CONSEQUENTIAL DAMAGES: A THING OF THE PAST IN 1st PARTY PROPERTY DAMAGE BREACH OF CONTRACT LAWSUITS

Those that delve in the defense of property damage (PD) related matters know all too well the “bad faith” and “consequential damages” claims that constantly and inappropriately find their way into first-party breach of insurance contract matters brought by an insured against its insurer. Defense attorneys and carriers have taken the position that this is clearly a matter of putting the proverbial “cart before the horse” and pursuant to Florida Statutes 624.155 have no place in a first-party action wherein there is no underlying judgment. What’s more is that in PD matters involving Citizens, as a government entity, they clearly have no place, given that Citizens is statutorily immune from “bad faith”, extra-contractual damages and now “consequential damages”.

The 5th District Court of Appeals certified the following question of great public importance:

IN A FIRST-PARTY BREACH OF INSURANCE CONTRACT ACTION BROUGHT BY AN INSURED AGAINST ITS INSURER, NOT INVOLVING SUIT UNDER SECTION 624.155, FLORIDA STATUTES, DOES FLORIDA LAW ALLOW THE INSURED TO RECOVER EXTRA-CONTRACTUAL, CONSEQUENTIAL DAMAGES?

The Supreme Court of Florida answered that certified question in the negative. The case involved a first-party breach of insurance contract claim where the insureds, Manor House, LLC, Ocean View, LLC and Merritt, LLC (collectively “Manor House”), sought to recover extra-contractual, consequential damages for loss rental income totaling approximately $2.5 million from their insurer, Citizens Property Insurance Corporation (“Citizens”). In the 5th DCA decision in Manor House, LLC v. Citizens Property Insurance Corp., So.3d 658 (Fla. 5th DCA 2019), the trial court granted Citizens’ Motion for Partial Summary Judgment regarding the breach of contract claim for lost rental income. Id. at 661. It noted that, “[n]othing in the insurance contract provides coverage for lost rents” and “there is no coverage as a matter of law for these damages sought by Manor House.”

On Appeal, Manor House challenged the trial court’s order granting Citizens’ Motion for Partial Summary Judgment to prevent Manor House from pursuing a claim for extra-contractual, consequential damages. Id. at 659-660. The 5th DCA reversed the partial summary judgment regarding the consequential damages claim. It concluded that “when an insurer breaches an insurance contract, the insured ‘is entitled to recover more than pecuniary loss involved in the balance of the payments due under the policy’ in consequential damages, provided the damages ‘were in contemplation of the parties at the inception of the contract.’” Id. It further stated that, “[i]n granting summary judgment, the trial court denied Manor House the opportunity to prove whether the parties contemplated that Manor House, an apartment complex, would suffer consequential damages in the form of lost rental income if Citizens breached its contractual duties to timely adjust and pay covered damages, which in this case allegedly resulted in a significant delay in completing repairs so that units could once again be rented.” Id. It further concluded that while Citizens “is immune from bad faith claims…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.” Id. at 662. Accordingly, the 5th DCA concluded that “Citizens is not statutorily immune from this aspect of Manor House’s claim.” Id. This case was a blow to Citizens and opened the door for Plaintiff attorneys to raise “consequential damages” in their Complaints as an allegation and a valid cause of action.

The issue that the Supreme Court of Florida was asked to address, in part and for purposes of this blog, was whether Florida law allows the insured to recover extra-contractual, consequential damages in a first-party breach of insurance contract action that is not pursuant to Florida Statutes section 624.155 titled “Civil Remedy”. Florida’s highest Court noted that extra-contractual, consequential damages are not available in a first-party breach of contract action because the contractual amount due to the insured is the amount owed pursuant to the express terms and conditions of the policy. Extra-contractual damages are available in a separate bad faith action pursuant to section 624.155 but are not recoverable in this action against Citizens because it is statutorily immune from first-party bad faith claims. See 627.351(6)(s)1, Fla. Stat. (2019); see also Citizens Prop. Ins. Corp. v. Perdido Sun Condo. Ass’n, 164 So.3d 663 (Fla. 2015). It was noted, as stated by the trial court in Manor House, “the parties must rely on what they actually have pursuant to the express terms and conditions of the insurance policy.” Manor House sought to recover extra-contractual, consequential damages in its case against Citizens based on alleged failure to timely adjust the loss, wrongful denial of the claim and delay and failure to timely pay the claim. These allegations are found in a first-party bad faith action where an insured sues his or her own insurance company for the improper denial of benefits. See Times Ins. Co. v. Burger, 712 So.2d 389, 391 (Fla. 1998).

This has been an issue raised by numerous Plaintiff firms over the years seeking extra-contractual, consequential damages leading to extensive litigation and unnecessary pleading practice. Although Judges most often grant Defendant’s Motions to Dismiss these counts or allegations, it is often without prejudice and Defendants find themselves sometimes contesting and defending as many as three and four Amended Complaints. The Supreme Court of Florida quashed the 5th DCA’s decision and concluded “that extra-contractual , consequential damages are not available in a first-party breach of insurance contract action because the contractual amount due to the insured is the amount owed pursuant to the express terms and conditions of the insurance policy. Extra-contractual damages are available in a separate bad faith action pursuant to section 624.155 but are not recoverable in this action against Citizens because Citizens is statutorily immune from first-party bad faith claims.” Id.

As it pertains to “consequential damages”, this was a big win for Citizens and defense counsel in their continued fight against Plaintiff attorneys for inappropriately alleging “bad faith” against Citizens. Subject to the 15 day period for rehearing, which expires on February 5, 2021, this topic should now be a thing of the past and will potentially save countless hours and significant amounts of money fighting over a position that has been hotly contested for some time and should have been laid to rest years ago.