Florida Supreme Court Rules Replacement Cost Includes Contractor’s Profit

Florida’s high court has ruled that insurers under a 2008 law must pay a contractor’s overhead and profit as part of the expense of repairing a homeowner’s property despite repairs not having been made.

The Florida Supreme Court ruled in the case [Trinidad v. Florida Peninsula Insurance Company, SC11-1643], which involved a homeowner, Amado Trinidad, whose home was damaged in a fire in 2008. He had a homeowner’s policy from Florida Peninsula Insurance Co. that called for full replacement coverage.

Under a replacement policy, insurers pay for damage to a home without taking into account any depreciation based on the home’s age, condition, value or other factors. By comparison, a policy that pays actual cash value reflects depreciation.

The 2008 law also required insurers to pay any cost regardless of whether the homeowner made any repairs.

Florida Peninsula argued that the law is silent on whether an insurer must pay a contractor’s profit and expenses, thus it was not required to do so in cases where those costs had not yet been incurred.

Justice Barbara Pariente, however, said that line of reasoning could lead to insurers depreciating a contractor’s overhead and profits in an actual cash value policy while providing no such payments at all under a replacement policy. “This result, in which the insurer is required to provide less coverage in a replacement cost policy than in an actual cash value policy, would be anomalous because replacement cost insurance is specifically designed to provide greater coverage,” wrote Pariente.

Florida Peninsula also argued the law did allow insurers to limit their liability for repairs to “reasonable and necessary costs.”

Pariente, however, said that would potentially allow insurers to not pay other costs associated with making repairs. “If overhead and profit were not included in the scope of replacement cost insurance where it is reasonably likely the insured will insure those costs, then no other repair costs, such as labor and materials, would be considered replacement costs,” wrote Pariente.

Topics Florida Carriers Profit Loss Legislation Homeowners Contractors