Florida Court: Under All-Risk Policy, Insured Does Not Bear Burden of Showing Loss Was Caused by a Sinkhole

On November 26th, a unanimous panel of Florida’s Second District Court of Appeals held that a trial judge had erred in placing the burden of showing that loss was caused by covered sinkhole activity on the shoulders of the insured.  In Mejia v. Citizens Prop. Ins. Corp., 2014 WL 6675717, 2014 Fla. App. LEXIS 19526 (Fla.Dist.Ct.App., Nov. 26, 2014), the court stated that the policyholder under an all-risk contract of insurance has met his burden by showing that the insured property suffered a loss while the policy was in effect; the burden then shifts to the insurance carrier to prove that the cause of the loss was excluded from coverage.

shutterstock_3414932Alfredo Mejia owned a home that was insured by Citizens Property Insurance Corporation, and he made a claim for damage, contending that it was caused by sinkhole activity.  The insurer retained BCI, an engineering firm, and it denied liability after BCI concluded that the damage was not caused by a sinkhole.  A breach of contract action followed.

The policy was an all-risk contract of insurance that excluded earth movement, settlement, and loss caused by a sinkhole.  The insured had paid an additional premium for a Sinkhole Loss Coverage Endorsement, however; that added sinkhole loss as a covered peril and stated that the earth movement and sinkhole exclusions did not apply.

Prior to trial, the lower court ruled that Mejia had the burden of showing that the damage was, in fact, occasioned by sinkhole activity.  Instructed to that effect, the jury found that the policyholder had not established by the greater weight of the evidence that his home had suffered physical damage caused by a sinkhole.  Final judgment was entered in favor of the carrier.

Two weeks ago, the Court of Appeals reversed and remanded for a new trial, holding that the trial judge had erred in allocating the burden of proof.  As Judge Stevan T. Northcutt’s opinion explained:

an insured claiming under an all-risks policy has the burden of proving that the insured property suffered a loss while the policy was in effect.  The burden then shifts to the insurer to prove that the cause of the loss was excluded from coverage under the policy’s terms[.]

As we held [in Hudson v. Prudential Prop. & Cas. Ins. Co., 450 So.2d 565 (Fla.Dist.Ct. App. 1984)] it makes no difference that the sinkhole coverage at issue was provided by an endorsement to the underlying policy.  In Hudson, as here, the homeowner had an all-risks policy with a sinkhole endorsement.  This court held that the “endorsement did not change the ‘all-risks’ nature of the underlying policy; it merely narrowed the earth sinking exclusion.”  Id. at 568.

Judge Chris W. Altenbernd concurred separately; in his mind, the policy was “an amalgam” – neither a true all-risk contract of insurance nor a named peril one.  That was because the all-risk language

is immediately followed by a statement that “we do not insure, however, for loss: . . .”  This “however” clause is followed by a long list of excluded risks.  Several pages later, the policy in more traditional fashion provides “Exclusions” to the Section I coverage.  In other words, the policy essentially adds exclusions in both the insuring agreement and in the standard section for exclusions.

Judge Altenbernd nonetheless opined that “the only practical solution as to the specific issues raised in sinkhole litigation is to place the burden of proof on the insurance company once the insured has established the requisite physical damage to the insured dwelling during the term of the policy.”

Finally, the panel also held that the trial court had erred by excluding evidence that over the previous three years the insurance company had to pay approximately $9.5 million in fees to its expert witnesses from BCI.  In Judge Northcutt’s opinion, that was directly relevant to the policyholder’s efforts to impeach the credibility of the carrier’s experts by showing bias.

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About The Property Insurance Law Observer
For more than four decades, Cozen O’Connor has represented all types of property insurers in jurisdictions throughout the United States, and it is dedicated to keeping its clients abreast of developments that impact the insurance industry. The Property Insurance Law Observer will survey court decisions, enacted or proposed legislation, and regulatory activities from all 50 states. We will also include commentary on current issues and developing trends of interest to first-party insurers.
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