July 1st, 2019

The Fifth District Court of Appeals Allows Recovery of Consequential Damages Against Citizens in a Breach of Contract Action.

By, Alicia M. Lopez, Esquire

Citizens Property Insurance Corporation (“Citizens”) is a state government entity created by statute to provide property insurance in a market where private insurers are unwilling or unable to provide affordable property insurance coverage. Fla. Stat. §627.351(6)(a)1. As a government entity, Citizens is immune from liability for actions taken in the performance of their duties, with some exceptions. Fla. Stat. §627.351(6)(s)1. One of the exceptions to this immunity is breach of contract actions. Id.

Florida’s Fifth District Court of Appeals recently concluded in Manor House, LLC, Ocean View, LLC, and Merritt, LLC, v. Citizens Property Insurance Corporation, that while Citizens is immune from bad faith lawsuits, consequential damages are recoverable against Citizens in a breach of contract lawsuit. 2019 WL 2306107 (5th DCA May 31, 2019).

The insured property in the Manor House case consisted of nine apartment buildings, which were insured by Citizens in 2004 when they were damaged by Hurricane Frances. Id. The policy covered damage to the buildings, but did not include coverage for lost rents. Id. The insureds made a claim for policy benefits. Id. Ultimately, the parties disagreed as to the amount of the loss and the insureds filed suit demanding payment of the undisputed amount and appraisal under the policy to resolve the amount of loss dispute. Id. The action was stayed so that the parties could conduct an appraisal, the appraisal was completed, and Citizens untimely paid the appraisal award. Id. The insureds then filed suit against Citizens for breach of contract and fraud, alleging that they had incurred lost rents in consequence of Citizens’ breach of the contract. Id. The trial court granted Citizens’ Motion for Partial Summary Judgment as to the lost rents claim because lost rents were not covered by the policy.

Manor House appealed the judgment to the Fifth District Court of Appeals, which reversed the summary judgment and remanded the case to litigate the lost rent claim, stating that, “the consequential damages Manor House seeks are based squarely on breach of contract claims requiring no allegation or proof that Citizens acted in bad faith. Thus, Citizens is not statutorily immune from this aspect of Manor House’s claim.” Id. In reaching this conclusion, the Court cited to several Florida cases which hold that consequential damages contemplated at the inception of the contract are recoverable in a breach of contract action. Id.

In the appeal, Citizens argued that the insureds were limited in their breach of contract action to recovery of damages that were covered under the policy. Citizens further argued that the lost rents constituted bad faith damages. Manor House argued that in a breach of contract action, Florida permits recovery of damages that were contemplated to flow from the breach at the time the policy was executed. In support, Manor House cited to the policy’s declaration pages. The declarations page contained a “business description” line, which identified the insureds’ business as “apartment buildings.” Thus, Manor House successfully argued that Citizens knew that the insured buildings were apartment buildings, and could foresee the insureds incurring lost rents as a result of it breaching the insurance policy.

The Manor House case was decided on May 31, 2019, almost fifteen years after the date of loss. The court’s ruling allows recovery of consequential damages against Citizens for breach of contract. Citizens has filed a Motion for Rehearing, which is pending as of the date of this article.

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