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Please see this Florida court case below which discusses how deductibles should be applied to the total "covered loss" and not the uncovered loss or policy limit.
Please note on page 15 the judge quotes wording from a respected insurance reference book (Property Loss Adjusting 106-12 (James J. Markham ed., 2d ed. Ins. Inst.
of Am. 1995).
This book the judge considers as a reference for his decision uses the term "absorb" in relation to the deductible.
Perhaps you were taught not to use the term "absorb" because that is sometimes the way contractors talk when they waive the collection of the deductible, something that is considered naughty or even fraudulent.
However the term "absorb" is the correct term used by insurance carriers and judges and insurance textbooks.
I would like to know why you say I shouldn't use that term.
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IN THE SECOND DISTRICT COURT OF APPEAL, LAKELAND, FLORIDA
April 30, 2004
GENERAL STAR INDEMNITY,
Appellant,
WEST FLORIDA VILLAGE INN, INC.,
d/b/a BEST WESTERN VILLAGE, INC.,
Appellee.
Upon consideration of Appellee's motion for rehearing, rehearing en banc,
clarification, and certification filed February 18, 2004, and Appellant's response dated
March 5, 2004, it is
ORDERED that Appellee's motion for clarification is granted and the prior
opinion filed February 4, 2004, is withdrawn. The attached opinion is substituted
therefor. In all other respects, Appellee's motion is denied.
No further motions will be entertained in this appeal.
I HEREBY CERTIFY THE FOREGOING IS A
TRUE COPY OF THE ORIGINAL COURT ORDER.
JAMES R. BIRKHOLD, CLERK
Honorable James D. Arnold
Janet L. Brown, Esq.
Matthew R. Danahy, Esq.
IN THE DISTRICT COURT OF APPEAL
OF FLORIDA
SECOND DISTRICT
GENERAL STAR INDEMNITY COMPANY, )
)
Appellant,
)
)
)
)
WEST FLORIDA VILLAGE INN, INC.,
)
d/b/a BEST WESTERN VILLAGE, INC.,
)
)
Appellee.
)
)
Opinion filed April 30, 2004.
Appeal from the Circuit Court for
Hillsborough County; James D. Arnold,
Judge.
Janet L. Brown of Boehm, Brown, Fischer
& Harwood, P.A., Maitland, for Appellant.
Matthew R. Danahy of Douglas L. Grose,
P.A., Tampa, for Appellee.
WALLACE, Judge.
This appeal raises two questions concerning the proper interpretation of
provisions for deductibles in a policy of casualty insurance. First, if a policy provision
concerning the amount of the applicable deductible is ambiguous, may reference be
made to the unambiguous provisions of the insured's application for insurance and other
policy provisions to determine the amount of the deductible? Second, for the purpose of
determining the extent of the insurer's obligation to pay the insured for loss to covered
property under the policy of insurance, is the amount of the deductible to be applied to
noncovered loss as well as covered loss under the policy? We answer the first question
in the affirmative, answer the second question in the negative, and reverse the final
judgment in favor of the insured that ruled to the contrary.
The Facts
West Florida Village Inn, Inc., doing business as Best Western Village
Inn (West Florida), renewed a commercial property insurance policy issued by General
Star Indemnity Co. (General Star) to insure the five-building motel complex West Florida
operated in Pensacola, Florida. Subject to the terms and conditions of the policy,
West Florida paid an annual premium of $21,000 in return for an agreement by General
Star to indemnify West Florida for damage caused by covered causes of loss to an
aggregate limit of $4,185,600.
On or about September 28, 1998, Hurricane Georges struck the Florida
Panhandle with high winds and heavy rain, damaging West Florida's motel. West
Florida consulted a public adjuster to determine its loss and subsequently submitted a
claim to General Star to recover $476,522.07 under the policy. General Star rejected
West Florida's claim, and the dispute was referred to arbitration as provided by the
policy. The dispute primarily concerned the policy's scope of coverage. In its claim,
West Florida attributed the cause of loss to "Hurricane George [sic]." Although the
policy provided payment for direct physical loss to the property, General Star rejected
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the claim on the ground that the loss was caused by "wind-driven rain," which General
Star asserted was an excluded cause of loss under the policy. The arbitration panel
issued an appraisal award determining the amount of loss payable under the policy--
less West Florida's portion of arbitration expenses--to be $154,710.25. From the
appraisal award figure, General Star withheld $83,712 based on its interpretation of a
policy provision calling for a deductible in that amount applicable to loss caused by
windstorm and hail. General Star issued payment of $70,998.25 to satisfy West
Florida's claim arising from Hurricane Georges.
West Florida filed suit against General Star for breach of the insurance
contract. The complaint asserted that $5,000 was the deductible applicable to wind-
storm loss, not $83,712. The windstorm deductible provision appeared on a document
titled "Multiple Deductible Form," which was referenced on the declarations page and
included in the policy. West Florida contended that the Multiple Deductible Form was
ambiguous and must be construed in favor of the insured.
West Florida's complaint also asserted that regardless of the amount of
the deductible, General Star incorrectly applied the deductible to the amount of loss.
According to West Florida, because of ambiguity in the deductible provision of the
Building and Personal Property Coverage Form, General Star should not have applied
the deductible to the amount of loss covered under the policy, which was the appraisal
award of $154,710.25. Instead, the deductible should have been applied to the total
loss caused by Hurricane Georges, including the covered loss and noncovered loss.
West Florida alleged the total loss to be $476,522.07 based upon its public adjuster's
prior determination of the total loss. Applying the deductible to the total loss, West
-3-
Florida would have been entitled to the full amount of the covered loss, $154,710.25,
because the difference between the total loss and the covered loss exceeded the
amount of the deductible regardless of whether the amount of the deductible was
$83,712 or $5,000. Contending that the policy terms were ambiguous and must be
construed in its favor, West Florida sued to recover $83,712 that it claimed to be due
under the policy.
Following procedural maneuvering not relevant here, the parties submitted
the matter to voluntary trial resolution in Hillsborough County pursuant to section
44.104, Florida Statutes (2001). Following a bench trial, the trial resolution judge found
"patent ambiguity" in both the Multiple Deductible Form and in the deductible provision
of the Building and Personal Property Coverage Form. Construing these provisions in
favor of the insured, the trial resolution judge determined the amount of the deductible
to be $5,000 and further found that this amount was absorbed by West Florida's total
loss in excess of its covered loss. The trial resolution judge determined that the amount
of loss not covered by the policy exceeded $90,000; thus a deductible of either $5,000
or $83,712 applied to the total loss resulted in General Star's liability for the full amount
of the covered loss, $154,710.25. The trial resolution judge's final decision awarded
West Florida $83,712 as the balance due under the policy. The circuit court entered
final judgment enforcing the trial resolution judge's decision.
-4-
The Law
Our review calls for interpretation of the Multiple Deductible Form1 and
the deductible provision of the Building and Personal Property Coverage Form.2 The
standard of review is de novo. See Biltmore Constr. Co. v. Owners Ins. Co., 842 So.
2d 947, 949 (Fla. 2d DCA), review dismissed, 846 So. 2d 1148 (Fla. 2003); Auto-
Owners Ins. Co. v. Marvin Dev. Co., 805 So. 2d 888, 891 (Fla. 2d DCA 2001). The
facts determined in the voluntary trial resolution proceeding are not subject to appeal.
See § 44.104(11).
General principles of Florida insurance law guide our resolution of this
appeal. Like other contracts, contracts of insurance should receive a construction that
is reasonable, practical, sensible, and just. Weldon v. All Am. Life Ins. Co., 605 So. 2d
911, 915 (Fla. 2d DCA 1992). Terms used in a policy should be read in light of the skill
and experience of ordinary people. Lindheimer v. St. Paul Fire & Marine Ins. Co., 643
So. 2d 636, 638 (Fla. 3d DCA 1994). Insurance policies will not be construed to reach
an absurd result. Deni Assocs. of Fla., Inc. v. State Farm Fire & Cas. Ins. Co., 711 So.
2d 1135, 1140 (Fla. 1998).
We are mindful that policy provisions excluding or limiting the insurer's
liability are construed more strictly than coverage provisions. Purrelli v. State Farm Fire
& Cas. Co., 698 So. 2d 618, 620 (Fla. 2d DCA 1997). Such limiting provisions must be
construed in favor of the insured if they are ambiguous or reasonably susceptible to
more than one meaning. Deni, 711 So. 2d at 1138. However, the rule of liberal
1
A copy of this form as it appeared in the record is included with this opinion
as an appendix.
2
Insurance Service Office form number CP 00 10 06 95.
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construction in favor of the insured applies only when a genuine inconsistency,
uncertainty, or ambiguity in meaning remains after resort to the ordinary rules of
construction. Id. In construing an insurance policy, courts should read the policy as
a whole, endeavoring to give every provision its full meaning and operative effect.
Auto-Owners Ins. Co. v. Anderson, 756 So. 2d 29, 34 (Fla. 2000). Indeed, a single
policy provision should not be considered in isolation, but rather, the contract shall be
construed according to the entirety of its terms as set forth in the policy and as amplified
by the policy application, endorsements, or riders. Swire Pac. Holdings, Inc. v. Zurich
Ins. Co., 845 So. 2d 161, 166 (Fla. 2003) (citing § 627.419(1), Fla. Stat. (2002)); The
Praetorians v. Fisher, 89 So. 2d 329, 333 (Fla. 1956). The lack of a definition of an
operative term does not, by itself, create ambiguity. State Farm Fire & Cas. Co. v.
CTC Dev. Corp., 720 So. 2d 1072, 1076 (Fla. 1998); Great Am. Ins. Cos. v. Souza,
855 So. 2d 187 (Fla. 4th DCA 2003). Further, ambiguity does not exist merely because
an insurance contract is complex and requires analysis to interpret it. Swire Pac.
Holdings, 845 So. 2d at 165; Koenigsberg v. Intercontinental Ins. Co., 571 So. 2d 578,
579 (Fla. 4th DCA 1990) (construing a deductible provision); Am. Motorists Ins. Co. v.
Farrey's Wholesale Hardware Co., 507 So. 2d 642, 645 (Fla. 3d DCA 1987); Travelers
Ins. Co. v. C.J. Gayfer's & Co., 366 So. 2d 1199, 1201 (Fla. 1st DCA 1979). Where no
ambiguity exists, the policy shall be construed according to the plain language of the
policy as bargained for by the parties. Anderson, 756 So. 2d at 33.
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The Multiple Deductible Form
The Multiple Deductible Form lists two covered causes of loss, "Special"
and "Windstorm and Hail,"3 and two deductible amounts, $5,000 and $83,712. West
Florida contends that the spatial arrangement of the phrase "All Covered Causes of
Loss except as listed below" in relation to the other items created confusion, suggesting
that $5,000 was the deductible applicable to loss caused by windstorm and,
presumably, $83,712 was the deductible applicable to all other causes of loss except
windstorm.
Standing alone, the Multiple Deductible Form is not a model of clarity.
However, the form's ambiguity is readily resolved when read together with other parts of
the contract. First, a quick reference to the policy application resolves any doubt that
the $83,712 deductible applies to "Windstorm and Hail" damage. See Mathews v.
Ranger Ins. Co., 281 So. 2d 345, 348 (Fla. 1973) ("The application thus becomes a
part of the agreement between the parties and the policy together with the application
form the contract of insurance."); Zenith Ins. Co. v. Commercial Forming Corp., 850 So.
2d 568, 570 (Fla. 2d DCA 2003). The renewal application, signed by West Florida's
president and nearly identical to the original application for the previous policy year,
bears the phrase "2% wind deductible" once and the phrase "2% wind ded" four times
in describing the various coverages for the individual motel buildings. The property
was insured to a limit of $4,185,600 of its value. Two percent of $4,185,600 is exactly
3
We note that section 627.701, Florida Statutes (1997), which places certain
restrictions upon deductible provisions specific to hurricane damage subject to enforce-
ment by the Department of Insurance, does not apply to the contract of insurance in this
case. General Star is an excess lines carrier based in Connecticut and is not subject to
regulation by the Florida Department of Insurance.
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$83,712. Thus, when the Multiple Deductible Form and the application are read
together, it becomes clear that the "2% wind deductible" and the "Windstorm and Hail"
deductible both refer to the same amount--$83,712. By contrast, $5,000 is far less than
two percent of the insured value of the property and cannot reasonably be confused
with the higher amount.
This conclusion is further made plain because the Multiple Deductible
Form clearly links "$5,000" to "Special" covered causes of loss, not loss arising from
wind damage. In the policy, the Causes of Loss - Special Form4 defines a "Special"
covered cause of loss: "When Special is shown in Declarations, Covered Causes of
Loss means RISK OF DIRECT PHYSICAL LOSS." The form then lists numerous
exclusions to and limitations on the direct physical loss that is otherwise covered.
Thus "Special" covered causes of loss encompass a broad category of all causes of
direct physical loss subject to certain exclusions and limitations. The declarations page
reveals that all five of the motel buildings are insured for "Special" covered causes of
loss. Therefore, the insured is informed that if a building suffers direct physical loss,
coverage will be provided if the damage was caused by a covered cause of loss, and
this coverage will be subject to the deductible for "Special" covered causes of loss. The
Multiple Deductible Form clearly identifies $5,000 as the amount of the deductible for
"Special" covered causes of loss. The higher deductible for wind damage appears as
an exception to the "Special" deductible for all other causes of loss. Thus, when the
application and other parts of the policy are read together with the Multiple Deductible
Form, the contract for insurance is clear that the deductible for windstorm damage is
4
Insurance Service Office form number CP 10 30 06 95.
-8-
$83,712. An insurance policy, though it may be complex, is not ambiguous merely
because it requires analysis to interpret it. See Koenigsberg, 571 So. 2d at 579.
We note that this is not a case in which the terms of the application conflict
with the provisions of the policy. See Padgett v. Horace-Mann Ins. Co., 704 So. 2d 627,
629-30 (Fla. 1st DCA 1997) (citing the general rule that where terms conflict, the terms
of the policy prevail over the terms of the application except if reliance on the terms of
the application would result in greater indemnity). Rather, all of the terms of the con-
tract of insurance, including those of the application, convey one meaning when read
together. See Mathews, 281 So. 2d at 349. Although the phrase "All Covered Causes
of Loss except as listed below" in the Multiple Deductible Form may not have been as
artfully drafted and placed as it could have been, the mere fact that a policy provision
could have been worded differently does not create an ambiguity when the policy in its
entirety is clear. See Swire Pac. Holdings, 845 So. 2d at 166.
The Deductible Provision
The deductible provision at issue in this appeal appears in the policy
within the Building and Personal Property Coverage Form, which provides, in pertinent
D. DEDUCTIBLE
We will not pay for loss or damage in any one occurrence until
the amount of loss or damage exceeds the Deductible shown
in the Declarations. We will then pay the amount of loss or
damage in excess of the Deductible, up to the applicable Limit
of Insurance, after any deduction required by the Coinsurance
condition or the Agreed Value Optional Coverage.
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The form continues with two examples of the deductible provision in operation.5 West
5
The form continues as follows:
When the occurrence involves loss to more than one item of
Covered Property and more than one Limit of Insurance
applies, the Deductible will reduce the total amount of loss
payable if loss to at least one item is less than the sum of (1)
the Limit of Insurance applicable to that item plus (2) the
Deductible.
Example No. 1:
(This example assumes there is no coinsurance penalty.)
Deductible:
$250
Limit of Insurance - Bldg. 1:
Limit of Insurance - Bldg. 2:
Loss to Bldg. 1:
Loss to Bldg. 2:
The amount of loss to Bldg. 1 ($60,100) is less than the sum
($60,250) of the Limit of Insurance applicable to Bldg. 1 plus
the Deductible.
The Deductible will be subtracted from the amount of loss in
calculating the loss payable for Bldg. 1:
$60,100
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250
$59,850 Loss Payable - Bldg. 1
The Deductible applies once per occurrence and therefore is
not subtracted in determining the amount of loss payable for
Bldg. 2. Loss payable for Bldg. 2 is the Limit of Insurance of
$80,000.
Total amount of loss payable: $59,850 + 80,000 =
$139,850.
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Florida contends that there is an ambiguity in this passage because it refers only to the
"amount of loss" and not the "amount of covered loss." In other words, the deductible
is to be applied to the total amount of covered and noncovered loss. In this case, the
covered loss caused by Hurricane Georges was determined by the arbitrators to be
$154,710.25. The trial resolution judge determined that additional noncovered loss
caused by Hurricane Georges exceeded $90,000. Thus the total of covered and non-
covered loss was at least $244,710.25, which represented the "amount of loss" to which
the deductible was to be applied. According to West Florida, even if the deductible
were $83,712, West Florida would still receive the full coverage amount of $154,710.25
Example No. 2:
(This example, too, assumes there is no coinsurance
penalty.)
The Deductible and Limits of Insurance are the same as those
in Example No. 1.
Loss to Bldg. 1:
Loss to Bldg 2:
Loss Payable - Bldg. 1:
Loss Payable - Bldg. 2:
Total amount of loss payable:
West Florida cited these examples in support of its argument to the trial resolution
judge. However, these examples of the deductible provision in operation illustrate the
problem of applying the deductible when the amount of loss caused by an insured
cause of loss exceeds the limits of insurance. These examples are not relevant to
West Florida's claim because the amount of its insurable loss--that is, the amount of
loss determined by the appraisers--was far below the limits of insurance.
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after the deductible is applied to the total "amount of loss" of at least $244,710.25.
West Florida contends that because the word "loss" is nowhere defined in the policy
as limited to covered loss, the phrase "amount of loss" in the deductible provision is
reasonably susceptible to a construction in which the deductible should be applied to
noncovered loss, notwithstanding other policy provisions, such as the Building and
Personal Property Coverage Form's "loss payment" provision that expressly refers to
"covered loss or damage."
Contrary to West Florida's contention, the lack of a definition for "amount
of loss or damage" does not in and of itself create ambiguity, nor should a single pro-
vision be read in isolation. Throughout the policy, "loss" is discussed in the context of
coverage; nowhere does the policy suggest that General Star would indemnify West
Florida for loss that was not covered by the policy. The initial coverage provision of
the Building and Personal Property Coverage Form provides that General Star "will pay
for direct physical loss of or damage to Covered Property at the premises described in
the Declarations caused by or resulting from any Covered Cause of Loss." Another
provision titled "Covered Causes of Loss" references and incorporates the Causes of
Loss - Special Form, which provides general coverage for direct causes of physical loss
subject to certain exclusions and limitations, as described above. Directly preceding
the deductible provision is a section titled "Limits of Insurance," which indicates that
the most General Star would pay for "loss or damage" is the amount of coverage
available as shown in the declarations. Following the deductible provision is the "loss
payment" provision that contemplates payment for "covered loss or damage." To
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construe "amount of loss" as including noncovered loss in this context is contrary to a
common sense reading of the policy.6
The notion that a deductible could be applied to loss that is not covered by
the policy is fundamentally unreasonable. One need not look for a policy definition of
"amount of loss" when the plain meaning of the word "deductible" provides ample
guidance. A "deductible" is "a clause in an insurance policy that relieves the insurer of
responsibility for an initial specified loss of the kind insured against." Merriam-Webster's
Collegiate Dictionary 471 (deluxe ed. 1998). A deductible loses its meaning entirely if it
is to apply to loss that is not covered by the policy.
"Generally, the functional purpose of a deductible, which is frequently
referred to as self-insurance, is to alter the point at which an insurance company's
obligation to pay will ripen." Int'l Bankers Ins. Co. v. Arnone, 552 So. 2d 908, 911 (Fla.
1989). As self-insurance, a deductible requires the insured to share in the risk of loss,
and worthy social goals are promoted. The insured is given a monetary incentive to
6
West Florida's argument that the coinsurance provision of the policy supports
its position is misplaced. The purpose of coinsurance is to increase the risk to the
insured when the insured purchases far less coverage than the full value of the
property. See generally Couch on Insurance 3d § 220:3-24 (West Group 1999). When
a coinsurance provision applies, the insurer does not pay the full amount of loss.
Instead, the amount otherwise payable under the policy is reduced in proportion to the
extent to which the property is underinsured. Thus the "full amount of loss" in this
context necessarily involves a combination of covered loss and loss that is not covered
because the insured purchased less coverage than he or she should have. Through
coinsurance, the principle of indemnity is upheld by requiring the insured to assume his
or her fair share of the risk of loss after the loss occurs. In the policy at hand, after the
coinsurance amount is calculated and subtracted from the "full amount of loss," the
appropriate deductible is applied to the remaining amount payable under the policy.
The coinsurance provision of the policy is not applicable to West Florida's claim, as
there is no indication that its property was insured for an amount below the coinsurance
percentage as stated in the declarations.
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fulfill his or her duty to protect and to adequately maintain his or her property as well
as a monetary disincentive to file relatively trivial claims, thereby contributing to the
reduction of administrative costs and overall costs of insurance. Conversely, applying
the deductible to noncovered loss does not serve the goals of having the insured share
in the risk. Indeed, it threatens to render the deductible a nullity.
The practical effect of such a construction of this standard-form deductible
provision would indeed produce troubling, if not absurd, results. For example, when
processing claims, the insurer would be required to adjust loss that was not covered
under the policy. Suppose a homeowner's policy--containing an identical deductible
provision as the policy at issue here--covered loss from theft of personal property
but excluded jewelry. In the event of a loss including furniture, sporting equipment,
and jewelry, for example, it would be necessary to obtain an expensive gemological
appraisal or otherwise evaluate the noncovered jewelry in order to adjust the loss. The
cost of such an appraisal or valuation would have to be borne by either the insurer or
the insured, thereby increasing administrative costs unnecessarily. Under the construc-
tion urged by West Florida, the amount payable for a given type of loss would depend
on factors outside the contemplation of the contract of insurance. This would make it
difficult, if not impossible, for insurers to set predictable rates in order to maintain
solvency and stability in the insurance industry.
West Florida does not cite any decisional authority in support of its
deductibility theory.7 To the contrary, one court, considering a comparable casualty
7
West Florida has provided this court with excerpts from two editions of a
standard insurance claims adjusting text. Property Loss Adjusting 2.16-.19, 3.46-.47
(Donna J. Popow ed., 3d ed. Am. Inst. for Chartered Prop. Cas. Underwriters/Ins. Inst.
- 14 -
policy, has addressed the application of the deductible in the manner suggested by
West Florida and rejected it outright. In Shoreline Towers Condominium Owners
Ass'n v. Zurich American Insurance Co., 196 F. Supp. 2d 1210, 1216 (S.D. Ala. 2002),
the court said of the insured's theory of applying the deductible to loss arising from
Hurricane Opal, "[the insured's] contention that the deductible should be applied to
the loss caused by both covered and excluded causes of loss is contrary to the plain
language of the insurance contract and results in a tortured interpretation of the Policy."8
Similarly, in West Florida's case, we find that applying the deductible exclusively to the
amount of covered loss is consistent with the only reasonable interpretation of the
contract of insurance read in its entirety. An interpretation to the contrary would be
tortured and would lead to absurd results.
of Am. 2003); Property Loss Adjusting 106-12 (James J. Markham ed., 2d ed. Ins. Inst.
of Am. 1995). These materials describe how a deductible may be "absorbed" by the
total amount of loss when the entire loss is caused by a covered cause of loss and
recovery is limited only by the limits of insurance. The examples provided by these
materials are similar to the examples provided in the deductible provision of the Building
and Personal Property Coverage Form. These materials do not support the theory
advanced by West Florida because policy limits are not implicated in this case. Rather,
a matter resolved by the arbitrators was whether some of the loss claimed by West
Florida was caused by an excluded cause of loss, namely, "wind-driven rain." The
arbitration award reflects the conclusion that some of the damage caused by Hurricane
Georges was not covered by the policy because that damage was attributable to an
excluded cause of loss. The materials submitted by West Florida do not support the
theory that a deductible should be applied against loss caused by an excluded cause of
loss under the policy. Our rejection of West Florida's theory does not bear upon the
normal insurance claims adjusting practice of absorbing a deductible when the total
amount of loss caused by a covered cause of loss exceeds the limits of insurance for
that type of loss.
8
We are aware that the precise wording of the deductible provision in Shoreline
Towers differs from the provision at issue here and that the court's analysis of the policy
was dicta in light of its finding that the statute of limitations had run on the insured's
causes of action. 196 F. Supp. 2d at 1216. Nevertheless, we find the reasoning of the
court to be persuasive as it was premised upon a determination that the policy was
clear and unambiguous when read in its entirety.
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For the reasons set forth in this opinion, we reverse the final judgment
awarding $83,712 to West Florida and remand for entry of final judgment in General
Star's favor.
Reversed and remanded.
CASANUEVA and SALCINES, JJ., concur.
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