Introduction

Sometimes, a new jurisdiction may be all it takes to significantly impact the outcome of a case. With a nearly $6.9 million water damage suit lingering, Specialty Insurance Co. decided to make a federal case out of it.[1] In Parkway Towers Condominium Association Inc. v. Arch Specialty Insurance Co. et al., a state court granted removal of the case to the District Court for the Southern District of Florida based on diversity jurisdiction.

Facts

On January 24, 2022, Parkway Towers Condominium Association Inc. (Parkway)’s property had substantial water intrusion. Parkway filed a lawsuit in state court claiming the insurer should cover the damage from the water intrusion because the plumbing system malfunctioned, and since the insurer denied the claim, then the insurer had breached their contract.[i]

The insurer filed its answer to Parkway’s complaint, alleging Parkway failed to maintain the plumbing system, which would fall under the policy exclusions for wear and tear, deficient maintenance, and existing damage.  As of July 28, 2023, Specialty Insurance Co. filed a notice of removal based on diversity jurisdiction, and the state court agreed. What was originally filed in Florida’s 11^th Judicial Circuit will now be resolved in the United States District Court for the Southern District of Florida.

This is a common and understandable strategy: removing a case can protect defendants from bias and prejudice in the court room. The bias exists not only within the jury pool, but also with judges. In state court, a judge faces election by the public every term to maintain the judiciary position. State court judges must consider the backlash in controversial out of state corporation cases when they are up for reelection. However, a federal court judge is appointed to their seat for life by the president and confirmed by the Senate. They do not have to consider the same kind of backlash.

Insurance companies might feel compelled to seek a way into federal court due to these biases in the state court. As is the case in sports, when a home team is playing in their stadium, they may benefit from the home field advantage. In this case, the insurer removed the case to federal court because of recent decisions about when the wear and tear exclusion in an insurance contract applies.

In Cheetham v. Southern Oak Insurance Co., the court found that the water damage exclusion did not apply because the source of the water did not originate from an external source.[ii] However, the 4th District Court of Appeals held, “[t]o the contrary, the endorsement here excludes damage caused by water in any form . . . regardless of the source or cause of the loss. The insurer’s endorsement language was much broader and expressly excluded damages caused by water in any form, including plumbing system accidents.”[iii] The insurer made a strategic decision considering the difference in opinions and specifically the 3^rd District Court of Appeals ruling in the Cheetham case.

Conclusion

The pending case before the United States District Court for the Southern District of Florida continues to remind the insurance industry of the importance in picking the right jurisdiction and the language to include in the wear and tear exclusion to survive massive claims by their insureds. Since a section of the Champlain Towers South collapsed in Surfside, Miami-Dade County Building officials continue to take a closer look at properties that are subject to the 40-Year Recertification. The insurance industry in South Florida can anticipate seeing more insurance claims for items that are excluded in the wear and tear exclusions.

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Sources

[1] Parkway Towers Condominium Association, Inc. v. Arch Specialty Insurance Company et al (no date) Law360. Available at: https://www.law360.com/cases/64c3d321f63652049e998c1e (Accessed: 22 August 2023).

[i] Parkway Towers Condominium Association Inc. v. Arch Specialty Insurance Co. et al., case number 1:23-cv-22820

[ii] Cheetham v. Southern Oak Insurance Co., 114 So. 3d 257 (Fla. 3d DCA 2013)

[iii] Geovera Specialty Insurance Company v. Graig Glasser, 4DCA No. 4D20-2001 (2/16/2022).