On February 1, 2024, the Supreme Court of Florida released its decision in American Coastal Insurance Company v. San Marco Villas Condominium Association, Inc. (hereinafter "San Marco").¹ The San Marco opinion discusses, and attempts to resolve, the longstanding conflict between Florida appellate courts related to the completion of appraisal when coverage issues exist.

Background and Facts

In 2017, the insured sustained a loss to their property as a result of Hurricane Irma. The insurance carrier afforded coverage and paid approximately $200,000 after the application of the appropriate deductible. The insured then submitted an estimate in excess of eight million dollars and demanded appraisal to resolve the amount of loss dispute. Despite a policy provision allowing either side to invoke the appraisal process, the carrier refused appraisal noting that its investigation remained ongoing. Of note in the appraisal provision, however, is a clause which allows the carrier to retain its right to deny the claim even after the appraisal has concluded.²

The insured, in turn, sued to compel appraisal. In suit, the carrier sent correspondence advising that it would be disclaiming coverage under the policy condition which results in coverage being voided when the insured commits fraud or makes a material misrepresentation. In fact, the carrier filed a counterclaim asserting that, because the insured violated the fraud/misrepresentation condition, it should be compelled to return the initial payment to the carrier. At the hearing on the motion to compel appraisal, the carrier argued that, because such a question of coverage exists, appraisal was not available. The court, relying on existing precedent allowing appraisal to take place when issues of coverage are pending, otherwise known as the “dual track” approach, ordered that the appraisal be conducted. The carrier then appealed to the Second District Court of Appeals who affirmed the lower court's ruling and certified conflict with cases disapproving the dual-track approach.³

The Supreme Court of Florida accepted jurisdiction and sought to resolve the certified conflict.⁴

Supreme Court Opinion

The Supreme Court affirmed the district court's opinion rejecting the carrier's “inflexible coverage-first rule” instead holding that “a trial court has discretion in determining the order in which coverage and amount-of-loss issues are resolved.”⁵

Analysis, Impact, and Effect

First, it is essential to understand the previously conflicting schools of thought in Florida with regards to the ability to proceed with appraisal when there are outstanding coverage issues. In the counties governed by the Third District Court of Appeal (hereinafter "3d DCA")⁶ and, subsequently, the Second District Court of Appeal (hereinafter "2d DCA"),⁷ the courts adhered to the "dual-tack" approach to appraisal, meaning the appraisal may go forward on a "dual track" basis while the insurer preserves their right to contest coverage as a matter of law even after the appraisal has been completed;⁸ however, in the counties governed by the Fourth District Court of Appeal (hereinafter "4th DCA")⁹ the courts specifically rejected the "dual-track" approach and held that the trial court must resolve coverage issues before sending the parties to appraisal to determine damages.¹⁰ Based on these conflicting viewpoints, it has been established that appraisal could always move forward in the 2d and 3d DCAs regardless of any coverage issues and appraisal would need to be stayed in the 4th DCA until such a time as coverage was determined in its entirety.

The San Marco Court sought to resolve the conflict between the Florida appellate courts; however, in doing so, it may have led to more confusion on the proper course of action in appraisal/coverage matters. By providing the courts with discretion to decide the order of resolution on coverage, it is possible that there will be conflicting methods utilized within the same counties and, potentially, within the same courtrooms.

Ultimately, it is this author's opinion that the retained-rights provision which allows the carrier to deny a claim even after the appraisal has been completed will be the lynchpin of courts' analyses when it comes to the order of operations. If the carrier has a retained-rights provision, there is nothing which should prevent the appraisal from going forward as the carrier will still be able to assert its coverage defenses after the fact. If there is no retained-rights provision in the governing policy, the coverage issue should likely be resolved before any appraisal is conducted. Of course, the court could order that the insurer retains its rights to assert defenses after the appraisal has concluded.¹¹ In doing so, the court should be careful to limit the retained defenses to issues of coverage and not simply causation. This is because issues of causation are appropriately determined by the appraisal panel.¹²

Perhaps the completion of appraisal will even be instrumental in determining whether such coverage issues are actually viable as bases to invalidate the claim. Take, for example, a claim which was partially denied for the violation of a post-loss condition leading to some kind of alleged prejudice. If an appraisal panel is able to make a determination as to the amount of loss despite the claim of prejudice, the defense, and ability to invalidate the claim, is significantly weaker. Or, looking at the San Marco case, if the appraisal panel disagrees with the insured's estimate and finds that many of the line items were improperly included, the argument that the insured violated the fraud/concealment provision may hold more water.

While the San Marco opinion could very well create a new era in first-party property where appraisal is utilized as a tool to assist in litigation in a way it never has been before, there are also some potential pitfalls which may arise. It may lead to depositions of those involved in appraisal panels where litigants attempt to relitigate the outcomes of appraisal. This would be hugely detrimental to the appraisal process as a whole; however, it is important to remember that, just like the appraisal provision in San Marco, all appraisal provisions ever seen by this author note in one way or another that “[a] decision by any two [members of the appraisal panel] will be binding.”¹³

Should you have any questions about how this analysis may relate to your own claim, please do not hesitate to contact us for a free consultation.

¹ Am. Coastal Ins. Co. v. San Marco Villas Condo. Ass'n, Inc., SC2021-0883, 2024 WL 369079 (Fla. 2024).
² Id. 2024 WL 369079 at 1.
³ Id. 2024 WL 369079 at 2.
⁴ Id.
⁵ Id.. 2024 WL 369079 at 3.
⁶ The 3d DCA governs Miami-Dade and Monroe Counties.
⁷ The 2d DCA governs DeSoto, Hillsborough, Manatee, Pasco, Pinellas, and Sarasota Counties.
⁸ Sunshine State Ins. Co. v. Rawlins, 34 So. 3d 753 (Fla. 3d DCA 2010).
⁹ The 4th DCA governs Broward, Indian River, Okeechobee, Palm Beach, St. Lucie, and Martin Counties.
¹⁰ Citizens Prop. Ins. Corp. v. Michigan Condo. Ass'n, 46 So. 3d 177, 178 (Fla. 4th DCA 2010) (certifying conflict with the court's decision in Rawlins); Sunshine State Ins. Co. v. Corridori, 28 So. 3d 129, 130 (Fla. 4th DCA 2010); Citizens Prop. Ins. Corp. v. Demetrescu, 137 So. 3d 500 (Fla. 4th DCA 2014).
¹¹ State Farm Florida Ins. Co. v. Hochreiter, 356 So. 3d 280 (Fla. 5th DCA 2023).
¹² Johnson v. Nationwide Mut. Ins. Co., 828 So. 2d 1021 (Fla. 2002).
¹³ Am. Coastal Ins. Co. v. San Marco Villas Condo. Ass'n, Inc.2024 WL 369079 at 1.