Fifth District Interprets Obligation To Pay Benfits For Sinkhole Damage

In State Farm Florida Insurance Company v. Nichols (5D08-2873,5D08-4199, 5D08-4200, 5D08-4201, 5D08-4202),  the Fifth District held State Farm was required to pay sinkhole damage immediately regardless of the arguably contrary language in 627.707(5)(b), Florida Statutes.  In this case, it appears there was no conflict that the damage was covered by the policy. However, the insurer argued coverage was limited by a statute. The court held that the statute was permissive, the contract controlled.

The court stated:

In these consolidated appeals, we address disputes between State Farm and its insureds concerning when it is obligated to pay for subsurface sinkhole repairs under its homeowners’ policies. Relying on a statute, State Farm contends that it need not pay for these repairs until after the homeowners enter into contracts for the performance of the repairs, notwithstanding language in its policies to the contrary.

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In each of the cases here, appraisal awards separately listed the amount of above-ground damages and the amount of subsurface damages caused by sinkholes. State Farm promptly tendered a check to each of the homeowners for the total amount designated as above-ground damages, but it did not tender the amount designated as subsurface damages, contending that that amount was not due until the homeowners entered into contracts for those repairs.

The homeowners' policies clearly require State Farm to pay the full amount of an appraisal award within sixty days of the award...Notwithstanding this language, State Farm contends that it is authorized by section 627.707(5)(b), Florida Statutes (2007), to withhold the funds until the homeowners have contracted for the repairs. This statute provides in pertinent part:

The insurer may limit its payment to the actual cash value of the sinkhole loss, not including underpinning or grouting or any other repair technique performed below the existing foundation of the building, until the policyholder enters into a contract for the performance of building stabilization or foundation repairs. After the policyholder enters into the contract, the insurer shall pay the amounts necessary to begin and perform such repairs as the work is performed and the expenses are incurred. The insurer may not require the policyholder to advance payment for such repairs.

We construe this language as permissive, not mandatory. Because it is permissive, the policy language that requires payment of subsurface repairs within sixty days after the appraisal award is not in conflict with the statute and is binding on the parties to the insurance contract.