Shelton v. Liberty Mut. Fire Ins. Co.

THOMAS C. SHELTON,MARA G. SHELTON, Plaintiffs-Appellees, v. LIBERTY MUTUAL FIRE INSURANCE COMPANY, Defendant-Appellant.

No. 13-15371

UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT

August 21, 2014

[DO NOT PUBLISH]

Non-Argument Calendar

D.C. Docket No. 8:12-cv-02064-JSM-AEP

Appeal from the United States District Court for the Middle District of FloridaBefore HULL, MARCUS and FAY, Circuit Judges.

PER CURIAM:

In this insurance-coverage dispute, Defendant-Appellant Liberty Mutual appeals the district court's grant of summary judgment to Plaintiffs-Appellees Thomas and Mara Shelton ("the Sheltons"). After careful review of the record and the briefs, we reverse the district court's grant of summary judgment in favor of the Sheltons and remand for further proceedings consistent with this opinion.

I. BACKGROUND

This case concerns whether the Sheltons' homeowners policy with Liberty Mutual covers the Sheltons' claim for a "sinkhole loss" to their property in Oldsmar, Florida. Before we turn to the Sheltons' claim and the policy, we begin with some background information about insurance coverage for sinkhole losses in Florida.

A. Insurance Coverage for Sinkhole Losses under Florida Law

Since 1981, Florida law "requires property insurers to make sinkhole coverage available." Cincinnati Ins. Co. v. Wiltshire, 472 So. 2d 1276, 1277 n.1 (Fla. Dist. Ct. App. 1985). From 1981 to 2004, Florida law defined the term "sinkhole loss" as "actual physical damage to the property covered arising out of or caused by sudden settlement or collapse of the earth supporting such property only when such settlement or collapse results from subterranean voids created by theaction of water on a limestone or similar rock formation." Fla. Stat. § 627.706 (1981).

In 2005, the Florida legislature redefined "sinkhole loss" as "structural damage to the building, including the foundation, caused by sinkhole activity." 2005 Fla. Sess. Law. Serv. Ch. 2005-111, § 17 (West). Although it limited the definition of "sinkhole loss" to cases where there was "structural damage" to a covered property, the 2005 amendment did not define the term "structural damage." See id.

In May 2011, the Florida legislature amended § 627.706 again to supply a definition for the phrase "structural damage" "as used in connection with any policy providing coverage . . . for sinkhole losses." Fla. Stat. § 627.706(2)(k) (2011) (emphasis added). The legislature provided a technical, five-part definition: "Structural damage" occurs only when "a covered building . . . has experienced" one of the five events enumerated and defined in the statute.¹ See id.

B. Liberty Mutual's Policy and the Sheltons' Claim

Subsequent to the May 2011 legislative change, Liberty Mutual issued a renewal homeowners insurance policy for the Sheltons' property, effective from July 18, 2011 to July 18, 2012. In January 2012, the Sheltons made a claim under the policy for a "sinkhole loss" to their property. Liberty Mutual's policy provides that "[s]inkhole loss means structural damage to the building, including the foundation, caused by sinkhole activity." The policy does not define the key phrase "structural damage to the building." The policy also does not reference any statutory or external definitions of this phrase.

In response to the Sheltons' January 2012 claim, Liberty Mutual sent an expert to examine the damage to the Sheltons' property. As relevant here, Liberty Mutual's expert found cosmetic damage to the Sheltons' home but no "structural damage" within the meaning of § 627.706(2)(k). In other words, the damage to the Sheltons' home did not fall within the five-part definition of "structural damage" outlined in the applicable statute regulating polices for sinkhole losses.

Based on this expert opinion, Liberty Mutual declined coverage for the Sheltons' claim. Liberty Mutual maintained that its policy did not provide coverage for the Sheltons' claim because (1) a "sinkhole loss" is defined to require "structural damage to the building," (2) the applicable Florida statute, § 627.706(2)(k), defines what constitutes "structural damage," and (3) the Sheltons' home did not experience "structural damage" within that statutory definition.

C. The Sheltons' Lawsuit

Unhappy with Liberty Mutual's decision, the Sheltons brought suit alleging that Liberty Mutual's denial of coverage breached the terms of the insurance policy. Liberty Mutual moved for summary judgment, contending that the statutory definition of "structural damage" in § 627.706(2)(k) governs the interpretation of the phrase "structural damage" in the policy.

The district court disagreed, holding that the statutory definition of "structural damage" was inapplicable because the insurance policy did not reference the statute or incorporate the statutory language. The district court concluded that the phrase "structural damage to the building" in the policy should be given its plain meaning, which—according to the district court—is "damage to the structure." The district court effectively read "structural damage to the building" to mean "any damage to the structure."

A few months later, the Sheltons moved for summary judgment. In response, Liberty Mutual renewed its argument that the statutory definition of "structural damage" in § 627.706(2)(k) applies to the Sheltons' policy. Liberty Mutual also proffered its expert's finding that the damage to the Sheltons' home does not meet the statutory definition of "structural damage."

Granting the Sheltons' motion, the district court reiterated its prior conclusion that the phrase "structural damage to the building" in the policy means "damage to the structure," instead of the more restrictive statutory definition of "structural damage." The district court concluded that the salient issue then was whether sinkhole activity caused any damage to the Sheltons' structure.

The Sheltons' experts determined that all of the damage to the Sheltons' home was "primarily caused by the sinkhole activity." As to the amount of damages, the Sheltons' experts opined that subsurface repairs costing at least$81,345 were necessary to remediate the subsurface conditions and to stabilize and repair the foundation and structure of the Sheltons' home. In addition, above-ground repairs in the amount of $31,680 were needed to fix the cosmetic damages to the Sheltons' home.² The district court then entered final judgment for the Sheltons in the amount of $113,025. Liberty Mutual timely appealed.

II. DISCUSSION³

A. Florida Insurance Law

"Because federal jurisdiction over this matter is based on diversity, Florida law governs the determination of the issues on this appeal." State Farm Fire & Cas. Co. v. Steinberg, 393 F.3d 1226, 1230 (11th Cir. 2004). The pivotal question here is whether the statutory definition of "structural damage" contained in § 627.706(2)(k) applies to the phrase "structural damage" in the Sheltons' policy. We outline the relevant Florida law and then apply it to this case.

"It is fundamental that the laws of Florida are a part of every Florida contract." Dep't. of Ins., State of Fla. v. Teachers Ins. Co., 404 So. 2d 735, 741 (Fla. 1981). "[A]ll existing applicable or relevant and valid statutes, . . . at the time a contract is made become a part of it and must be read into it just as if an express provision to that effect were inserted therein, except where the contract discloses a contrary intention." Northbrook Prop. & Cas. Ins. Co. v. R & J Crane Serv., Inc., 765 So. 2d 836, 839 (Fla. Dist. Ct. App. 2000) (quotation marks omitted); Gordon v. State, 608 So. 2d 800, 802 (Fla. 1992) ("Valid laws in effect at the time a contract is made enter into and become part of the contract as if expressly incorporated into the contract.").

Accordingly, a "statute in effect at the time an insurance contract is executed governs substantive issues arising in connection with that contract." Hassen v. State Farm Mut. Auto. Ins. Co., 674 So. 2d 106, 108 (Fla. 1996); Lumbermens Mut. Cas. Co. v. Ceballos, 440 So. 2d 612, 613 (Fla. Dist. Ct. App. 1983) ("It is well settled in Florida that the statute in effect at the time the insurance contract is executed governs any issues arising under that contract."). Also, "'the renewal of a contract of insurance constitutes the making of a new contract for the purpose of incorporating into the policy changes in the statutes regulating insurance contracts.'" Bell Care Nurses Registry, Inc. v. Cont'l Cas. Co., 25 So. 3d 13, 15 (Fla. Dist. Ct. App. 2009) (quoting Metro. Prop. & Liab. Ins. Co. v. Gray, 446 So.2d 216, 218 (Fla. Dist. Ct. App. 1984)); May v. State Farm Mut. Auto. Ins. Co., 430 So. 2d 999, 1001 (Fla. Dist. Ct. App. 1983) ("It is the law in this state that a contract of annually renewable insurance forms a new contract at each renewal for the purpose of incorporating into the contract the statutory provisions enacted after the creation of the original contract relationship." (quotation marks omitted)).

Applying Florida law here, we must conclude that the statutory definition of "structural damage" contained in § 627.706(2)(k) governs the construction of the phrase "structural damage" in the Sheltons' policy. The Florida legislature expressly stated that the statutory definition applies when the term "structural damage" is "used in connection with any policy providing coverage . . . for sinkhole losses." Fla. Stat. § 627.706(2)(k) (emphasis added). There is no dispute here that the statutory definition of "structural damage" in § 627.706(2)(k) was in effect when the Sheltons' policy was renewed in July 2011. Thus, under Florida law, the statutory definition of "structural damage" is a part of the Sheltons' policy.

We recognize that the Sheltons' policy does not reference or contain the statutory definition of "structural damage." But, under Florida law, the statutory definition "must be read into [the Sheltons' policy] just as if an express provision to that effect were inserted therein...