Bay Farms Corp. v. Great American Alliance Ins. Co. (United States District Court, Middle District of Florida, December 7, 2011)
The issue in this environmental coverage dispute was whether a 2011 amendment to the Florida statutory scheme governing sinkhole insurance which added a statutory definition of "structural damage" should be applied retroactively to the insurance policy. In September of 2009, the policyholder submitted a claim under the Policy for sinkhole losses arising from damage to structures on the property. The insurer contended that of the 26 buildings that have reportedly suffered damages due to sinkholes, "25 of the 26 buildings have relatively minor cosmetic cracking damage."
The Policy defined sinkhole loss as “loss or damage to Covered Property when structural damage to the building, including the foundation, is caused by settlement or systematic weakening of the earth supporting the building …." The Policy did not define the term "structural damage." Moreover, the Policy did not purport to incorporate by reference any existing statutory definitions nor did it include language expressly making changes to statutory definitions retroactively applicable to claims arising under the Policy.
In 2011, the Legislature for the first time adopted a definition of "structural damage" to be applied when interpreting insurance policies providing coverage for sinkhole losses. Here, the court noted that the undisputed evidence demonstrated that absent the 2011 Amendment, the policyholder’s claim involved "structural damage" to covered property so as to fall within the definition of "sinkhole loss" in the Policy. The insurer contended that the claim was not covered because the 2011 Amendment retroactively narrowed the scope of sinkhole coverage provided by the Policy
In deciding against the insurer’s interpretation of the applicability of the statute, the district court relied on the Supreme Court of Florida’s adoption of a two-pronged analysis for determining when a substantive statutory amendment should be retroactively applied as set forth in Menendez v. Progressive Express Ins. Co., 35 So.3d 873, 876 (Fla. 2010). The insurer argued that the normal presumption against retroactive application of a statute did not apply because the 2011 Amendment was merely procedural or remedial, such that the 2011 Amendment was intended to "clarify" or "amend" a definitional provision in the statute.
The court explained that while it was true that procedural or remedial statutes may operate retrospectively even absent a clear legislative intent, that was not the case with respect to amendments that constitute a substantive change, which create new rights or taking away vested rights. That is, "if a statute accomplishes a remedial purpose by creating new substantive rights or imposing new legal burdens, the presumption against retroactivity would still apply."
As such, the court held that the technical definition of "structural damage" in the 2011 Amendment significantly narrowed the definition of "sinkhole loss," which in turn narrowed the policyholders’ rights under the Policy. Thus, the 2011 Amendment included a new definition of "structural damage" that was a substantive change adversely affecting the right of sinkhole policyholders. As the policyholder had a vested contractual right to coverage for "sinkhole loss" as that term was understood when the Policy was issued, the definition of "structural damage" in the 2011 Amendment could not be applied retroactively to narrow the scope of coverage under the Policy.
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