State Farm Fla. Ins. Co. v. Joretha James

By: Marissa Levy

No. 5D22-1404, 2023 WL 8285681, 374 So. 3d 934 (Fla. 5th DCA 2023)

The Florida District Court of Appeal, Fifth District, recently held that the meaning of the word “incur” in a tear out clause for a homeowners insurance policy issued by State Farm Insurance Company did not require the homeowner to enter into a non-voidable repair contract or to actually expend funds to make such repairs in order to be entitled to payment.

The homeowner brought suit against State Farm for water damage. In order to access the location of the water intrusion in the plumbing system, portions of the home had to be torn out for a total of $38,834.28 to remove the materials to access the damaged location. No dispute exists regarding the cost.

The policy language provided: “If a Loss Insured to Coverage A property is caused by water or steam escaping from a system or appliance, we will also pay the reasonable cost you incur to tear out and replace only that particular part of the building or condominium unit owned by you necessary to gain access to the specific point of that system or appliance from which the water or steam escaped.”

As the policy did not define “incur”, the court must look at the plain meaning of the word. Should there be two or more reasonable interpretations, the ambiguity in the interpretation is construed against the insurer as the drafter of the contract. It was State Farm’s position that “incur” means an insured must enter a contract for repairs that cannot be voided by the insured. The Fifth District held that that State Farm’s interpretation of the meaning of “incur” was not included within the policy and added an undisclosed requirement that the policy language did not support.

State Farm also relied on the Florida Supreme Court’s holding in Ceballo v. Citizens Property Insurance Corp., 967 So. 2d 811 (Fla. 2007), in which the insurer conceded that that an insured had “incurred” an expense when they became liable for that expense, but not necessarily when they expended it. The Fifth District relied on Ceballo in determining that “where the amount of coverage depends on the amount of the loss, the insured must demonstrate the extent of the actual loss incurred but need not actually expend funds to be entitled to payment from an insurer.”

There was no dispute as to the actual loss and the amount of the tear out costs, which were established by appraisal. The Fifth District further opined that there was nothing in the State Farm policy or Florida law which requires policyholders to enter non-voidable contract which would leave insureds powerless should coverage be denied, which would go against public policy.

Summary judgment was then affirmed for the insured. The court held that an insured need not actually expend funds to be entitled to payment from an insurer but must show the extent of the actual loss incurred.

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