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Florida Supreme Court Reverses Decision In Favor of Insurer on Overhead and Profit


In a case decided last week, the Supreme Court of Florida reversed an earlier decision of the trial court permitting an insurer to withhold certain portions of a replacement cost payment, including costs for overhead and profit of a general contractor, until the insured actually repaired or contracted for repairs of the damaged property.

In Trinidad v. Florida Peninsula Ins. Co., No. SC11-1643, 2013 WL 3333823 (Fla. July 3, 2013), plaintiff Amando Trinidad filed a claim with his homeowner’s insurer, Florida Peninsula Insurance Company after a fire damaged his home in Miami.  Id. at *1.  Florida Peninsula admitted coverage and made a partial payment pursuant to Trinidad’s replacement cost policy, but withheld amounts for a general contractor’s overhead and profit because Trinidad had not actually made repairs to the home or hired a general contractor to make the repairs.  Id.  In an action for breach of contract by the insured, the trial court agreed with the insurer’s approach, holding that “Florida Peninsula was not required to include overhead and profit costs in its loss settlement payment to Trinidad . . . because Trinidad had not actually incurred those costs.” *2-3.

However, in a 5-2 decision, Florida’s highest court reversed.  Reasoning that the purpose of a replacement cost policy (as opposed to an actual cash value policy) is to “cover the difference between what property is actually worth and what it would cost to rebuild or repair that property,” the Court concluded that overhead and profit must necessarily be included in the replacement cost of a covered loss in any case where the insured is “reasonably likely” to need a general contractor for repairs.  Id. at *3-4.  The Court noted that “[i]f overhead and profit were not included in the scope of replacement cost insurance where it is reasonably likely the insured will incur those costs, then no other repair costs, such as labor and materials, would be considered replacement costs.  Simply put, overhead and profit are no different than any other costs of a repair that the insured is reasonably likely to incur. . . .”  Id. at *6.

The Court then determined that neither § 627.7011 Fla. Stat. (2009) nor the applicable policy permitted Florida Peninsula to withhold payment of overhead and profit costs until Trinidad actually incurred them.  Id. at *4-9.  More specifically, the Court found that a close reading of the statute at issue demonstrated that “costs ‘reasonable and necessary’ to the repair are included in the replacement costs the insurer is statutorily required to pay, regardless of whether the property is [actually] repaired.”  Id. at *6.  The Court added that “[b]ecause the insurance policy, in this case, provides that Florida Peninsula will pay ‘[t]he replacement cost of that part of the building damaged for like construction and use on the same premises,’ Florida Penninsula was required by the policy’s unambiguous terms to include overhead and profit in its payment for Trinidad’s covered loss, assuming Trinidad establishes that he is reasonably likely to need a general contractor for repairs.” Id.

Download Trinidad v. Florida Peninsula Ins. Co.

For additional information about this case or other insurance law issues affecting your company, please contact Robert Laurie today.