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Extra-Contractual, Consequential Damages Not Recoverable in a First-Party Action for Breach of Contract Under an Insurance Policy

Bretton C. Albrecht | January 22, 2021

The Florida Supreme Court recently issued its much-awaited decision in Citizens Property Insurance Corporation v. Manor House, LLC, SC19-1394, 2021 WL 208455 (Fla. Jan. 21, 2021). The holding is monumental and the importance far-reaching. The full decision is available at: https://www.floridasupremecourt.org/content/download/714811/opinion/sc19-1394.pdf

The case arises from a property damage claim reported under a policy of insurance issued by Citizens following Hurricane Frances in 2004. The Citizens policy insured nine apartment buildings owned by Manor House that were damaged by the hurricane. Citizens issued significant payments for repairs in the course of the claim and additional payments after receiving a request to reopen the claim. At some point after the claim was reopened, a dispute arose regarding whether Citizens owed yet additional sums under the policy. Manor House filed suit seeking payment of allegedly “undisputed amounts” and seeking to compel appraisal. The matter proceeded through appraisal, after which Citizens issued an additional net payment on the appraisal award. However, Manor House still proceeded to again file suit, claiming breach of contract and even fraud. The damages sought in the breach of contract claim included consequential damages, allegedly for lost rental income. The trial court agreed with Citizens that the fraud claim was barred by the independent tort doctrine and granted judgment on the pleadings as to that count. It also granted partial summary judgment for Citizens as to the lost rental income at issue in the breach of contract count, finding the policy covered property damage but not lost rent.

In the initial appeal, the Fifth District Court of Appeal affirmed the trial court’s ruling on the fraud claim, holding that claim was barred both because (1) it failed to plead a tort claim that was independent of the breach of contract claim, and (2) in substance it alleged a claim for bad faith and unfair claim handling, for which Citizens is immune as a governmental entity. However, the Fifth District reversed the partial summary judgment on the lost rent claim at issue in the breach of contract count, holding that the “consequential damages Manor House seeks are based squarely on breach of contract claims,” and did not implicate bad faith. See Manor House, LLC v. Citizens Property Insurance Corp., 277 So. 3d 658 (Fla. 5th DCA 2019), quashed by SC19-1394 (Fla. Jan. 21, 2021).

On review, the Florida Supreme Court honed in on the question of great public importance certified by the Fifth District on rehearing: “IN A FIRST-PARTY BREACH OF INSURANCE CONTRACT ACTION BROUGHT BY AN INSURED AGAINST ITS INSURER, NOT INVOLVING SUIT UNDER SECTION 624.155, FLORIDA STATUTES, DOES FLORIDA LAW ALLOW THE INSURED TO RECOVER EXTRA-CONTRACTUAL, CONSEQUENTIAL DAMAGES?” Citizens Property Insurance Corporation v. Manor House, LLC, SC19-1394, 2021 WL 208455 (Fla. Jan. 21, 2021).

In the Florida Supreme Court’s recent decision, it decisively answered, “No.”  In so holding, the supreme court concluded “extra-contractual, consequential damages are not available in a first-party breach of insurance contract action because the contractual amount due to the insured is the amount owed pursuant to the express terms and conditions of the policy. Extra-contractual damages are available in a separate bad faith action pursuant to section 624.155 but are not recoverable in this action against Citizens because Citizens is statutorily immune from first-party bad faith claims.” Id. The supreme court also emphasized that in a first-party insurance claim, the contractual amount owed is the amount due under the terms and conditions of the policy. Thus, a crucial fact was that the particular policy did not provide coverage for lost rental income. As a result, Manor House could not seek damages in a breach of contract action for “consequential damages” for lost rent, when the same simply was not covered under the policy. Any such consequential damages were thus, by definition, “extra-contractual” damages of the type that could only be sought in a well-pled, ripened bad faith claim brought pursuant to §624.155, Fla. Stat. But because Citizens is ordinarily immune from bad faith, Manor House’s claims simply failed as a matter of law under any view. Accordingly, the Florida Supreme Court quashed the Fifth District’s decision on the breach of contract count and remanded for proceedings consistent with its opinion. (The Fifth District’s ruling on the fraud count was not addressed by the supreme court and remains good law).

The Florida Supreme Court’s holding in Manor House vindicates and upholds an insurer’s right to enforce the terms and limits of the policy contract. This is immensely significant, especially in the current litigation age where the Plaintiffs’ Bar has increasingly trended toward attempting to inject “disguised” bad faith claims and claims for consequential, extra-contractual damages, into what should be straight-forward breach of contract claims. The supreme court’s decision in Manor House should go a long way to stopping such claims and tactics in their tracks. Thus, the holding should have a decidedly favorable impact on defending first-party claims of any type, whether they be claims for property damage, uninsured/underinsured motorist (UM) benefits, and even personal injury protection (PIP) claims.

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