definition of “sinkhole loss” as the policy did, but similarly failed to define the term “structural damage.” See Fla. Stats. § 627.706(2)(c) (2005). Prior to the statute being substantially amended in 2005, however, the term “sinkhole loss” was defined as “actual physical damage to the property covered arising out of or caused by sudden settlement or collapse of the earth supporting such property.” Fla. Stats. § 627.706(3) (1981) (emphasis added).
The Florida Building Code (2004), on the other hand, defined “structural” as it relates to buildings: “For purposes of this code, ‘structural’ shall mean any part, material or assembly of a building or structure which affects the safety of such building or structure and/or which supports any dead or designed live load and the removal of which part, material or assembly could cause, or be expected to cause, all or any portion to collapse or fail.”
THE DAMAGE AND ESTIMATES OF REPAIR
The Hegels allege that, on March 1, 2011, they “discovered damage to their home, including, but not limited to, progressive physical damage to the walls and floors of the residence.” They subsequently submitted a claim for their damages to First Liberty under their homeowner’s policy.
First Liberty retained Structural Engineering and Inspections, Inc. (SEI) to investigate the claim in September 2011. SEI concluded in a report that the Hegels’ residence “DOES NOT MEET the criteria for Structural Damage as defined by Florida Statutes § 627.706 .” (Emphases in original.) The SEI report noted some cracking and other issues, but determined that nothing rose to the level of “structural damage” as defined in the 2011 version of the statute. In addition, SEI listed several possible causes for the observed damage that were unrelated to sinkholes, including differential settlements and ordinary concrete shrinkage.
First Liberty accordingly denied the Hegels’ claim in October 2011, stating that their residence “ha[d] not sustained structural damage to the building or foundation” and that the damage was “related to normal concrete shrinkage, differential settlement, and improper embedment of [the] foundation.”
In November 2011, the Hegels requested a neutral evaluation. Kevin Scott, the neutral evaluator engaged for the claim, issued a report in July 2012. His report concluded that the damage to the Hegels’ residence was “the result of a combination of factors, including sinkhole activity,” but that “the observed distresses to the house can primarily be attributed to minor differential settlement of the structure and normal shrinkage/drying characteristics of the masonry materials.”
On appeal, First Liberty sets forth two independent, alternative theories to support its argument that the district court’s contractual interpretation was erroneous:
(1) the plain meaning of “structural damage” cannot be any “damage to the structure” in the context of the contractual phrase “structural damage to the building”; and
(2) the insurance policy incorporates the definitions of “structural” under the Florida Building Code (2004) and “structural damage” as “clarified” by the 2011 amendment to Florida Statutes § 627.706, such that the term “structural damage” must mean more than any “damage to the structure.”
The Eleventh Circuit agreed with First Liberty that the plain meaning of “structural damage” cannot be simply any “damage to the structure” in the relevant context. The parties disagreed on what was the plain meaning of the term “structural damage”.
The Eleventh Circuit, however found no genuine ambiguity exists because construing “structural damage” to mean simply any “damage to the structure” in the context of the insurance policy “is facially unreasonable.” Terms and phrases cannot be viewed in isolation. Courts must construe an insurance contract in its entirety, striving to give every provision meaning and effect.
The district court awarded the Hegels damages for all subsurface and cosmetic repairs based on the parties’ stipulation that there was “physical damage to Plaintiffs’ home.” Because “structural damage” is necessary for the Hegels to recover under the policy, the court must have equated “physical damage to Plaintiffs’ home” with “structural damage to the building.” Equating the two, however, essentially defines “structural damage” as “physical damage” — an untenable result. Such a construction would render the word “structural” meaningless because all property damage is physical, thereby violating a foundational rule of contract construction that every word be given effect.
Florida courts commonly adopt the plain meaning of words contained in legal and non-legal dictionaries. “Structural” is an adjective, defined in the Oxford English Dictionary as “[f]orming a necessary part of the structure of a building or other construction, as distinct from its decoration or fittings.” The noun “structure,” on the other hand, is simply a synonym for a building. Based on these definitions, “damage to the structure” would encompass any physical damage to a building, even if only cosmetic, whereas “structural damage” would exclude damage to a building’s “decoration or fittings.” Although any structural damage would necessarily encompass damage to the building, the opposite is not necessarily true. For example, many types of lesser damage to a building would not be structural damage. To equate “structural damage” with any “damage to the structure,” as the district court did, was untenable.
Kevin Scott, the neutral evaluator and a professional engineer, defined the term as follows: “It’s damage which impedes the structural components from supporting the loads that they are intended to support. That is my engineering opinion of structural damage.”
Courts may not rewrite contracts, add meaning that is not present, or otherwise reach results contrary to the intentions of the parties. Similarly, an insurer cannot, by failing to define the terms in a policy, insist upon a narrow, restrictive interpretation of the coverage provided. The independent expert found no sinkhole and no stuctural damage. He found cracks and some settling. The trial court erred by concluding that the damage seen, damage to the structure, was structural damage although the building was performing as defined and supporting the loads it was designed to support.
Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.
He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.
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