• Scope! Scope! Scope! Diaz v. Florida Peninsula Insurance Company and Its Effect on the Insurer’s Option to Repair
  • August 30, 2017
  • Historically, the provision within every homeowner’s insurance policy that permits the insurer to repair the damaged property instead of paying money to the insured—commonly referred to as the Option to Repair—was very rarely utilized by insurance companies. In recent years, with the substantial increase in property damage claims and lawsuits against insurance companies, especially throughout Florida, more and more insurance companies have instituted managed repair programs and have begun to invoke the Option to Repair provision in their policies. These efforts have been put into place to gain more control over the costs of claims and to try to stem the explosion in first party property lawsuits.

    In response to this strategy by insurance companies, public adjusters and policy holder attorneys have deployed many countermeasures to defeat this contractual right of the carriers. One such tactic has been to dispute the scope of repairs. Until recently, however, this strategy has failed due to the prevailing rule of law in Florida that the insurer had the right to make the repairs, and once completed, the insured could claim either the repairs were performed inadequately or the insurer failed to repair all of the damage covered by the subject loss. In June 2016, this changed when the Fourth District Court of Appeals ruled that a homeowner could dispute the scope of repairs before the insurer performed the repairs.

    Specifically, Raymond and Surey Diaz suffered damage from an air conditioning leak. After they reported the loss, their insurer chose to invoke the policy’s Option to Repair provision instead of making a cash payment. Florida Peninsula Insurance Company provided their contractor’s proposed scope of repairs. In return, the Diazes hired a public adjuster who disputed Florida Peninsula’s contractor’s scope of repairs. Florida Peninsula ended up denying the claim due to the Diazes’ failure to sign the work authorization to allow the repairs to be completed. The Diazes filed a breach of contract claim as well as a petition for declaratory judgment. The Diazes claimed Florida Peninsula breached the policy by refusing to repair all of the damage caused by the leak and then denying the claim. The insurer responded with a motion to abate and to compel the Diazes to comply with its right to repair.

    The trial court granted the abatement, and the Diazes appealed. The Fourth District Court of Appeals concluded that abatement “[c]ompletely precludes Diaz from obtaining a determination as to whether Florida Peninsula Insurance Company properly exercised the right to repair clause and, if so, what the parties’ rights and obligations are under that clause.” Most importantly, the court found that “[a] homeowner is entitled to dispute the scope of repairs before the repairs are completed.” As a result, the court reversed the trial court and quashed the abatement.

    Since this ruling, trial courts in the counties included within the Fourth District of Appeals (Palm Beach, Broward, St. Lucie, Martin, Indian River and Okeechobee) and some judges in Miami-Dade County have consistently denied motions to abate, based on Diaz, when the insured alleges a dispute as to scope. When abatement is denied in these circumstances, it frustrates the intent of the Option to Repair provisions in homeowner policies. The result is a monetary settlement or costly and lengthy litigation with an unknown result, which could also end in a pecuniary award of damages, effectively voiding the Option to Repair provision. Additionally, under Florida law, insureds may be entitled to recover attorneys’ fees and costs depending on the outcome of trial. Given the uncertainty of the issues to be litigated, it is equally unknown what would constitute a “win” triggering an insured’s entitlement to attorneys’ fees and costs.

    The purpose of the Option to Repair provision is to expeditiously return damaged property to its pre-loss condition while providing the insurer with cost control and certainty. The result of the Diaz decision creates industry-wide uncertainty and opens the door to allow public adjusters and policy holders to create litigation and generate fees where none should exist.

    Currently, the Florida Supreme Court has accepted jurisdiction over a pending matter to determine whether homeowners will suffer irreparable harm should their homeowner carrier be permitted to make repairs without any input and/or scope agreement with the insureds. In Fernandez-Andrew v. Florida Peninsula Insurance Company, a motion to abate was granted, and the Third District Court of Appeal agreed with the trial court that the insured suffered no irreparable harm in allowing the repairs to be made prior to any litigation regarding scope and proper invocation of the Option to Repair provision. Until this determination is made, the Option to Repair’s future as an choice for homeowners and carriers is uncertain.