December 20th, 2018
Hold On to Your Sombreros: the Fourth District Court of Appeals in California Reiterates that Loss of Use Constitutes “Property Damage”
By, Kathrine L. Sloan, Esq.
The recent decision in Mid-Continent Cas. Co. v Adams Homes of Northwest Florida, Inc., No. 17-12660, 2018 WL 834896 (11 Cir. Feb. 13, 2018) determined that loss of use claims—even where no physical damage to tangible property occurs—are potentially covered claims under CGL policies in Florida. Following in lockstep with the state of Florida, the Fourth District Court of Appeals in California held last month in Thee Sombrero, Inc. v. Scottsdale Ins. Co., 28 Cal. App. 5th 729, 239 Cal. Rptr. 3d 416 (Ct. App. 2018), that loss of use of a property in a particular capacity—even where the property is still currently in use by the insured in a different form—constitutes “property damage” for purposes of a CGL policy.
Thee Sombrero, Inc. (“Sombrero”) owned commercial property and, pursuant to a conditional use permit, permitted Sombrero’s lessees to operate the property as a nightclub called El Sombrero. Id. at 418-19. A company called Crime Enforcement Services (“CES”) provided security at the nightclub. Id. CES held a CGL policy of insurance issued by Scottsdale Insurance Company (“Scottsdale”) that provided coverage for “property damage” caused by an “occurrence”. Id. at 419. The CGL policy issued by Scottsdale defined “property damage” as either (a) “[p]hysical injury to tangible property, including all resulting loss of use of that property,” or (b) “[l]oss of use of tangible property that is not physically injured.” Id.
After a fatal shooting occurred on the property in 2007, the conditional use permit was revoked and replaced with a modified conditional use permit that only allowed the space to operate as a banquet hall. Id. Sombrero then filed an action against CES resulting in a default judgment for negligence and breach of contract. Id.
Subsequently, Sombrero filed the instant action against Scottsdale alleging that the loss of Sombrero’s ability to use the property as a nightclub constituted property damage within the meaning defined in the CGL policy issued by Scottsdale. Specifically, Sombrero presented evidence that the value of the property decreased from $2,769,231.00 to $1,846,153.00 because the property could no longer operate as a nightclub, and that this loss of value qualified as “property damage” for purposes of coverage. Id. The trial court disagreed finding that the claim against CES was for a pure economic loss and did not constitute “property damage” for purposes of the policy issued by Scottsdale. Id. at 420.
The California Court of Appeals reversed the decision of the trial court holding that “it defies common sense” to argue that the loss of the ability to use the property as a nightclub failed to qualify as loss of use that in turn constituted “property damage” under the policy. Id. at 421. The Court acknowledged contrary authority in Washington (Scottsdale Ins. Co. v. International Protective Agency, Inc., (2001) 105 Wash.App.244 [19 P.3d 1058](IPA)) with similar facts to the instant case, but found that the loss of a liquor license was not the same as the loss of use of the property in its original capacity. Sombrero, 239 Cal. Rptr. 3d at 422. Specifically, the Court found that a loss of the ability to serve liquor on the property was not tangible property, but rather was the loss of an entitlement. Id. Therefore, any loss of use of the liquor license was not loss of use of tangible property that would qualify as “property damage” for purposes of coverage. Id.
The Court refuted Scottsdale’s claim that “a right to occupy property is not a tangible property interest” finding that a lease is a conveyance of an estate in real property pursuant to California law and that because “[a] building is tangible [and] [d] irt is tangible.. .a lessee in possession has a tangible property interest in the leased premises.” Id. at 423. Notably, the Court emphasized that the complaint alleged that the loss of the permit right resulted in the loss of use of the property as a nightclub, which in turn reduced the economic value of the property. In stating the “correct principal,” the Court determined that “losses that are exclusively economic, without any accompanying physical damage or loss of use of tangible property, do not constitute property damage.”
The Sombrero decision widens the definition of “property damage” and thereby expands coverage under a CGL policy. Although this case did not arise out of a construction defect dispute, the points of insurance coverage could conceivably be applicable in future construction defect claims. Of course, the language of each CGL policy is controlling, which is why it is important to engage coverage counsel in the evaluation of these matters.
July 12th, 2018
Insureds Re-Joyce, Multipliers Are Alive and Well: the Florida Supreme Court Rejects the Rare and Exceptional Circumstances Requirement
By, Katherine L. Sloan, Esq.
In certain circumstances, Florida courts impose contingency fee multipliers to increase an attorneys’ fee award. This multiplier can increase the fees awarded from 1.5% to 2.5% and the case law dictates specific factors that must be considered before imposition of the same. The recent decision in Joyce v. Federated National Ins. Co., 228 So. 3d 1122 (Fla. 2017), rejected the application of a rare and exceptional circumstances requirement to contingency fee multipliers.
Generally, in American law, each party is responsible for his or her own attorneys’ fees, regardless of the prevailing party in the lawsuit. See Johnson v. Omega Ins. Co., 200 So. 3d 1207, 1214 (Fla. 2016). However, an exception to this rule arises when an award of attorneys’ fees is statutorily imposed or the parties otherwise agree to the imposition of attorneys’ fees. Id.
As a matter of public policy—primarily to discourage carriers from denying valid claims—the State of Florida imposed a fee shifting statute, which authorizes an insured to collect reasonable attorneys’ fees from a carrier upon the rendering of a judgment or decree in its favor. § 627.428, Fla. Stat. The statute provides in relevant part:
Upon the rendition of a judgment or decree by any of the courts of this state against an insurer and in favor of any named or omnibus insured or the named beneficiary under a policy or contract executed by the insurer, the trial court or, in the event of an appeal in which the insured or beneficiary prevails, the appellate court shall adjudge or decree against the insurer and in favor of the insured or beneficiary a reasonable sum as fees or compensation for the insured’s or beneficiary’s attorney prosecuting the suit in which the recovery is had.
Id. Notably, this fee-shifting benefit does not extend to the carrier in the event of a judgment or decree in its favor.
The Joyces, an elderly couple, sustained water damage to their home and subsequently submitted a claim to their insurer, Federated National Insurance Company (“Federated”). Joyce, 228 So. 3d at 1123. Federated denied the claim on the basis of material misrepresentations made by the Joyces in their application. The Joyces, due to financial limitations, were forced to hire an attorney on a contingency fee arrangement. Id. After several months embroiled in litigation, Federated agreed to settle the claim. Id. at 1134. In this settlement, Federated stipulated to the Joyces’ entitlement to reasonable attorneys’ fees. Id. at 1124.
Thereafter, the trial court thoroughly examined the timesheets prepared by the Joyces’ attorneys and heard testimony from both the insureds’ fee expert and the fee expert for Federated. Id. After the hearing, the trial court first calculated the “lodestar” amount. Id. In Florida, the “lodestar” is defined as the number of hours reasonably incurred by the attorneys of record, multiplied by a court-determined reasonable hourly rate. Id. In this determination, the court considers factors set forth in the Florida Rules of Professional Conduct 4-1.5 such as, the fee customarily charged in the locality, the amount at issue in the case, the experience of the attorney, and the time and labor required pursuant to the novelty and difficulty of the questions involved. Id. The trial court then applied a multiplier of 2.0 to the lodestar amount after consideration of the factors set forth in Standard Guaranty Ins. Co. v. Quanstrom, 555 So. 2d 828 (Fla. 1990) and Florida Patient’s Compensation Fund v. Rowe, 472 So. 2d 1145 (Fla. 1985). Joyce, 228 So. 3d at 1124.
Under Rowe, the Florida Supreme Court determined that a trial court could adjust the lodestar and apply a multiplier between 1.5 and 3.0 based on, among other factors, the likelihood of success at the case’s outset. 472 So. 2d 1145. Specifically, Rowe outlined the following criteria for the imposition of a multiplier:
(1) The time and labor required, the novelty and difficulty of the question involved, and the skill requisite to perform the legal service properly.
(2) The likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer.
(3) The fee customarily charged in the locality for similar legal services.
(4) The amount involved and the results obtained.
(5) The time limitations imposed by the client or by the circumstances.
(6) The nature and length of the professional relationship with the client.
(7) The experience, reputation, and ability of the lawyer or lawyers performing the services.
(8) Whether the fee is fixed or contingent.
Id. at 1150, n. 5.
The subsequent Quanstrom decision modified the analysis for contingency fee multipliers holding that a trial court must consider whether to apply a multiplier, but is not required to do so. 555 So.2d at 831. Pursuant to Quantrom, a trial court should consider three factors in determining whether to impose a contingency fee multiplier: 1) whether the relevant market requires a contingency fee multiplier to obtain competent counsel; (2) whether the attorney was able to mitigate the risk of nonpayment in any way; and (3) whether any of the factors set forth in Rowe are applicable, especially, the amount involved, the results obtained, and the type of fee arrangement between the attorney and his or her client. Id. at 834. Finally, the Court detailed that evidence must be presented to justify the utilization of the multiplier. Id.
In Joyce, the trial court found that first factor—the relevant market—supported a multiplier. 228 So.3d at 1136. The insureds’ attorney and fee expert testified that they were unaware of any other attorneys in St. Johns County who specialized in representing first-party plaintiffs against insurers. Id. at 1135. The trial court concluded, “there are few or no other attorneys who undertake this work who have offices in the St. Augustine area.” Id. Without the possibility of a contingency fee multiplier, the insureds would not have found another competent attorney who would have agreed to take the case. Id. The trial court also determined that the case was complex, and therefore the third Quanstrom factor supported the imposition of a multiplier. Id. at 1134.
The Fifth District Court of Appeal in Joyce reversed the trial court’s decision construing the language of Quanstrom to indicate that a multiplier is only to be utilized in rare and extraordinary circumstances. 228 So. 3d at 1128-29. Notably, this decision aligns with the United States Supreme Court’s view of multipliers. Perdue v. Kenny A. ex rel. Winn, 559 U.S. 542 (2010). In fact, the Fifth District relied upon this precedent in support of its reversal of the trial court’s decision in Joyce. 228 So. 3d at 1131.
The Florida Supreme Court, however, rejected the rare and exceptional circumstances argument set forth by Federated, found that a multiplier of 2.0 was appropriate in the Joyce case, and determined that the trial court came to such a conclusion based on competent and substantial evidence. Id. at 1136. The Court specifically noted that no such rare and exceptional circumstances requirement exists under Rowe, Quanstrom, or in Bell v. U.S.B. Acquisition Co., Inc., 734 So. 2d 403 (Fla. 1999) (holding that a multiplier could be applied to court awarded fees based upon a contractual provision). Joyce, 228 So. 3d at 1133.
Additionally, the Court determined that the Fifth District’s reliance on Perdue missed the point that Perdue addressed lodestar enhancements in contexts other than contingency fee multipliers, and was therefore inapplicable to the instant case. Joyce, 228 So. 3d at 1131. Moreover, the Florida Supreme Court expressed its rejection of the United States Supreme Court’s rationale for rejecting contingency fee multipliers. Id. at 1132. Justice Scalia, writing for the majority in City of Burlington v. Dague, 112 S.Ct. 2638 (1992), couched his disapproval of contingency fee multipliers by reasoning that the multipliers incentivize nonmeritorious claims. The Florida Supreme Court determined that, to the contrary, a contingency fee multiplier provides a trial court with the necessary flexibility to ensure that lawyers that take on difficult cases under a contingency fee are adequately compensated, thereby providing plaintiffs with access to competent counsel. Joyce, 228 So. 3d at 1132.
The Joyce decision reaffirmed Florida’s continued commitment to allow the use of contingency fee multipliers where appropriate. Accordingly, in the wake of Hurricane Irma and the massive influx of coverage disputes resulting from the same, a carrier should appreciate its exposure to a potential contingency fee multiplier when analyzing its risk. Navigating an insurance claim can be a confusing and arduous process. It is always best to consult with an attorney that specializes in insurance coverage disputes to assist in the process.
February 23rd, 2018
by, Katherine L. Sloan, Esq.
Five months have passed since Hurricane Irma devastated much of the State of Florida. Unfortunately, for many homeowners affected by the devastating storm, the true battle is just beginning. As Floridians report devastating losses to their insurance carriers, many find that these reports are met with either a lack of response from the carrier, or the offer of a settlement check that does not even begin to scratch the surface towards repairing their damaged homes.
It is important for homeowners to be aware that in the State of Florida (and a few other jurisdictions across the country), Section 627.7142, Florida Statutes outlines a Homeowner Claims Bill of Rights detailing the rights of a personal lines residential property insurance policyholder who files a claim with his or her insurance carrier. In fact, in many cases, insurance carriers must provide this Homeowner Bill of Rights to a policyholder within fourteen days after receipt of a claims communication. Under this Homeowner Bill of Rights, the policyholder has a right to:
- Receive acknowledgment of their claim within 14 days after the claim was communicated to the insurer.
- Receive communication from the insurer as to the claim being covered in full, partially covered, or denied, or a written statement that your claim is being investigated, within 30 days after the company receives the policyholders completed proof of loss form.
- Subject to any dual interest noted in the policy, receive full payment of the claim, the undisputed portion of the claim, or the denial of the claim within 90 days.
- Free mediation of your disputed claim, offered through the Division of Consumer Services, under most circumstances and subject to certain restrictions.
- Neutral evaluation of a disputed sinkhole claim if the claim is due to sinkhole damage and is covered under the policy.
- The availability of assistance with any insurance claim or questions pertaining to the handling of your claim from the Division on the notice.
A homeowner dealing with his or her insurance company in the aftermath of Hurricane Irma would be wise to make sure that emergency repairs necessary to prevent further damage are completed and documented. It is also critical to take photographs both before and after any repairs that are completed to document each and every undertaking at the property. To the extent that the repairs are not an emergency and do not require immediate attention, it is important that a homeowner contact the insurer prior to undertaking these types of repairs to provide the carrier with an opportunity to inspect the home. It also never hurts to obtain estimates from licensed general contractors to properly assess the amount of damages at issue. Finally, it is critical for a homeowner to carefully read all correspondence—including any settlement checks that may contain policy release language—from the insurance carrier and cooperate by providing information that may be requested.
Navigating an insurance claim can be a confusing and arduous process. It is always best to consult with an attorney that specializes in insurance coverage disputes to assist in the process.