Author's response to valued policy law article.
First, it is important to note that the aspect of F. S. [section] 627.702(1) (2004), defended by Mr. Richards, no longer provides double recovery for insureds with multiple insurance policies covering separate perils that combine to render a property a total loss. It was that novel interpretation of the law by the Mierzwa court that proved such a shock to carriers and the legislature acted swiftly to correct it during the 2005 legislative session.
While discussion of the earlier version of the valued policy law is largely an academic exercise, Mr. Richards is correct that there were cases that held insureds were entitled to multiple recoveries if they had multiple policies covering the same risk. What distinguishes those cases from Mierzwa is that the policies provided coverage for the same peril. Thus, as the valued policy law spoke of "a covered peril," the provision of double recovery made sense. While double payments for a property violate the basic principles of indemnity, the insurer who was aware of another policy covering the risk for same peril could not thereafter complain of the insured's windfall. Similarly, the insurer who issues a valued policy to an insured with a limited interest in the property could not thereafter complain about payment of limits under the valued policy law.
Putting aside the priciples of indemnity, the challenge of Mierzwa was the idea that an insurer would owe policy limits no matter how de minimus the damage caused by a covered peril. Consider the case of a skyscaper rendered a total loss as the result of a terrorist act. Under the interpretation of Mierzwa, the insurer who had excluded terrorism as a covered cause of loss would nonetheless have to pay policy limits if it happened to be raining during the act, and rain caused $1 in damage to wallpaper exposed by the blast.
This new interpretation, that the insurer was responsible for policy limits even if the total loss was not "caused" by a covered peril, was new. The implication for the pricing of policies was profound. In essence, policy exclusions were now useless as long as an insured could identify a scintilla of damage that could be attributed to a covered cause of loss. If that is now a "calculated risk," the carriers could be excused if they decided that future premiums should be raised to reflect the risk of all possible perils.
Beyond the underwriting process, Mierzwa had similarly profound implications for the federal flood insurance program. That program seeks to spread the risk of flooding by encouraging all property owners to secure flood coverage. After Mierzwa, the property owner in a coastal area had little incentive to purchase separate flood insurance. After all, in coastal Florida windstorms accompany virtually all flood events. If Mierzwa is to be taken at face value, if the building were destroyed by flood and, during the storm, a single shingle was blown from the roof, the covered damage to the single shingle would require the windstorm carrier to pay policy limits for the total loss by flood.
In closing, the author advises that complaints concerning Mierzwa's interpretation of the valued policy law should be directed at the legislature, not the courts. It is clear that the Florida Legislature would have agreed with that portion of Mr. Richards's article. Their decision to immediately amend the statute reflects the awareness that Mierzwa did indeed create new law. Like many commentators, the legislature clearly found the court's novel interpretation to be an unacceptable risk.
JOHN F. GARAFF, Tampa
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|Author:||Garaffa, John F.|
|Publication:||Florida Bar Journal|
|Article Type:||Letter to the Editor|
|Date:||Jan 1, 2006|
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