On January 21, 2021, the Florida Supreme Court rendered its decision in Citizens Prop. Ins. Corp. v. Manor House, LLC,i holding extra-contractual and consequential damages are not available in first-party breach of insurance contract actions. This ruling clarifies a historically vague area of contract law and reverses years of lower-court rulings within the state. This holding will carry significant consequences for insurance carriers and policy holders alike.
Prior to the Florida Supreme Court’s holding in Citizens Prop. Ins. Corp. v. Manor House, LLC, Florida courts applied traditional rules governing breach of contract to insurance policies: to be recoverable, damages for breach of an insurance contract “must arise naturally from the breach, or have been in the contemplation of both parties at the time they made the contract, as the probable result of a breach.”ii Based on this rule, Florida courts have held if the insured could prove the insurance carrier breached the policy, the insured was entitled to recover foreseeable consequential damages, even if those damages exceeded the balance of payments or coverage under the policy.iii
Federal courts have applied Florida law in the same way. In T.D.S. Inc. v. Shelby Mut. Ins. Co.,iv a Florida trial court instructed the jury the jury could award consequential damages resulting from the carrier’s breach of insurance contract if plaintiff had shown the consequential damages were foreseeable at the time of the creation of the insurance contract.v The Eleventh Circuit Court of Appeals approved the instruction, holding Florida courts allowed consequential damages, even where the consequential damages were not a covered policy benefit.vi
Similarly, in Rondolino v. Northwestern Mutual Life Insurance Co., the court held “[i]f a party can prove loss of profits [from breach of an insurance contract] with reasonable certainty, then damages will be awarded.”vii Because consequential damages occurred due to a breach of the insurance contract, Florida courts at the time did not limit damages to the terms of the contract: the key issue was whether the consequential damages were foreseeable at the time the policy was created.viii
The Manor House Decision
Prior to enactment of Fla. Stat. § 624.155 in 1982 creating a “Civil Remedy” for bad faith claim handling, Florida did not recognize first-party bad faith claims. This impacted the development of Florida breach of insurance contract law and blurred the lines between the types of damages available in breach of contract claims versus bad faith claims.ix In Citizens Prop. Ins. Corp. v. Manor House, LLC, the Florida Supreme Court seized the opportunity to clarify and correct this historically blurred distinction.
Citizens Property Insurance Corp. (Citizens) insured several apartment buildings owned by Manor House, LLC (Manor House) damaged by a hurricane. Although Citizens worked with Manor House to make payments, Manor House claimed Citizens unreasonably delayed adjustment and payment of the claim. Manor House claimed Citizens’ delay in adjusting and paying the claim caused Manor House to lose rental income, causing consequential damages. Citizens, a statutorily created and state-sponsored entity was immune from first-party bad faith claims. Manor House therefore made its claim for consequential damages under a breach of insurance contract theory.x
The trial court dismissed Manor House’s claim for lost rental income, noting nothing in the insurance policy provided coverage for such loss. The Appellate Court reversed, ruling traditional contract law entitles the insured to recover consequential damages caused by a breach of contract. Quashing the appellate court decision, the Florida Supreme Court held the only contractual amount due to an insured is the amount owed under the express terms and conditions of the policy. The court clarified “extra-contractual, consequential damages are not available in a first-party breach of insurance contract action because the contractual amount due to the insured is the amount owed pursuant to the express terms and conditions of the insurance policy.”xi Although extra-contractual damages would be available in a separate bad faith action pursuant to section 624.155, Citizens was immune from a claim of bad faith based on its “government entity” status. The court further stated no consequential damages could be foreseeable to the parties at the time the contract was drafted if those damages were not expressly included in the terms of the insurance policy itself.xii
This decision is not without precedent. Florida courts have previously held insurance policies are legally distinct from other types of contracts due to the unique relationship between insurance policy carriers and holders.xiii
The Florida Supreme Court’s holding in Manor House affirms the terms and conditions of the insurance policy govern disputes over coverage. The opinion further clarifies the distinction between recoverable damages in breach of insurance contract cases versus bad faith cases. This holding is good news for insurance carriers, who will now be better able to control recovery under insurance policies and limit the terms of recovery through the insurance policy itself. Insurance carriers will further be protected from bad faith claims and damages disguised as breach of contract cases. This holding is good news for policy holders as well, who may see insurance premiums and rates drop as carriers are protected from over-broad claims.
i 2021 WL 208455 (Fla. Jan. 21, 2021).
ii Hobbley v. Sears, Roebuck and Co., 450 So.2d 332, 333 (Fla. 1st DCA 1984) (citing Hadley v. Baxendale, 9 Exch. 341, 156 Eng.Rep. 145 (1854)); Martin v. Monarch Life Ins. Co., 1995 WL 127157 (M.D. Fla. 1995).
iv 760 F.2d 1520, 1531-32 (11th Cir. 1985).
vi Id. For other examples of consequential damages in breach of insurance contract cases in Florida, see Travelers Ins. Co. v. Wells, 633 So.2d 457 (Fla. 5th DCA 1993); Travelers Indemnity Co. v. Parkman, 300 So.2d 284 (Fla. 4th DCA 1974); St. Paul Fire & Marine Ins. Co. v. Thomas, 273 So.2d 117 (Fla. 4th DCA 1973).
vii 788 F.Supp. 553, 555 (M.D. Fla. 1992).
ix Fridman v. Safeco Ins. of Illinois, 185 So. 3d 1214, 1220 (Fla. 2016); McLeod v. Continental Ins. Co., 591 So. 2d 621, 623 (Fla. 1992).
x Manor House, 2021 WL 208455 (Fla. Jan. 21, 2021).
xi Id. At *11-12.
xiii See Fayad v. Clarendon National Ins. Co., 899 So.2d 1082 (Fla. 2005).