Understand your Contracts or you may Lose the Benefits you expected from them

UNDERSTAND YOUR CONTRACTS OR YOU MAY LOSE THE BENEFITS YOU EXPECTED FROM THEM

By: Larry R. Leiby, Esq. and Robert S. Tanner, Esq.

About the Author: Larry Leiby, Esq. was the founder and first chairman of the Florida Bar Construction Law Committee in 1976. He is the author of the Florida Construction Law Manual. He is Board Certified in Construction Law and was on the Construction Law Certification Committee that creates and grades the tests for construction law board certification. He was awarded the lifetime achievement award by the Florida Bar Construction Law Committee and teaches construction law at the Florida International University College of Law. He can be reached at leiby@mkpalaw.com. For more information, please visit www.mkpalaw.com.

In Buckley Towers Condominium, Inc. v. QBE Insurance Corp., 2010 WL 3551609 (11 th Cir. Sept. 14, 2010), Buckley Towers Condominium, Inc. ("Owner") purchased hurricane insurance from QBE Insurance Corp. ("Insurer") for a pair of condominium buildings it owned. The buildings were badly damaged in October 2005 by Hurricane Wilma. Four months after the hurricane, Owner made a written request on Insurer for an advance payment "according[ ] to the policy provisions and endorsements." In April 2006, Owner submitted a Sworn Proof of Loss, which Insurer rejected. Owner submitted a second Sworn Proof of Loss in June 2006, which claimed approximately $5.1 million for "Full Cost of Repair or Replacement," $12k for "Applicable Depreciation," $5.1 million for "Actual Cash Value Loss," and $4.2 million "Net Amount Claimed." Insurer did not pay the claim, but also never fully rejected it.

Insurer relied upon the insurance policy provision stating that Insurer "will not pay on [Replacement Cost Value] for any loss or damage (1) Until the lost or damaged property is actually repaired or replaced; and (2) Unless the repairs or replacement are made as soon as reasonably possible after the loss or damage." However, Owner had not made any repairs.

Anticipating that Insurer was not going to pay, Owner sued. Owner argued that because it would be so costly to make the repairs before receiving insurance proceeds, the insurance policy prevented Owner's ability to comply with the provision. The trial court agreed with Owner. Insurer appealed.

The appellate court recited the general law of prevention of performance: "The doctrine of prevention of performance applies, generally, when a party to a contract is ready, willing, and able to perform, but the other party prevents him from performing by imposing obstacles not contemplated within the contract." The court further noted that, "inconvenience or the cost of compliance with contractual terms, though they might make compliance a hardship, cannot excuse a party from the performance of an absolute and unqualified undertaking to do a thing that is possible and lawful."

Applying that law to the facts of the case, the appellate court found that the trial court had improperly ruled in favor of Owner on its argument that the high costs of making the repairs as a matter of law prevented Owner's performance to make the repairs. "Although [Owner] may be unable to receive the full range of benefits of their contract without an advance payment[,] under Florida law, that cost and inconvenience may not relieve them of repairing the building prior to claiming [Replacement Cost Value] damages." As a result, the appellate court sent the case back to the trial court with directions for judgment to be entered in favor of Insurer regarding Owner's claim for Replacement Cost Value.

The Buckley Towers case is an example of the fairly hard and fast rule that courts will hold contracting parties to the clear and unambiguous terms of their agreements. It is worth noting that just because Insurer did not have to pay policy benefits does not mean that Owner was entitled to a return of the premiums it had paid. Indeed, Owner paid premiums but its failure to comply with the policy terms is what deprived it of receiving the policy benefits. The case makes the point that one entering into a contract should understand its terms before committing to contract and then should take proper measure to ensure they perform their obligations under it. Sometimes it may take the assistance of qualified counsel to do on