Judges To Decide Whether Insurer Must Pay ‘Lost Rental Income’

A Florida judicial panel will decide a critical property/casualty coverage issue dating to Hurricane Frances in 2004.

The state supreme court heard arguments last week in Citizens Property Insurance vs Manor House. The latter is an apartment complex that was damaged extensively by Hurricane Frances, which ripped through Florida in early September 2004.

The case has big implications for insurers and the outcome could set a major precedent on what is covered in a disaster. In a nutshell, Manor wants Citizens to cover "lost rental income" from the hurricane damage.

Nine Buildings Damaged

After the hurricane, three separate businesses -- Manor House, Ocean View and Merrit -- all presented claims to Citizens for damage sustained at nine apartment buildings. After payments for a portion of the property damage were sustained, Citizens continued to dispute the full amount due. According to court documents, Manor was paid $2 million.

Two years later, Manor "sought to reopen the claim," court documents say, and Citizens assigned a new adjuster.

"Manor House submitted a supplemental claim estimating repairs at over $10 million," court documents say. "After reinspection of the property, Citizens paid another $345,192."

Meanwhile, the apartment owners suffered lost rental income because of the delay. In court documents, Manor estimated its lost rental income at more than $2.5 million.

Ultimately, the insureds filed suit against Citizens alleging, among other things, breach of contract and fraud, and sought to recover extra-contractual damages for loss of rental income due to the delay in adjusting and repairing the damaged property.

A circuit judge ruled in favor of Citizens on the issue, finding no evidence that the insurance policy covered lost rent. But a panel of the appeals court overturned that ruling “so that the parties may litigate all issues related to Manor House’s [the property owners’] claim of lost rent.”

'More General Proposition'

The appeals court found that the trial court ignored the “more general proposition” that the injured party in a breach of contract action was entitled to recover monetary damages that would put it in the same position it would have been in had the other party not breached the contract, the law firm Hunton Andrews Kurth wrote in a 2019 blog post.

As a result, when an insurer breached a contract of insurance, the insureds were “entitled to recover more than the pecuniary loss involved in the balance of the payments due under the policy” as consequential damages, the court held, provided that the damages “were in contemplation of the parties at the inception of the contract.”

Citizens is a state-run insurance group and often the only choice for many South Florida residents and businesses seeking coverage. At least 11 insurers were rendered insolvent after Hurricane Andrew in August 1992.

Many of the smaller companies that stayed went under after the severe 2004-05 storm seasons, when Florida was battered by Hurricanes Charley, Frances, Ivan, Jeanne, Dennis, Katrina and Wilma. Those hurricanes cost Florida insurers a total of $41 billion in today's dollars.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.