15 Fla. L. Weekly Supp. 361a

Insurance — Commercial property — Surplus lines — Appraisal — Insurer did not waive binding appraisal provision of policy by disputing coverage and not requiring appraisal until after suit was filed — Insured has not shown waiver of appraisal by delay, repudiation of contract, prejudice to insured or because ongoing repairs make appraisal impossible or impractical — Hurricane mediation — No merit to claim that section 627.7015 bars enforcement of appraisal provision because insurer failed to notify insured of right to participate in hurricane mediation program under statute bcause statute does not apply to surplus lines insurance — Suit stayed pending outcome of appraisal

BANAT INVESTMENT CORPORATION, Plaintiff, vs. CERTAIN INTERESTED UNDERWRITERS AT LLOYD’S, LONDON SUBSCRIBING TO CERTIFICATE NO. JH961576A, an Unincorporated foreign association of Individuals, Defendant. Circuit Court, 19th Judicial Circuit in and for Martin County. Case No. 432007CA191. January 11, 2008. Larry Schack, Judge. Counsel: David J. Pettinato, Tampa. Garrett L. Pendleton, Phelps Dunbar, LLP, Tampa, for Defendant.

ORDER GRANTING DEFENDANT’S MOTION TO COMPEL APPRAISAL AND TO STAY OR ABATE PROCEEDINGS

THIS CASE came before the court on the Defendant’s motion to compel an appraisal and stay or abate the proceedings in this court until the appraisal process is complete. After reviewing the pleadings, and hearing argument of counsel, the court finds and orders as follows:

Banat Investment Corporation (“Banat”) is the owner of an apartment complex in Martin County, Florida known as Riverwatch Apartments. Banat paid insurance premiums to the Defendant (“Underwriters”), which is comprised of members of a regulated market known as the “London Market,” in which individuals offer their personal capital to underwrite insurance risks in exchange for a premium. Underwriters sells only “surplus lines” insurance coverage, a type of insurance which insures risks which are not commonly insurable in the primary commercial market. In exchange for premiums paid by Banat, Underwriters issued policies of commercial property insurance covering the Riverwatch Apartments (“the property”).

Coverage under this policy was in effect on September 4, 2004, when Hurricane Frances caused wind damage to the property. Underwriters accepted Banat’s claim for these damages on October 6, 2004, but required further documentation from Banat before payment of the claim. Because of the nature of the damages and the policy deductible, it was necessary for Banat to make certain repairs as a condition precedent to its claim. Banat’s agent notified Underwriters that repairs on the property were completed on August 22, 2005. On October 24, 2005, the winds of Hurricane Wilma damaged the property. Banat submitted a sworn statement in proof of loss in the amount of $17,310.99 for the Hurricane Frances damage on October 31, 2005, which Underwriters paid on November 3, 2005.

The Hurricane Wilma loss was reported by Banat to Underwriters on November 23, 2005. Underwriters attempted to investigate, but Banat employed a public adjuster and Underwriters was not permitted to inspect the property until February 28, 2006. Negotiations between Banat and Underwriters ensued. The parties hired experts to assist them in assessing the damages. An agreement as to the amount of covered damages was reached in late 2006, but that agreement was not consummated because Underwriters insisted upon a full written general release.

Banat sent Underwriters its public adjuster’s damage estimates in late January, 2007, then filed this action on February 20, 2007. On March 2, 2007, Underwriters paid Banat $108,353.48 for the property damage associated with Hurricane Wilma, before being served with the complaint in this action on March 15, 2007. Without filing an answer to the complaint, Underwriters demanded an appraisal, as provided for in the policies of insurance issued.

The policies provide that in the event the parties disagree as to the amount of loss, either may compel appraisal of the loss. In the appraisal process, each party chooses an independent appraisal, and the two appraisers select an umpire. A decision on damages agreed upon by any two among the appraisers and umpire becomes binding on the parties.

Banat objects to the appraisal, and therefore the court now considers Underwriters’ motion requesting that the court compel the parties’ participation in the appraisal process, and abate this action until the process is complete. In response to Underwriters’ motion, Banat asserts that Underwriters waived appraisal because:

1. Underwriters repudiated the contract relieving Banat of all obligations under the policy, including appraisal;

2. This action involves coverage disputes, which are for the court to decide;

3. Underwriters’ delay in requesting an appraisal amounts to a waiver of that right;

4. An appraisal is impractical because substantial repairs have already been made;

5. Banat has been prejudiced by the delay in demanding appraisal because suit has already been filed, and an appraisal would cause further delay in resolution of the claim;

6. Appraisal is barred by application of Florida Statute section 627.7015 since Underwriters failed to promptly inform Banat of the option to mediate the loss under that statute.

Florida courts have interpreted appraisal provisions, such as this one, as an agreement to submit to binding arbitration. See e.g. Prestige Protective Corp. v. Burns Int’l Security Services Corp., 776 So. 2d 311, 314 (Fla. 4th DCA 2001); Transamerica Ins. Co. v. Weed, 420 So. 2d 370 (Fla. 1st DCA 1982). “[A]rbitration is a favored means of dispute resolution and courts indulge every reasonable presumption to uphold proceedings resulting in an award.” Roe v. Amica Mut. Ins. Co., 533 So. 2d 279, 281 (Fla. 1988). Once the clause is appropriately invoked, it is a condition precedent to the right of the insured to maintain an action on the policy. New Amsterdam Cas. Co. v. J.H. Blackshear, Inc.,156 So. 695 (Fla. 1934); U.S. Fire Ins. Co. v. Franko, 443 So. 2d 170, 172 (Fla. 1st DCA 1984); Transamerica Ins. Co. v. Weed, 420 So. 2d at 370. Waiver of the contractual right to arbitration occurs when a party actually participates in litigation or by taking action that is inconsistent with that right. Raymond James Financial Services, Inc. v. Saldukas, 896 So. 2d 707 (Fla. 2005). All doubts regarding waiver are resolved in favor of arbitration, rather than against it. Marine Environmental Partners, Inc. v. Johnson, 863 So. 2d 423 (Fla. 4th DCA 2003).

Appraisal is not inconsistent with a coverage defense; an insurer can challenge the amount of the loss and coverage at the same time. Liberty American Ins. Co. v. Kennedy, 890 So. 2d 539 (Fla. 2d DCA 2005). It is not necessary that the demand for appraisal be made prior to the initiation of suit. Gonzalez v. State Farm Fire and Casualty Company, 805 So. 2d 814, 817 (Fla. 3rd DCA 2000). Where the prompt answer to a complaint is a demand for appraisal, the demand is timely. Id. “[C]ausation is a coverage question for the court when an insurer wholly denies that there is a covered loss and an amount-of-loss question for the appraisal panel when an insurer admits that there is covered loss, the amount of which is disputed.” Johnson v. Nationwide Mutual Ins. Co., 828 So. 2d 1021, 1022 (Fla. 2002). However, an appraisal panel can resolve causation issues with respect to claimed damages when the insurer has admitted coverage for a portion of the loss, but disputes the value of the loss because the loss includes damages not covered by the policy. Kendall Lakes Townhomes Developers, Inc. v. Agricultural Excess and Surplus Lines Ins. Co., 916 So. 2d 12, 15 (Fla. 3d DCA 2005).

The facts in this case do not support a finding that Underwriters repudiated the contract of insurance. In fact, Underwriters has already paid substantial sums in at least partial satisfaction of the claim. Underwriters did not completely deny the claim and therefore did not waive the appraisal clause.

This dispute involves the dollar value of covered losses in Banat’s claim, an issue appropriate for appraisal. Both parties have actively investigated and negotiated this issue, arrived at a potential settlement, but when that settlement was not finalized, Banat filed suit. Before being served with the complaint, Underwriters paid the undisputed amount of the claim. When served, Underwriters demanded arbitration as its first response to the complaint. Underwriters did not take a position inconsistent with appraisal, and did nothing in the handling of the claim which would amount to a waiver of the appraisal provision in the policy. Banat has not shown a waiver by delay, repudiation of the insurance contract, prejudice to the insured or because the ongoing repairs make appraisal impossible or impractical.

The final defense to the demand for arbitration is that Florida Statute section 627.7015 (2005)¹ bars enforcement of the appraisal provision because Underwriters failed to notify Banat of the right to participate in the mediation program under that statute. However, Florida Statute section 627.021(2)(e) (2005) specifically states that chapter 627 does not apply to surplus lines insurance. Further, the Florida Department of Insurance, which is responsible for implementing the mediation program under Florida Statute section 627.7015, advises via affidavit and memorandum in evidence in this case that surplus lines insurers are exempt from the requirements of that statute, but may participate in the program voluntarily.

An agency’s interpretation of the statute it is charged with enforcing is entitled to great deference. Further, a court will not depart from the contemporaneous construction of a statute by a state agency charged with its enforcement unless the construction is “clearly erroneous.”

Verizon Florida, Inc. v. Jacobs, 810 So.2d 906 (Fla. 2002) (citations omitted). The inquiry might end there but for the Florida Supreme Court’s pending consideration of the application of chapter 627 to surplus lines insurance in Essex Insurance Co. v. Zota, SCO06-2031 (Fla., filed October 17, 2006).

The Supreme Court of Florida is considering the issue upon referral of certain certified questions by the Eleventh Circuit Court of Appeals in Essex Ins. Co. v. Zota, 466 F. 3d 981 (11th Cir. 2006). Among those questions is “whether Fla. Stat. § 627.428 applies to surplus lines insurers.” Essex Ins. Co. v. Zota, 466 F. 3d at 981, 990. Because Florida Statute section 627.021(2)(e) is specific in exempting surplus lines insurance from all of chapter 627, if our Supreme Court determined that Florida Statute section 627.428 does apply to surplus lines insurers, it would mean that the section 627.021(2)(e) exemption does not apply to all of chapter 627, including the provision at issue here. Like the Eleventh Circuit when it was faced with this issue, this court does not have the benefit of the determination of that question by the Florida Supreme Court. The statute at issue in Essex Ins. Co. is different than the statute at issue in this case; in Zota, the court considered the award of an attorney’s fee under Florida Statute section 627.428. The issue of whether the exemption for surplus lines insurance set out in section 627.021(2)(e) applies to section 627.428 arose because:

The titles of both sections, “Scope of this Part,” indicate that the exclusions only apply to each part, and not the entire chapter. Furthermore, had the legislature intended for § 627.021 to apply to the entire chapter, it would not have included “Reinsurance” under both sections §§ 627.[021] and 627.401. In other words, if the legislature had intended for § 627.[021] to apply to the entire chapter, the legislature would only have excluded joint reinsurance under § 627.401, rather than all reinsurance, since that was the only form of reinsurance permitted under § 627.[021]. The fact that the statute excludes “reinsurance” in two separate parts indicates that the first exclusion was not intended to apply to the entire chapter, but only to apply to the first part.

Essex Ins. Co. v. Zota, 466 F. 3d at 981, 989. This conflict does not exist between Florida Statute section 627.021(2)(e) and Florida Statute section 627.7015 since the part of chapter 627 dealing with property insurance, part ten, does not have any separately stated exclusions or limitations on the scope of the part.

In Zota, the Eleventh Circuit noted that if it were dealing with federal law, the heading or title of a statute would not change the plain meaning of the text, and surplus lines insurance would clearly be exempt from chapter 627. Under federal law, section headings may only be used to interpret a statute when the statute is ambiguous. Zota at 989-990. The Florida Supreme Court in State v. Webb needed to determine the meaning of provisions in Florida’s stop and frisk law, Florida Statute section 901.151. On the issue of the use of the legislative titles they wrote:

To determine legislative intent, we must consider the act as a whole “the evil to be corrected, the language of the act, including its title, the history of its enactment, and the state of the law already in existence bearing on the subject.” In determining legislative intent, we must give due weight and effect to the title of section 901.151, Florida Statutes (1977), which was placed at the beginning of the section by the legislature itself. The title is more than an index to what the section is about or has reference to; it is a direct statement by the legislature of its intent.

State v. Webb, 398 So.2d 820, 824-825 (Fla. 1981) (citations omitted).

Based on the above analysis and because Florida Statute section 627.021(2)(e) (2005) specifically and clearly excludes surplus lines insurance from the obligations and responsibilities imposed by chapter 627, Underwriters had no responsibility to notify Banat of the hurricane mediation program as required by Florida Statute section 627.7015 (2005). Underwriters did not waive appraisal by operation of that statute. Therefore, it is

ORDERED as follows:

1. the defendant’s motion is granted;

2. the parties must submit this matter to binding appraisal; and

3. this case is stayed pending the outcome of the appraisal. Upon conclusion of the appraisal proceedings, the plaintiff must file the documents necessary to close this case.

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¹Although Banat cites Fla. Stat. § 627.7015 (2007), the statute in effect at the time of the loss is applicable. The language is unchanged from 2005 to present.