Analysis and Interpretation by Michael A. Cassel

On August 23, 2017, the Second District Court of Appeals in and for the State of Florida (hereinafter the “2d DCA”) released their decision in Castro v. Homeowners Choice Property & Casualty Insurance Company, No. 2D15-5456, 2017 Fla. App. LEXIS 11979 (3d DCA 2017) (hereinafter “Castro”).  The Castro opinion discusses the waiver of post-loss conditions as it relates to a denied claim.


On May 4, 2010, Juan Castro and Myriam Lopez allegedly sustained property damage to their home as a result of a sinkhole and filed a claim with their insurer, Homeowners Choice.  On June 15, 2010, Homeowners Choice hired an engineer to conduct a sinkhole investigation and, ultimately, it was determined that no sinkhole activity existed.  Coverage was denied accordingly. 

On November 4, 2014, the insureds sent a letter to Homeowners Choice containing a copy of an engineering report obtained at their own expense and requesting that the insurer “reconsider” its previous decision to deny the claim.  Homeowners Choice, through counsel, sent a correspondence advising that, due to the newly received information, Homeowners Choice requested that the insureds submit to Examinations Under Oath (hereinafter “EUO”), provide a Sworn Proof of Loss (hereinafter “SPOL”), and provide documentation related to the engineering report.  The 2d DCA specifically noted that Homeowners Choice did not provide a date, time, or location for the EUOs and that this was the first correspondence advising the insureds of their post-loss conditions.

On December 18, 2014, the insureds filed a lawsuit.  Subsequently, on December 30, 2014, Homeowners Choice attempted to coordinate dates for the EUO.[1]  The next day, however, counsel for Homeowners Choice advised that the filing of the lawsuit was premature and demanded a withdrawal of the lawsuit.  Ultimately, after some back and forth regarding scheduling, Homeowners Choice withdrew from the coordination of the EUOs and began litigating.

The lower court eventually granted final summary judgment in favor of Homeowners Choice based on the assertions that the insureds failed to comply with the post-loss conditions in the policy due to the insureds’ claiming having been reopened at the request of the insureds.

2d DCA Opinion

Upon review, the 2d DCA opined that the trial court incorrectly granted the insurer’s motion for summary judgment finding that Homeowners Choice waived the post-loss conditions invoked due to its initial denial of the insureds’ claim.  The appellate court stated as follows:

When an insurance carrier investigates a claim of loss and denies coverage because it concludes that a covered loss has not occurred, the insurance carrier cannot assert the insured’s failure to comply with the policy’s conditions precedent to filing suit as a basis for summary judgment…  Accordingly, when Homeowners Choice denied Castro and Lopez’s claim, it foreclosed its right to later assert their failure to comply with the policy’s conditions precedent, leaving Castro and Lopez free to file a lawsuit for breach of the insurance contract at any time within the five-year statute of limitations period.  

Castro at 6-7. See also Tower Hill Select Ins. Co. v. McKee, 151 So. 3d 2, 3-4 (Fla. 2d DCA 2014)(“When [the insurer] denied coverage a valid dispute as to the existence of a covered loss under the insurance policy arose.  The policy provisions containing conditions precedent to suit that [the insurer] relie[d] on… could not act to bar [the homeowner] from filing suit when [the insurer] denied his insurance claim entirely.”); Indian River State Bank v. Hartford Fire Ins. Co., 46 Fla. 283, 35 So. 228, 246 (Fla. 1903) (“A simple allegation of the denial of all liability on the policy by the company . . . was sufficient to give to the plaintiff any advantage to be derived from the waiver of proofs of loss following as a legal consequence upon a denial of liability.”); Hartford Accident & Indem. Co. v. Phelps, 294 So. 2d 362, 365 (Fla. 1st DCA 1974) (“[A]n insurer, by unconditionally denying any liability upon its policy, waives proof of loss required by the policy.”).

The court also explained that “in order to file suit, Castro and Lopez were under no obligation to first provide Homeowners Choice with the FTE report contradicting its engineer’s conclusion that the damage to the residence was not sinkhole related.  Castro at 8 citing Citizens Prop. Ins. Corp. v. Munoz, 158 So. 3d 671, 673 (Fla. 2d DCA 2014) (“The trial court properly denied Citizens’ motion for directed verdict because the Munozes were under no obligation to provide a contrary report to Citizens before filing suit.”).

Analysis, Impact, and Effect

This is an extremely troubling ruling for a number of reasons.  First, the appellate court seemingly seeks to prevent an insurer from ever being able to correct a mistake or investigate a potential supplemental/reopened claim prior to suit being filed.  When the insureds contacted Homeowners Choice and requested that they “reconsider” the denial more than four (4) years later, Homeowners Choice reacted in a reasonable and prudent manner: they reopened the claim and began their investigation.  There is no question that a lot can change in a 4+ year span.  Is it not realistiv to believe that the findings of two (2) engineers can vary over a 4 year period?  It is entirely possible that there was no evidence sinkhole activity in 2010; however, in 2014, actual sinkhole activity manifested itself leading to an entirely separate claim.  

In Lloyds Underwriters at London v. Keystone Equip. Fin. Corp., the 4th DCA discussed the somewhat unique contractual nature of insurance policies:

Insurance contracts are unusual in that, at the onset of the contractual relationship, one of the contracting parties, i.e., the insured, has not yet had the opportunity to review the terms of the insurance contract.  On the other hand, as the drafter of the contract, the insurer is in a unique position to know the contents and requirements of the insurance policy.  For this reason, logic and fairness dictate that while an insurer is free to require its insured to warrant or promise to behave in a particular manner, the insurer has a duty to inform the insured of such warranty or promise before the insurer can insist upon compliance with the same and impose the penalty of a forfeiture of all coverage for the insured’s noncompliance.

Lloyds Underwriters at London v. Keystone Equip. Fin. Corp., 25 So. 3d 89, 93-94 (Fla. 4th DCA 2009).  It is clear in Castro that the insurer simultaneously advised the insureds that it wished to reopen the adjustment of their claim and placed the insureds on notice of the specific policy conditions it wished to invoke in relation to the adjustment of the claim.  The holding that the insurer waived the requirement for compliance with post-loss conditions despite the fact that it agreed to “reconsider” coverage seems to set a precedent so harmful and prejudicial to insurers in Florida that it borders on the unconscionable.

Second, the appellate court’s findings were so broadly construed that it seems to suggest that, once a claim has been denied pursuant to coverage exclusions, the failure to comply with post-loss conditions becomes irrelevant and the insurer is estopped from raising same as a defense.  Waiver is the “voluntary and intentional relinquishment of a known right or conduct which implies the voluntary and intentional relinquishment of a known right.”  Truly Nolen of Am., Inc. v. King Cole Condo. Ass’n, Inc., 143 So. 3d 1015, 1017 (Fla. 3d DCA 2014).  While a denial of coverage may constitute waiver future requests for compliance with post-loss conditions, it does not estop the insurer from asserting the defense of failure to comply with previously invoked post-loss conditions precedent to recovery as coverage cannot be created by estoppel.  See Aetna Cas. & Sur. Co. of Am. v. Deluxe Sys., 711 So. 2d 1293 (Fla. 4th DCA 1998) (The appellate court found that the lower court erred in asserting that Aetna was estopped from additional grounds for denial not asserted in the denial letter.).  See also Lloyds Underwriters at London v. Keystone Equip. Fin. Corp., supra.  Unfortunately, these exceptions to the Castro court’s findings are completely lost and, therefore, all but overridden by the newly released conflicting opinion. 

The Castro court also rejected Homeowners Choice’s reliance on Section 627.70131, Florida Statutes, discussing the timelines for payment in an “initial, reopened, or supplemental property insurance claim” because the statute does not define “reopened claim.”  Fla. Stat. § 627.70131(5)(a) (2014).  That said, and maybe this was not preserved by Homeowners Choice for appellate purposes, most if not all property insurance policies contain some kind of provision mirroring the maxims of 627.70131 and allowing 90 days for payment of an initial, reopened, or supplemental claim unless there are factors beyond the control of the insurer which reasonably prevent payment.  To me, an “initial claim” is easily defined as the portion of a claim between first notice of same and the first coverage determination.  So too is a “supplemental claim” easy to define as an addendum to the claim after the initial coverage determination has been reached.  So then what is a “reopened claim”?  It is certainly reasonable to think that granting a request for reconsideration of coverage from the insured must constitute a “reopened claim.”  Perhaps, in order to avoid getting sued in situations such as Castro, the insurer must first rescind its denial before advising its insureds of the post-loss conditions it seeks to invoke in order to prevent the waiver of same.  While this seems to be overkill, it places a somewhat similar technical and procedural burden on the insurer that may otherwise be used to deny a claim for failure to comply with post-loss conditions.  In this sense, it is somewhat equitable.  Of course, if 4 years goes by without any communication after a denial, it may be more prudent to simply open a new claim.  

Obviously, a denial of coverage is enough to ripen a lawsuit and create a litigable situation; however, instead of filing the lawsuit upon the realization that they had a viable cause of action, the insureds in Castro provided Homeowners Choice with a second chance.  Their November 4, 2014, correspondence merely demanded a reconsideration of coverage which seems to have been complied with through the reservation of rights correspondence sent in response.  In the event the insureds wanted to avoid invocation of, and compliance with, post-loss conditions, they should have just filed a lawsuit without providing the opportunity for Homeowners Choice to “reconsider.”  It is extremely unjust to punish the insurer for complying with its insureds' request.

Overall, it is my opinion that the Castro opinion sufficiently conflicts with other established law in the State of Florida so as to provide the Supreme Court of Florida with appellate jurisdiction.  Assuming the right arguments were preserved in this appeal, it seems almost a forgone conclusion that Homeowners Choice must challenge this ruling and protect itself, and every other insurer in Florida, from falling victim to the public policy created by the Castro court.

[1] It is unclear if the attempt at coordinating the EUO came before Homeowners Choice was aware of the filing of the lawsuit.