Clear Terms of The Policy Control

The Clear Terms of The Policy Control. Or Do They?

By: Ian T. Kravitz, Esquire

It is often repeated that the clear and unambiguous terms of an insurance policy govern, but that if any ambiguities exist, they are resolved in the favor of the insured. It is equally axiomatic that statutes are to be given their clear meaning. Based on those well established principles of law, the issues decided in the recent case of Citizens Property Ins. Corp. v. River Manor Condominium Assn, Inc., would seem to be predictable. Guess again.

The River Manor Condominium consisted of three buildings, as well as several common elements, such as pools, clubhouses, etc. Those buildings and common elements were damaged by Hurricane Wilma in October 2005 while the Association was covered by separate insurance policies issued by Citizens. When the Association and Citizens could not agree on the amount of the loss, the parties undertook to engage in the mandatory appraisal process. The appraisers decided on the amount of the loss to each building and the common elements, leaving it to the trial court to determine how much of those amounts were for losses actually covered by the policies.

Citizens argued that the policies excluded claims for structures outside the four corners of the three condominium buildings, including the common elements. The Association argued that such common elements were covered because Florida Statute 718.111(11)(b) required that condominium insurance policies provide coverage for "all portions of the condominium property located outside the units," and "all portions of the condominium property for which the declaration of condominium requires coverage by the association." Taken with the policy provision which provided that "any terms of this policy which are in conflict with the statutes of the State wherein the property is located are amended to conform to such statutes. . .," required that the policies be deemed to incorporate the coverage mandated by the statute. The Trial Court agreed and entered judgment in favor of the Association for the loss to the common elements.

On appeal, the Appellate Court indicated that based on the terms of that statute standing alone, along with the policy provision quoted above, coverage would in fact exist for the loss to the common elements. However, the Appellate Court explained that such statutory provision cannot be read in a vacuum, and must instead be read along with the entire statutory scheme as a whole. The Appellate Court stated that "every statute must be read as a whole with meaning ascribed to every portion and due regard given to the semantic and contextual relationship between its parts." This "principle that a statute must be read 'in the context of its surrounding sections . . . applies with equal force in instances where a part of the statute standing alone may appear to be clear and unambiguous." It is the Court's obligation to "give effect to every clause in [the statute] and to accord meaning and harmony to all of its parts."

Based upon these principles of statutory construction, the Appellate Court reasoned that the purpose of Chapter 718 Florida Statutes is to regulate condominiums and not insurance companies. The Appellate Court explained that the Statute provides the rights and obligations of Condominium Associations and it individual unit owners, and the subject matter of that Statute is clearly to regulate those rights and obligations, and nothing more. Therefore, reviewing the statute as a "cohesive whole," the legislature clearly stated a "purpose of governing condominium associations, not insurers."

The Appellate Court explained that the insurance requirements set forth in the statute were requirements placed on the Association and the unit owners, and no on the insurance industry. The Appellate Court pointed to section 718.111(11)(a) of the statutes that required the Association to utilize its best efforts to secure the designated insurance coverage for the Association, and placed no such obligation on insurers. The Appellate Court held that to hold otherwise, would cause the unreasonable result of allowing an Association to avoid utilizing its best efforts to obtain the necessary insurance, only to have such coverage implemented legislatively, without proper compensation (premiums) being paid. The Appellate Court found such a result to be unreasonable.

Therefore, the Appellate Court held that in viewing Chapter 718 Florida Statutes as a "cohesive whole," the otherwise clear and unambiguous proscription of section 718.11(11)(b) applied to the Association and unit owners, and not to the insurance company. The judgment below was reversed, and the insurer prevailed as to whether the policies provided coverage for the common elements.

This case illustrates the all too common mistake made by many in regards to insurance coverage. Taking the time to consult with experienced legal counsel to ascertain what coverage is being provided by a policy of insurance, before a loss is incurred, can often prove the difference in being made whole after a loss, or suffering financial ruin. Your Construction Law Firm TM remains committed to assist you in that regard.