Yacht Club Sent Sailing Over Late Notice To Insurer

Case:Yacht Club on the Intracoastal Condo. Ass'n v. Lexington Ins. Co.,
11th Cir. Court of Appeals (Florida)
2015 U.S. App. LEXIS 293

This Florida coverage case arose out of a Hurricane Wilma loss to a 380 unit condominium complex. The insured sued Lexington, claiming $6.2 million in damages caused by Hurricane Wilma. At issue was late notice under Florida law.

Hurricane Wilma struck the Florida coast on October 24, 2005. Many property owners immediately notified their insurance carriers and made claims while others waited months or years before making claims. The Yacht Club sent formal notice of its loss to Lexington four years and seven months after Hurricane Wilma. Although the Yacht Club was aware of some damage immediately following Hurricane Wilma, it claimed it did not understand the damages would exceed the policy deductible of $100,000. However, over the ensuing years, its buildings showed increasing evidence of exterior and interior damages. In 2006, the Yacht Club hired an engineer to inspect the property, as it was considering suit against the developer for alleged construction and design defects. The engineer indicated damages to the roofs were caused by Hurricane Wilma. The Yacht Club sued the developer which went bankrupt. In 2009, the Yacht Club retained a public adjuster who advised that a Hurricane Wilma insurance claim should be made against Lexington, which resulted in the Club’s formal notice to Lexington.

The policy required “prompt notice of the loss or damage” as well as a “signed, sworn statement of loss containing information we request to investigate the claim.” The District Court granted the insurer’s motion for summary judgment, finding that the Yacht Club’s notice was not “prompt” as a matter of law.

Applying Florida law, and recognizing that ordinarily whether or not the notice is “prompt” is a question of fact, the court found this was not the case here. The court applied a two-step analysis: whether the notice was timely and, if untimely, whether the insurer had been prejudiced. Notably, under Florida law, prejudice to the insurer is presumed, but may be rebutted.

The court recognized that prompt, as soon as practicable, immediate, or comparable phrases have been interpreted to mean that notice should be given “with reasonable dispatch and within a reasonable time in view of all of the facts and circumstances of the particular case.” Notice is necessary when the occurrence should have led the reasonable person to believe damage would arise. Germane to the analysis was that Hurricane Wilma was a “known event” and the insured was aware that it had sustained some damages. The court cataloged various cases in which notice was found to be untimely and found as a matter of law, the Yacht Club’s notice was untimely. Importantly, the court noted that whether the insured believed its damages exceeded the deductible was not relevant under Florida law.

The appellate court then considered the matter of prejudice. Florida law provides that the breach of the duty of notice results in a rebuttable presumption of prejudice to the insurer, and the insured has the burden to show a lack of prejudice when the insurer has been deprived of its opportunity to investigate the facts. Lexington presented no evidence of prejudice; however, the court noted that it need not do so. Rather, it was the Yacht Club’s burden to come forward with evidence that showed there was no prejudice, which it had failed to do.

Citing Laster v. U.S. Fid. & Guar. Co, 293 So.2d 83 (Fla. 3d DCA 1974), the court noted that the purpose of timely notice is “to enable the insurer to evaluate its rights and liabilities, to afford an opportunity to make a timely investigation, and to prevent fraud and imposition upon it.” The insured’s ability to offer testimony or evidence as to causation alone was insufficient to counter the presumption of prejudice. That repairs had been made was further evidence of prejudice as the insurer had not been able to investigate prior to, or participate in, those repairs. The court observed that questions to consider were whether better conclusions could have been drawn with timely notice, whether those conclusions could have been more easily drawn, and whether repairs made the evaluation more difficult. The court rejected the insured’s position that Lexington’s denial of the claim automatically demonstrated there was no prejudice.

With no wind in its sails, the Yacht Club was left adrift, and then sunk below a final wave: as Lexington had made an offer of judgment for $150,000 - soundly rejected by the Yacht Club - the insurer had no liability, and the Club was cast for Lexington’s attorney’s fees under Florida statute §768.79.