Severin Hegel v. The First Liberty Insurance Corporation

Court of Appeals for the Eleventh Circuit
778 F.3d 1214 (2015)

ELI5:

Rule of Law:

When an insurance policy covers "structural damage" but does not define the term, it is to be interpreted as damage that impairs the structural integrity of the building, not merely any physical damage to the structure.

Facts:

Severin and Stephanie Hegel held a homeowner's insurance policy with The First Liberty Insurance Corporation for their Florida residence, effective October 5, 2010.
The policy covered "Sinkhole Loss," defined as "structural damage to the building, including the foundation, caused by sinkhole activity," but the policy did not define the term "structural damage."
On March 1, 2011, the Hegels discovered damage to their home, including progressive physical damage and cracking to the walls and floors.
The Hegels submitted a claim for these damages to First Liberty under their policy.
First Liberty retained an engineering firm, SEI, which concluded the damage did not meet the definition of "structural damage" found in a 2011 Florida statute that was not in effect when the policy was issued.
In October 2011, First Liberty denied the Hegels' claim, stating the residence had not sustained structural damage and attributing the issues to normal settlement and concrete shrinkage.
A neutral evaluator and an engineering firm hired by the Hegels (CFTL) both concluded that sinkhole activity was a contributing cause of the damage, which consisted of widespread, minor cracking.

Procedural Posture:

The Hegels sued First Liberty for breach of contract in the Fifth Judicial Circuit Court in and for Hernando County, Florida (a state trial court).
First Liberty removed the case to the United States District Court for the Middle District of Florida (a federal trial court).
First Liberty filed a counterclaim for a declaratory judgment that the claim was not covered by the policy.
Both parties filed competing motions for summary judgment.
The district court denied First Liberty's motion and subsequently granted summary judgment in favor of the Hegels, awarding them $166,518.17 in damages.
First Liberty (appellant) filed a timely appeal of the district court's final judgment to the U.S. Court of Appeals for the Eleventh Circuit.

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Issue:

Does the undefined term "structural damage" in a homeowner's insurance policy covering sinkhole loss mean any 'damage to the structure,' or does it require a more restrictive interpretation meaning damage that impairs the structural integrity of the building?

Opinions:

Majority - Gilman, Circuit Judge

No, the undefined term 'structural damage' in an insurance policy does not mean any 'damage to the structure.' It must be interpreted to mean damage that impairs the structural integrity of the building. To define 'structural damage' as any 'damage to the structure' would render the adjective 'structural' meaningless surplusage, violating the principle of contract construction that every word be given effect. The court distinguished the adjective 'structural,' which refers to the necessary framework of a building, from the noun 'structure,' which can mean the building itself. Interpreting the phrase as the district court did would equate 'structural damage' with 'physical damage,' which is contrary to the legislative history of the Florida sinkhole statute that narrowed the definition from 'actual physical damage' to 'structural damage' to reduce claims. Therefore, the court adopts the definition from Gonzalez v. Liberty Mut. Fire Ins. Co. and holds that 'structural damage to the building' means 'damage that impairs the structural integrity of the building.'

Analysis:

This decision clarifies the interpretation of the key term 'structural damage' in Florida insurance contracts where the term is undefined, creating a binding precedent for federal courts in the Eleventh Circuit. By rejecting both the policyholder's overly broad 'any damage' interpretation and the insurer's attempt to retroactively apply narrow statutory definitions, the court established a functional, plain-meaning standard. This ruling provides a crucial middle-ground definition that focuses on the building's integrity, aiming to reduce ambiguity and disputes in sinkhole insurance claims under older policies predating the statutory definition.

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