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Hegel v. The First Liberty Insurance Corporation, No. 14—10549, 2015 WL 821146 (11th Cir. Feb. 27, 2015)
The Eleventh Circuit construed the term “structural damage” as used in the definition of “sinkhole loss” in insurance policies issued between 2005 (upon the Florida legislature’s adoption of the “structural damage” requirement) and May 2011 (upon the Florida legislature’s adoption of a technical definition of “structural damage”). “Structural damage” requires “damage that impairs the structural integrity of the building,” and mere physical damage to the building is insufficient. The opinion resolves a long-standing source of conflict among judges of the district courts of Florida.
The Hegels had an insurance policy with First Liberty effective October 5, 2010. They later made a claim for a sinkhole loss under this policy. The policy defined “sinkhole loss” as “structural damage to the building, including the foundation, caused by sinkhole activity,” adopting statutory language in place since 2005. See § 627.706, Fla. Stat. (2005). Neither the policy nor the statute defined “structural damage to the building.”
Ultimately, the Hegels sued First Liberty in the Middle District of Florida seeking damages for their alleged “sinkhole loss.” The parties disagreed over the threshold necessary to establish “sinkhole loss.” The Hegels argued that any “damage to the structure” sufficiently met the “structural damage” threshold. First Liberty argued that such an interpretation of the term “structural damage” was nonsensical, and suggested the district court look to technical definitions found in the 2011 Florida Statutes (providing a detailed technical definition of “structural damage”), the Florida Building Code in place at the time of the contract, or even dictionary definitions, for guidance.
The district court applied the Hegels’ unlimited definition and found they had established “sinkhole loss” by showing mere cosmetic damage to their home. The district court granted the Hegels summary judgment, from which First Liberty appealed.
The Eleventh Circuit confronted a two-part question: (1) did the trial court correctly determine that any “damage to the structure” was “structural damage” for the purposes of sinkhole loss, and, (2) if not, what is an appropriate definition of “structural damage?”
The Court held that the phrase “structural damage” requires more than mere “damage to the structure.” Rather, “damage that impairs the structural damage of the building” is necessary. Thus, the court reversed the summary judgment and remanded for further proceedings.
The Court agreed with First Liberty that the district court had apparently–and erroneously–equated “structural damage” with “physical damage,” thus rendering the term “structural” superfluous in violation of rules of contractual construction. The Court determined the “key problem” was “one of confusion between the words ‘structural’ and ‘structure.'” Proper application of the adjective “structural” would exclude damage to “decoration or fittings” from “structural damage,” whereas the district court had untenably included all physical damage to the building. Thus, the Court construed the phrase “structural damage” to mean “damage that impairs the structural integrity of the building.” The Court determined that this definition was consistent with the Florida Legislature’s enactment of the 2005 statutes, “chang[ing] the definition of ‘sinkhole loss’ from ‘actual physical damage to the property covered’ to ‘structural damage to the building.'”
In reaching its conclusion, the Court conducted a detailed analysis of numerous possible sources for a definition of the term “structural.” The Court rejected all other definitional sources (such as the 2011 Florida Statutes and the 2004 Florida Building Code), finding them irrelevant to determining the plain meaning of the term “structural damage” in the Hegels’ policy.