Florida homeowner insurers are seeing a significant increase in claims and litigation and are seeking ways to avoid costly litigation and expedite the claims process for their insureds. One option for the insurer is to exercise its option to repair the property as opposed to tendering monetary payment to the insured. This provides the insurance company a cost-effective method to resolve the claim and allows the insured to have the property repaired without dealing directly with many of the headaches of selecting and hiring a contractor, obtaining permits, and overseeing the work. But, the option to repair is not without risks to the insurer. Florida courts have not fully resolved the various issues that can arise concerning the option to repair, including whether a lawsuit can be abated where a dispute exists regarding the scope of the damages. Understanding these issues and providing clear direction to the insured during the option to repair process may avoid litigation.

An initial issue concerns the nature of the obligation assumed by the insurer. Florida courts have held that once the option to repair is elected a new contract is formed. Does this mean the policy coverage exclusions or limitations no longer apply? In the automobile context, Florida courts have held that in the event of a breach of the option to repair contract, an insured can recover damages proximately caused by the breach, including damages that would not have been covered under the policy. See Travelers Indemnity Co. v. Parkman, 300 So.2d 284 (Fla. 4th DCA 1974). In Drew v. Mobile USA Inc. Co., the 4th DCA stated in dicta that damages beyond the policy limits may be recoverable in the event of a breach, but there should be an outer limit. Drew v. Mobile USA Inc. Co., 920 So.2d 832 (Fla. 4th DCA 2006). This can present an issue not only regarding the cost of repairs, but also any additional living expenses the insured may claim.

Another issue becomes how long it will take to repair the property. The insurer is bound to restore the property within a reasonable time. Unlike an automobile repair, the insurer and its contractor may need to obtain city and/or county permits. Additionally, there may be required inspections during the construction, as well as final inspections. The insured may be entitled to additional living expenses during this entire process until the certificate of completion is issued by the city or county.

Recent Florida case law is split regarding the issue of abating a lawsuit to allow an insurer to repair the property where there is a dispute as to the scope of the repairs. The 4th DCA held that “a homeowner is entitled to dispute the scope of repairs before the repairs are completed.” Diaz v. Florida Peninsula Ins. Co., 204 So.3d 460 (Fla. 4th DCA 2016). Under similar facts, the 3rd DCA held that the lawsuit should be abated to allow the repairs to be completed and the homeowner may thereafter lift the abatement and re-open proceedings to dispute the scope of work or failure by the insurer to return the property to its pre-loss condition. Fernandez-Andrew v. Florida Peninsula Ins. Co., 2017 WL 363135 (Fla. 3rd DCA 2017). Abating the case allows the insurer to complete repairs and potentially avoid further litigation. Additionally, during the abatement and repair period, the insured and insurer may be able to agree on the scope of the repairs. On the other hand, completing repairs when the insured has raised an issue regarding the scope may put the insurer in a position of paying for the work twice.

Alternatively, in situations where the insured refuses to participate in the option to repair and then files suit, an effective alternative to seeking an abatement of the action is to file a motion for summary judgment. The argument is that when the insurer invokes its option to repair pursuant to the policy, the insured’s participation and cooperation in the option to repair process is not optional. If the insured refuses to cooperate with the insurer’s efforts to effect repairs when the option to repair clause is invoked, then it is the insured, not the insurer, who has failed to comply with the policy. Moreover, in those circumstances, the Suit Against Us provision of the policy bars any action against the insurer due to the insured’s failure and/or refusal to cooperate in the repair process. Essentially, there is no breach of contract by the insurer on which to base a breach of contract action. If an issue does arise during the repair process, final judgment from the first lawsuit does not trigger the doctrine of res judicata and preclude a subsequent action premised on any failed repairs or scope issues that may arise during the repair process. This is because the second action would be based upon different facts and circumstances than the initial lawsuit.

When the insurer advises the insured that it is exercising the option to repair, the insurance company should make its expectations clear. The contractor will need to complete an inspection of the property and multiple trades may need access to the property. The insurer should make clear to the insured who will coordinate the inspection, how to contact the contractor, and when it expects contact to be made by. Once the initial inspection is completed, the contractor should prepare a detailed estimate that includes the scope of the work and quality of the material to be used. The more detailed the estimate the more likely a dispute after the work is completed can be avoided. Once the work commences, the insurer should apprise the insured of the projected schedule to completion and provide updates if there are any delays, including what caused the delay, i.e., city inspector’s first availability two weeks out, etc. Good communication with the insured may avoid future litigation.

Exercising the option to repair may be a cost-effective method to adjust a claim and avoid litigation. If the insured does sue, the insurer may be in a better position because the repairs have been completed, or the insurer may be successful in obtaining early dismissal of the lawsuit so that repairs can be effectuated. The insured will need to prove the insurer incorrectly identified the scope of damage or that the repairs are not of like kind and quality. Quality, detailed photographs of the repaired work may be persuasive in this type of litigation.