Drew v. Mobile USA Ins. Co.
920 So. 2d 832, 2006 Fla. App. LEXIS 2267, 2006 WL 399275 (2006)
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Rule of Law:
When an insurer exercises its contractual option to repair damaged property rather than pay for the loss, it creates a new, independent contract to perform the repairs properly. A breach of this new contract can subject the insurer to liability for proximately caused damages that exceed the original policy's monetary limits, even without a showing of bad faith.
Facts:
- In 2002, William and Delia Drew discovered a roof leak in their home, which led to water intrusion and extensive mold growth.
- The Drews' homeowners insurance policy with Mobile USA Insurance Company contained a clause giving Mobile USA the option to repair damaged property itself within 30 days of receiving a proof of loss.
- The Drews allege Mobile USA exercised this option and hired an environmental company to inspect the home and recommend remediation protocols.
- A factual dispute exists as to who selected the remediation company, Insurance Damage Repair; the Drews claim Mobile USA selected it, while Mobile USA claims it suggested two firms and the Drews made the choice.
- After Insurance Damage Repair completed its work, Mobile USA informed the Drews that the mold remediation was successful.
- The Drews hired their own environmental consultant, who conducted an inspection and determined that the remediation had failed and mold was still present.
- A further factual dispute exists as to whether the newly discovered mold was in walls that were not part of the original repair areas.
- After its engineer estimated further repairs would exceed the policy's value, Mobile USA tendered the remaining policy limits to the Drews.
Procedural Posture:
- William and Delia Drew filed a two-count complaint for breach of contract and breach of fiduciary duty against Mobile USA in a Florida trial court.
- Mobile USA moved for summary judgment, arguing it had paid the policy limits and could not be liable for more without a finding of bad faith.
- At the summary judgment hearing, the Drews' counsel stipulated that no bad faith on the part of Mobile USA had occurred.
- The trial court granted summary judgment in favor of Mobile USA.
- The Drews, as appellants, appealed the summary judgment to the District Court of Appeal of Florida, Fourth District, with Mobile USA as the appellee.
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Issue:
Does an insurer, by exercising its policy option to repair damaged property, create a new contract to repair, the breach of which can expose it to liability for damages exceeding the original policy limits, even without a showing of bad faith?
Opinions:
Majority - Polen, J.
Yes. When an insurer elects to exercise its policy option to repair, it creates a new and binding contract under which the insurer is obligated to restore the property to its pre-loss condition within a reasonable time. If the insurer breaches this new contract to repair, it becomes liable for the damages proximately caused by the breach, and this liability is not capped by the original policy limits. The court's reasoning relies on precedent from automobile insurance cases like Travelers Indemnity Co. v. Parkman, which established that exercising an option to repair converts the original insurance contract into a contract to repair. Liability for breaching this new contract is a standard breach of contract claim and does not require the insured to prove the insurer acted in bad faith. Because a genuine issue of material fact exists as to whether Mobile USA actually exercised its option and selected the repair company, summary judgment was improper and the case must be remanded for trial.
Analysis:
This decision clarifies that an insurer's 'option to repair' clause is not merely a method of paying a claim but can create a distinct and separate contractual obligation. It extends a principle from auto insurance law to homeowners' insurance, holding that insurers who take direct control of repairs assume a new duty to perform them competently, independent of the original policy's coverage limits. This significantly increases the legal and financial risk for insurers who choose to manage repairs directly, as a faulty repair can lead to liability far exceeding the policy's value, even without bad faith conduct. Future cases will likely focus on what specific actions by an insurer constitute an 'election to repair' that triggers this separate contractual duty.
