Chip Merlin | Property Insurance Coverage Law Blog | September 11, 2018
Total loss and constructive total loss concepts in Florida are often confused with automobile total loss situations and exclusions and coverages related to Ordinance or Laws. We recently were asked about building law and ordinances which required a building to be demolished per building codes. The cause of the damage was by a covered peril although like the vast majority of older buildings, there was pre-existing wear and tear to the structure.
Merlin Law Group’s very capable Ashley Harris recently stated in Florida Valued Policy Law & Hurricane Irma, these rules regarding total loss and constructive total loss:
First, a “total loss” could be what is referred to as an “actual total loss,” which occurs when a building “los[es] its identity and specific character as a building, and becomes so far disintegrated it cannot be possibly designated as a building, although some part of it may remain standing.” Greer v. Owners Ins. Co., 434 F.Supp.2d 1267 (N.D. Fla., 2006); (citing Lafayette Fire Ins. Co. v. Camnitz, 111 Fla. 556, 560, 149 So. 653, 654 (Fla. 1933)). Courts refer to this as the “identity test.”
Second, a “total loss” could be a “constructive total loss.” This requires an “unequivocal demolition order.” Magaldi v. Safeco Ins. Co. of America, 2009 WL 10668553 (S.D. Fla. Feb. 9, 2009) (“This court concludes that the majority view, requiring an unequivocal demolition order to establish “constructive total loss,” adopted in Netherlands Ins. Co. v. Fowler, 181 So.2d 692 (Fla. 2d DCA 1966) is the correct approach…”) Put differently, “[a] constructive total loss occurs when a building, although still standing, is damaged to the extent that ordinances or regulations in effect at the time of the damage actually prohibit or prevent the building’s repair, such that the building has to be demolished.
Ashley Harris’ post was very similar to the Memorandum of Law filed in trial court by the very able counsel in the Sebo v. Jacobson case, which stated:
[T]he valued policy law (“VPL”) as codified in § 627.702. Fla. Stat. (2004), is a valuation statute not a causation statute. The VPL was and is intended to prohibit an insurer from challenging whether the value of the insured property is less than the full amount of coverage as stated in the policy based on depreciation of values and other causes, in the event of a total loss. Fla. Farm Bureau Casualty Ins. Co. v. Cox, 967 So.2d 815 (Fla. 2007) citing American Ins. Co. of Newark. N.J. v. Robinson, 120 Fla. 674, 163 So. 17 (Fla. 1935). The VPL has no application other than to conclusively establish the property’s value when there is a total loss….
In determining a total loss, Florida uses two different tests. The first such test is the “identity test”. A building is considered a total loss when the building has lost its identity and specific character, and becomes so far disintegrated, it cannot be possibly designated as a building, although some part of it may remain standing . . . . The second test used to determine whether a building is a total loss is the “constructive total loss test”. A building may be deemed a constructive total loss when the building, although still standing, is damaged to the extent that ordinances or regulations in effect prohibit or prevent the building’s repair, such that the building has to be demolished.1
Another Florida case, Regency Baptist Temple v. Insurance Company of North America,2 found the same:
The present case should also be distinguished from cases in which an ordinance or regulation prevents repair of a damaged building. In those cases courts have declared the building a “constructive total loss” and held the insurer liable for the building’s entire value. E.g., Feinbloom v. Camden Fire Ins. Co., 54 N.J.Super. 541, 149 A.2d 616 (1959) . . . .
Building law and ordinances that prevent the reconstruction of structures or require them to be torn down are constructive total losses in Florida.
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1 Sebo v. Jacobson, No. 11-2007-CA-000054-0001-XX, 2011 WL 13127538 (Fla. Cir. Ct. Memorandum of Law filed Feb. 23, 2011).
2 Regency Baptist Temple v. Ins. Co. of North America, 352 So.2d 1242 (Fla. 1st DCA 1977).