In Shelton v. Liberty Mutual Fire Ins. Co., 2014 U.S. App. Lexis 16120 (11th Cir., August 21, 2014), the Court addressed an often-contested issue regarding homeowner’s sinkhole insurance coverage. The Sheltons filed a claim for a suspected sinkhole loss with their insurer Liberty Mutual.
The Florida Statutes require property insurers to make sinkhole coverage available. Originally, the statute defined sinkhole loss as “actual physical damage” to the property caused by sinkhole activity. In 2005, the legislature redefined sinkhole loss as “structural damage to the building” caused by sinkhole activity; however, the statute did not define the term “structural damage.” In 2011, the legislature again amended the statute to supply a definition of the phrase “structural damage,” which was to be used “in connection with any policy providing coverage” for sinkhole loss. The definition required one of five technical elements to be met in order to constitute structural damage.
After the 2011 amendment, Liberty Mutual issued a renewal homeowners policy to the Sheltons. The policy provided coverage for sinkhole loss defined as structural damage to the building caused by sinkhole activity; however, the policy did not define the term “structural damage.” The Sheltons made a claim for sinkhole loss and Liberty Mutual retained an engineer to investigate. The engineer concluded that the damage to the Shelton residence did not meet the statutory definition of “structural damage.” Based on this finding, Liberty Mutual denied the claim.
The Sheltons then filed suit alleging Liberty Mutual breached the contract and contending the statutory definition did not apply because it was not included in the policy. The district court agreed, concluding the phrase “structural damage” should be given its plain meaning, which – according to the district court – is “damage to the structure.”
On appeal, the Eleventh Circuit reversed citing the principal that the laws of Florida are part of every Florida contract. The 2011 statute, including the definition of the phrase “structural damage,” was in effect before the policy was issued, and the statute expressly stated that the definition was to be used in connection with any policy providing coverage for sinkhole losses. Therefore, the Court reasoned, the statutory definition is part of the policy.
The Court also rejected the Sheltons’ argument that the statutory definition should not apply because their policy is a renewal policy and Liberty Mutual allegedly failed to notify the Sheltons of a substantive change to the sinkhole coverage. The Court cited another Florida statute specifically stating that the application of mandated legislative changes is not a change in policy terms. Therefore, the Court did not need to decide whether adding the definition of “structural damage” constituted a “change in policy terms.”