Bay Farms Corp. v. Great Am. Alliance Ins. Co.

• Decision Date: 07 December 2011
• Docket Number: Case No. 8:10–CV–2460–T–27EAJ.
• Parties: BAY FARMS CORPORATION, Plaintiff, v. GREAT AMERICAN ALLIANCE INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Middle District of Florida

835 F.Supp.2d 1227

BAY FARMS CORPORATION, Plaintiff,
v.
GREAT AMERICAN ALLIANCE INSURANCE COMPANY, Defendant.

Case No. 8:10–CV–2460–T–27EAJ.

United States District Court,
M.D. Florida,
Tampa Division.

Dec. 7, 2011.

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Bruce A. Aebel, Banker Lopez Gassler, Tampa, FL, for Plaintiff.

William A. Mariash, Neilson & Associates, PA, Orlando, FL, for Defendant.

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ORDER
JAMES D. WHITTEMORE, District Judge.

BEFORE THE COURT are Bay Farms Corporation's Opposition Motion for Partial Summary Judgment (Dkt. 45) and Defendant, Great American Alliance Insurance Company's Cross–Motion for Partial Summary Judgment (Dkt. 46). The Court heard oral argument on the parties' motions during a hearing on November 22, 2011. Upon consideration, Bay Farms Corporation's Opposition Motion for Partial Summary Judgment (Dkt. 45) will be GRANTED and Defendant, Great American Alliance Insurance Company's Cross–Motion for Partial Summary Judgment (Dkt. 46) will be DENIED.

Introduction

This is an action for damages and declaratory relief arising out of an insurance policy issued by Great American Alliance Insurance Company (“Great American”). Bay Farms Corporation (“Bay Farms”) claims that Great American has failed to compensate it for property damage caused by sinkhole activity. The issue before the Court on the parties' cross-motions for partial summary judgment is whether a 2011 amendment to the Florida statutory scheme governing sinkhole insurance that for the first time added a statutory definition of “structural damage” should be applied retroactively to the insurance policy at issue or, in the alternative, whether the term “structural damage” in the policy should be treated as an undefined term.¹ Because retroactive application of the statutory definition of “structural damage” would impair Bay Farms' vested contractual rights under the policy, Bay Farms' motion for partial summary judgment is due to be granted and Great American's cross-motion for partial summary judgment is due to be denied.

Background

Bay Farms is the owner of certain real property located in Ocala, Florida, which it operates as a breeding and training farm for race horses (the “Insured Property”). Great American issued one or more insurance policies covering the Insured Property, including a policy effective between November 15, 2008, and November 15,2009. See Policy No. APK 1–95–29–89–D5, attached to the Complaint as Exhibit A (the “Policy”).

In or about September of 2009, Bay Farms submitted a claim under the Policy for sinkhole losses allegedly arising from damage to structures on the Insured Property. Bay Farms subsequently revised its claim to cover additional buildings on the Insured Property. Great American contends that of the 26 buildings that have reportedly suffered damages due to sinkholes, “25 of the 26 buildings have relatively minor cosmetic cracking damage.” Dkt. 46, ¶ 6. Great American has indicated its intention to deny coverage as those buildings with only cosmetic damage based on the purported absence of “structural damage” to covered property.

The Policy Language

The Policy provides in pertinent part: “Sinkhole Loss means loss or damage to

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Covered Property when structural damage to the building, including the foundation, is caused by settlement or systematic weakening of the earth supporting the building....” Florida Changes Endorsement, § I (emphasis added). The Policy does not define the term “structural damage.” Moreover, the Policy does not purport to incorporate by reference any existing statutory definitions nor does it include language expressly making changes to statutory definitions retroactively applicable to claims arising under the Policy.

Florida's Statutory Scheme Relating to Sinkhole Insurance

In 1981, the Florida Legislature adopted a statutory provision requiring that every insurer authorized to write property insurance policies in Florida make available coverage for “sinkhole losses” to certain structures and personal property. As originally enacted, this statutory provision provided in pertinent part:

(1) Every insurer authorized to transact property insurance in this state shall make available coverage for insurable sinkhole losses on any structure, including contents of personal property contained therein, to the extent provided in the form to which the sinkhole coverage attaches.

(2) “Loss” means structural damage to the building. Contents coverage shall apply only if there is structural damage to the building.

(3) “Sinkhole loss” means actual physical damage to the property covered arising out of or caused by sudden settlement or collapse of the earth supporting such property only when such settlement or collapse results from subterranean voids created by the action of water on a limestone or similar rock formation.

* * * * * * Fla. Stat. § 627.706 (1981) (emphasis added). In 2005, the Legislature removed the separate definition of “loss” and redefined “sinkhole loss” as “structural damage to the building, including the foundation, caused by sinkhole activity.” 2005 Fla. Sess. Law. Serv. Ch. 2005–111, § 17 (emphasis added). The Legislature retained the restriction limiting contents coverage to those situations where “there is structural damage to the building caused by sinkhole activity.” Id. (emphasis added). While the 2005 amendment limited the definition of “sinkhole loss” to cases where there was “structural damage” to covered property, the amendment did not define the term “structural damage.” ²

In 2011, the Legislature for the first time adopted a definition of “structural damage” to be applied when interpreting insurance policies providing coverage for sinkhole losses. See 2011 Fla. Sess. Law. Serv. Ch. 2011–39, § 22 (the “2011 Amendment”).³ Pursuant to the Enabling Act, the 2011 Amendment went into effect

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on May 17, 2011 ( i.e., the date it was signed by the Governor and became law). See 2011 Fla. Sess. Law. Serv. Ch. 2011–39, § 32.⁴ As amended, section 627.706 provides:

(2) As used in ss. 627.706–627.7074 and as used in connection with any policy providing coverage for a catastrophic ground cover collapse or for sinkhole losses, the term:

* * * * * *

(j) “Sinkhole loss” means structural damage to the covered building, including the foundation, caused by sinkhole activity. Contents coverage and additional living expenses apply only if there is structural damage to the covered building caused by sinkhole activity.

* * * * * *

(k) “Structural damage” means a covered building, regardless of the date of its construction, has experienced the following:

1. Interior floor displacement or deflection in excess of acceptable variances as defined in ACI 117–90 or the Florida Building Code, which results in settlement-related damage to the interior such that the interior building structure or members become unfit for service or represents a safety hazard as defined within the Florida Building Code;

2. Foundation displacement or deflection in excess of acceptable variances as defined in ACI 318–95 or the Florida Building Code, which results in settlement-related damage to the primary structural members or primary structural systems that prevents those members or systems from supporting the loads and forces they were designed to support to the extent that stresses in those primary structural members or primary structural systems exceeds one and one-third the nominal strength allowed under the Florida Building Code for new buildings of similar structure, purpose, or location;

3. Damage that results in listing, leaning, or buckling of the exterior load-bearing walls or other vertical primary structural members to such an extent that a plumb line passing through the center of gravity does not fall inside the middle one-third

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of the base as defined within the Florida Building Code;

4. Damage that results in the building, or any portion of the building containing primary structural members or primary structural systems, being significantly likely to imminently collapse because of the movement or instability of the ground within the influence zone of the supporting ground within the sheer plane necessary for the purpose of supporting such building as defined within the Florida Building Code; or

5. Damage occurring on or after October 15, 2005, that qualifies as “substantial structural damage” as defined in the Florida Building Code.

Fla. Stat. § 627.706(2)(k) (2011) (emphasis added). Thus, the 2011 Amendment indirectly modified the definition of “sinkhole loss” by adding a new and highly technical definition for the previously undefined term “structural damage.”

The Legislative findings and declarations accompanying the 2011 Amendment demonstrate that the Legislature was concerned about the impact the growing number and severity of sinkhole insurance claims had on Citizens Property Insurance Corporation and the private insurance market. See 2011 Fla. Sess. Law. Serv. Ch. 2011–39, § 21. Specifically, the Legislature found and declared as follows:

(1) There is a compelling state interest in maintaining a viable and orderly private-sector market for property insurance in this state. The lack of a viable and orderly property market reduces the availability of property insurance coverage to state residents, increases the cost of property insurance, and increases the state's reliance on a residual property insurance market and its potential for imposing assessments on policyholders throughout the state.

(2) In 2005, the Legislature revised ss. 627.706–627.7074, Florida Statutes, to adopt certain geological or technical terms; to increase reliance on objective, scientific testing requirements; and generally to reduce the number of sinkhole claims and related disputes arising under prior law. The Legislature determined that since the enactment of these statutory revisions, both private-sector insurers and Citizens Property Insurance Corporation...