Breach Of Contract & Consequential Damages

A key argument in most first party breach of contract cases is whether or not consequential damages can be recovered. Should damages that were caused by the breach of contract be awarded to the first-party claimant, even if those coverages are not listed in the policy? These types of cases blur the lines between breach of contract and bad faith cases and more importantly, whether or not policyholders have the ability to recover consequential damages at all. 

The Supreme Court of Florida recently tried a case and issued an important decision on this topic. This ruling could invite insurance carriers and adjusters to deny and delay without consequences. Read on to learn more about the case and how the outcome will impact future Florida property damage claims.  

Manor House, LLC vs Citizens Property Insurance 

The case involved Manor House, LLC whose apartment buildings were damaged by a hurricane and their carrier Citizens Property Insurance Corp. Manor House LLC, claimed that in addition to failing to timely pay the appraisal award, Citizens Insurance failed to properly adjust the loss, and failed to pay the undisputed amount. These failures caused Manor House to lose rental income due to no fault of their own. 

It’s important to note that Citizens Property Insurance is generally immune from bad faith claims based on section 627.351(6)(s)1, Florida Statute. 

With limited ability to file a bad faith case, Manor House, LLC filed a first-party breach of contract suit and Manor House sought extra-contractual damages related to lost rent caused by Citizens’ alleged failures. The case went to the FL Supreme Court who ruled policyholders cannot recover consequential damages in first-party breach of contract lawsuits against insurance carriers unless they are listed in “the express terms and conditions of the insurance policy.” For Manor House, lost rental income was not part of the policy and therefore not recoverable. 

What Options Do FL Policyholders Have?

Due to Citizens Property Insurance being immune from bad faith lawsuits, it leaves no options for their policyholders to recover consequential damages. 

For policyholders with other carriers, bad faith claims can be pursued but several challenges exist including who the burden of proof falls on. In Florida, and most other states, that burden falls on the policyholder who must prove the “absence of a reasonable basis for denying benefits of the policy” and show the insurance carrier acted “in reckless disregard for the rights of the insured”. This is easier said than done as courts often view general negligence different from reckless behavior. Put another way, a policyholder needs to show true recklessness to win punitive damages; suffering lousy claims handling only lets a claimant win actual damages and attorneys fees.  

Beyond, in Florida, the breach of contract and bad faith allegations are bifurcated (meaning that it takes two separate lawsuits to pursue bad faith), leaving it nearly impossible to get a trial verdict on both of them in a timely fashion, many times taking several years.  This allows carriers to heavily defend the breach of contract claim (like in Manor House), before ever getting to brief the 2nd claim of bad faith.  This market inefficiency allows carriers to simply ‘kick the can down the road’ for years and years.  

The practical effect of this is short-changed confidential settlements and ‘time decay’.

Should consequential damages in first-party breach of contract claims be recoverable even if they are not listed in the contract? Join the conversation by following American Adjuster Association on Facebook and LinkedIn and share your thoughts with us.