Many insurance policies contain “forfeiture provisions” which are invoked by insurance companies to deny coverage for claims which would otherwise be covered under a policy. A common example of a forfeiture provision requires the insured to timely file a notice of claim and submit proofs of loss. An insured’s failure to timely comply with these provisions can result in an insured having an otherwise valid claim denied.
Florida law does not look kindly on an insurance company (“insurer”) denying coverage based on a forfeiture provision. As such, the law imposes certain obligations on an insurer that is denying coverage under a forfeiture provision. For example, the insurer must inform the insured of its intentions to deny coverage based on forfeiture as soon as practicable. Further, the insurer’s right to deny coverage under a forfeiture provision can be waived by the insurer’s conduct. Thus, when an insurer has knowledge of facts justifying a forfeiture of the policy, any unequivocal act which recognizes the continued existence of the policy, or which is wholly inconsistent with a forfeiture, will constitute a waiver of the forfeiture provision.
Recently, the case of Axis Surplus Ins. Co. v. Caribbean Beach Club Association, Inc., 2014 WL 2900930 (Fla. 2 nd DCA 2014) examined whether an insurer waived its right to deny coverage based on a forfeiture provision. This case involved an insurance coverage dispute between a time-share condominium association (“association”) and its insurance company (the “insurer”). The association incurred damages to its property in Lee County as result of a fire, which was a covered loss under its insurance policy (the “Policy”). Under the Policy, the association had two years from the date of loss (i.e. date of the fire) to repair or replace the damaged building. The two-year clause constituted a “forfeiture provision”.
After the fire, the issue of whether the damaged building could be repaired, or needed to be replaced arose between the association and Lee County. The association and insurer cooperated in a common goal of repairing, not replacing, the damaged building; and they tried to convince Lee County not to enforce a local rule that would require the association to replace the building to satisfy current flood elevation codes. However, some nineteen months after the fire, Lee County required the building to be replaced.
The insurer and association continued to cooperate. The insurer estimated that replacement would take an additional twelve months, and engaged a contractor to prepare an estimate. The insurer knew the association intended to replace the building, that the replacement would continue past the two-year deadline, and that the association expected the insurer to pay the full cost, including the increased costs for replacement. Nevertheless, sometime after the two-year deadline, the insurer told the association that it would rely on the two-year forfeiture clause in the insurance policy, and denied payment for the increased construction costs.
The association sued the insurer for reimbursement of the increased construction cost to replace the building. The court in Axis Surplus ruled that coverage existed for the entire claim, and ordered the insurer to pay the increased construction costs for the replacement of the building. The court based its ruling on the fact that the insurer’s failure to bring the forfeiture provision to the association’s attention despite knowing that the association expected the entire claim to be paid, and the insurer’s continued adjustment of the entire claim after the two-year period expired, were unequivocal acts wholly inconsistent with invoking a forfeiture. The court reasoned that for the insurer to avoid liability through forfeiture, the insurer must demonstrate that it was substantially prejudiced by the association’s noncompliance with the two-year clause. In this case, the record was devoid of any such prejudice suffered by the insurer, as the delay in rebuilding was linked in large part by the insurer’s and association’s efforts to convince Lee County not to require the building to be replaced. Therefore, the court concluded that the insurer waived its right to deny coverage based on the forfeiture clause, and held that the association was entitled to receive the increased construction cost.
This case demonstrates that while insurance policies may contain provisions that forfeit insurance coverage due to the insured’s actions or inactions, such provisions can be waived by the insurer’s conduct.
About the Authors: Richard E. Guttentag is a partner with Stearns, Roberts & Guttentag, LLC, and is Board Certified in Construction Law by the Florida Bar. Mr. Guttentag exclusively in construction law including construction lien claims and defense, payment and performance bond claims and defense, bid protests, construction contract preparation and negotiation, and construction and design defect claims and defense. He can be reached for consultation at [email protected]. Alexander S. Beck is an associate with Stearns, Roberts & Guttentag, LLC. Mr. Beck in construction law including construction lien claims, payment and performance bond claims, bid protests, construction contract preparation, and construction and design defect claims He can be reached for consultation at [email protected]