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American Integrity Insurance Co. v. Estrada

Florida Court of Appeals, Third District

June 26, 2019

American Integrity Insurance Company, Appellant,
v.
Maria Estrada, Appellee.

         Not final until disposition of timely filed motion for rehearing.

          An Appeal from the Circuit Court for Miami-Dade County, No. 11-13252 Rodney Smith, Judge.

          Berk, Merchant & Sims, PLC, and William S. Berk and Patrick E. Betar, for appellant.

          Alvarez, Carbonell, Feltman, & DaSilva, PL, and Paul B. Feltman, for appellee.

          Before LOGUE, [1] SCALES and HENDON, [2] JJ.

          SCALES, J.

         In this action for breach of a homeowner's insurance policy, American Integrity Insurance Company ("American Integrity"), the defendant below, appeals from the final judgment rendered in favor of its insured, Maria Estrada, the plaintiff below, after a jury trial. Because we find that the trial court abused its discretion both by striking American Integrity's affirmative defense asserting insurance fraud, and by thereafter failing to give American Integrity leave to amend its answer to assert this coverage defense, we reverse and remand for a new trial. Additionally, on remand, American Integrity shall be given leave to file amended affirmative defenses alleging Estrada failed to materially satisfy any contracted-for post-loss obligations. Estrada similarly shall be given leave to file appropriate replies to such affirmative defenses. If American Integrity establishes that Estrada failed to materially satisfy any contractually mandated post-loss obligations, then the burden shifts to Estrada to establish that American Integrity was not prejudiced by Estrada's breach.

         I. RELEVANT FACTS AND PROCEDURAL BACKGROUND

         A. Estrada's homeowner's insurance policy claim

         American Integrity issued a standard HO3, all-risks homeowner's insurance policy insuring Estrada's residence for the policy period between July 1, 2009 and July 1, 2010. On January 16, 2010, Estrada's home was burgled, resulting in theft of Estrada's personal property and vandalism of her home. Estrada reported the burglary to American Integrity and made a claim under the subject policy for losses allegedly caused by the incident.

         American Integrity opened an investigation of Estrada's claim and, pursuant to the subject policy's post-loss obligation provisions, [3] demanded that Estrada provide it various documents, complete a sworn proof of loss form, and submit to an examination under oath. American Integrity ultimately denied the claim for Estrada's alleged failure to comply with these, and other, post-loss obligations under the subject policy.

         B. The instant litigation

         After receiving American Integrity's letter denying her claim, Estrada, on April 28, 2011, filed the instant breach of contract action against American Integrity. Estrada's single-count complaint alleged Estrada had satisfied all post-loss obligations and all other conditions precedent to bringing the action. On December 1, 2011, American Integrity answered Estrada's complaint, raising numerous coverage defenses, including Estrada's alleged failure to comply with certain of her policy-imposed post-loss obligations:

• Failure to promptly notify American Integrity of the theft and vandalism (First Affirmative Defense - later withdrawn)
• Failure to provide American Integrity with all requested records and documents (Third Affirmative Defense)
• Failure to appear for a full and complete examination under oath (Fourth Affirmative Defense)
• Failure to protect the subject property from further damage by making repairs (Sixth Affirmative Defense)
• Failure to complete, sign and notarize a sworn proof of loss form (Eight Affirmative Defense)

         American Integrity further alleged that the instant action was barred based on Estrada's violation of the subject policy's provisions providing that: (i) Estrada would comply with the policy's terms (Second Affirmative Defense);[4] and (ii) Estrada could not bring an action against American Integrity until Estrada fully complied with all of the policy's terms (Fifth Affirmative Defense).[5]

         Unrelated to the subject policy's post-loss obligations, American Integrity also alleged that the instant action was barred because Estrada had committed insurance fraud (Seventh Affirmative Defense).[6], [7] On January 8, 2016, four days before the jury trial was set to commence, the lower court entered a pre-trial order striking the Seventh Affirmative Defense, directing that no "argument relating to fraud, misrepresentation, concealment, false statements and the like" may be made at trial. While there is no transcript of the pre-trial hearing at which the trial court made its ruling, the parties agree that the lower court, on an ore tenus motion[8] by Estrada's counsel, struck the Seventh Affirmative Defense concluding that American Integrity failed to plead fraud with the requisite specificity. The trial court denied American Integrity's subsequent motions for reconsideration and for leave to amend its answer to add a more specific affirmative defense alleging insurance fraud.[9]

         At trial, the parties disputed the extent of Estrada's compliance with her post-loss obligations prior to filing the instant action.[10] In particular, the parties introduced conflicting evidence as to whether Estrada had substantially complied with her post-loss obligations to provide requested documents, to submit to an examination under oath, and to execute a valid sworn proof of loss form.

         At the close of all of the evidence, Estrada's counsel moved for a directed verdict on American Integrity's affirmative defenses related to Estrada's alleged failure to comply with her post-loss obligations under the subject policy - i.e., American Integrity's Second, Third, Fourth, Fifth, Sixth, and Eighth Affirmative Defenses. Estrada's counsel argued for the first time that, in order for there to be a valid coverage defense with respect to an insured's post-loss obligations in a homeowner's insurance policy, the Florida Supreme Court has held that the insurer must plead and prove that it was prejudiced by the insured's non-compliance. See State Farm Mut. Auto. Ins. Co. v. Curran, 135 So.3d 1071 (Fla. 2014). The trial court agreed, granted Estrada's directed verdict motion, and struck American Integrity's Second, Third, Fourth, Fifth, Sixth and Eighth Affirmative Defenses on this basis.

         With all of American Integrity's coverage defenses stricken, the only remaining question for the jury to consider was the amount of damages to award Estrada, i.e., to what extent did Estrada suffer covered damages as a result of the January 2010 burglary/vandalism incident? On January 15, 2016, the jury returned a verdict awarding Estrada $67, 500. On March, 1, 2016, the trial court entered an order denying, in summary fashion and without a hearing, American Integrity's motion for a new trial. On March 29, 2016, the trial court rendered a final judgment in favor of Estrada. This appeal ensued.

         II. ANALYSIS

         American Integrity appeals: (i) the January 8, 2016 pre-trial order striking its Seventh Affirmative Defense and the lower court's subsequent denial of its motion to amend this affirmative defense; and (ii) the lower court's entry of a directed verdict on all of its coverage defenses with respect to Estrada's alleged failure to comply with her post-loss obligations because of American Integrity's failure to plead and prove that it was prejudiced by Estrada's alleged non-compliance. We address each argument in turn.

         A. The Seventh Affirmative Defense alleging that Estrada committed insurance fraud[11]

         Again, while we have no transcript from the pre-trial hearing, we know from the trial court's January 8, 2016 order granting Estrada's ore tenus motion that the trial court determined American Integrity's Seventh Affirmative Defense lacked the specificity required to assert a fraud defense. We conclude that the trial court abused its discretion with respect to its handling of American Integrity's Seventh Affirmative Defense for two reasons.

         First, the trial court abused its discretion in striking the Seventh Affirmative Defense because Estrada's ore tenus motion was not properly noticed for hearing. See Menke v. Southland Specialties Corp., 637 So.2d 285, 286 (Fla. 2d DCA 1994) (holding that the trial court erred in striking a party's pleading when neither the motion to strike nor the notice of hearing thereon referenced the struck pleading).

         Second, after striking American Integrity's Seventh Affirmative Defense, the trial court should have allowed American Integrity leave to amend this defense to allege the claimed insurance fraud with the requisite specificity. See Morgan v. Bank of N.Y. Mellon, 200 So.3d 792, 795 (Fla. 1st DCA 2016) ("Absent exceptional circumstances, motions for leave to amend should be granted, and refusal to do so constitutes an abuse of discretion."); H. Trawick, Trawick's Florida Practice and Procedure § 10:7 (2018-2019 ed.) ("An initial defense should not be stricken without leave to amend, but the third deficient attempt to state a defense justifies striking it without leave to amend.") (footnotes omitted). "Amendments to pleadings ought to be allowed freely unless there is a clear danger of prejudice, abuse, or futility. If such dangers cannot be clearly established, the trial court abuses its discretion by denying the party's motion for leave to amend the pleading." RV-7 Prop., Inc. v. Stefani De La O, Inc., 187 So.3d 915, 916-17 (Fla. 3d DCA 2016) (citation omitted). Here, Estrada would have suffered no prejudice by permitting American Integrity to amend the defense. Indeed, the substance of American Integrity's proposed, amended affirmative defense was based largely on American Integrity's responses to interrogatories propounded by Estrada asking American Integrity to: (i) "describe each and every fact upon which you rely to substantiate such affirmative defense, including identification of all witnesses to each such fact"; and (ii) explain further how Estrada had "intentionally concealed or misrepresented material facts or circumstances, engaged in fraudulent conduct, or made false statements" as had been alleged in American Integrity's answer. American Integrity provided its interrogatory responses on April 16, 2014 and June 6, 2014, over a year and a half before Estrada's ore tenus motion to strike the defense just prior to trial. The factual basis for American Integrity's Seventh Affirmative Defense was further discussed by American Integrity's corporate representative during the April 7, 2015 deposition conducted by Estrada's counsel.

         For these reasons, we conclude that the trial court abused its discretion both in striking the Seventh Affirmative Defense and in denying American Integrity leave to amend the defense. Because we are unable to conclude that this error was harmless and that the jury would have rejected this defense, [12] we are compelled to reverse the final judgment on review and remand for a new trial. See Chmura v. Sam Rodgers Props., Inc., 2 So.3d 984, 985-86 (Fla. 2d DCA 2008) (reversing the final judgment and remanding for a new trial, concluding the trial court abused its discretion in striking the defendant's affirmative defenses before trial). The trial court shall give American Integrity leave to file an amended pleading asserting this defense, and Estrada may file an appropriate reply.

         B. American Integrity's coverage defenses with respect to Estrada's alleged failure to comply with her post-loss obligations[13]

         1. Introduction

         We next address the second, far more difficult issue raised by American Integrity in this appeal: whether the trial court erred by partially directing a verdict against American Integrity and striking its coverage defenses that alleged Estrada forfeited coverage under the policy by failing to satisfy all post-loss obligations required by the subject policy before filing suit. The policy's post-loss conditions are outlined in footnote 3, supra, and the policy clearly and unambiguously states that no action may be brought against American Integrity by an insured unless there has been "full compliance" with all policy terms. See footnote 5, supra.

         While American Integrity's affirmative defenses alleged that Estrada had failed to comply with a number of her contractually mandated post-loss obligations (and therefore had failed to comport with a condition precedent to filing suit against the insurer), the trial court, relying on the Florida Supreme Court's opinion in Curran, nevertheless struck these affirmative defenses - and directed a verdict for Estrada on the coverage issues - because American Integrity had failed either to plead or prove that it had been prejudiced by any failure of Estrada to satisfy any alleged post-loss obligation.

         Given this District's extensive adjudication of first-party homeowners' insurance claims, one would think that this issue - whether an insurer must plead and prove prejudice in order to successfully establish a coverage defense based upon an insured's failure to satisfy all post-loss obligations - would have been definitively decided in this District. It has not, though; we endeavor to do so now.

         For the reasons outlined below, we conclude that, for an insurer to successfully establish a coverage defense based upon an insured's failure to satisfy post-loss obligations such that an insured forfeits coverage under a policy, the insurer must plead and prove that the insured has materially breached a post-loss policy provision. If the insurer establishes such a material breach by the insured, the burden then shifts to the insured to prove that any breach did not prejudice the insurer. Because we are remanding this case for a new trial, and are otherwise requiring the trial court to allow American Integrity leave to file an amended affirmative defense, we are similarly directing the trial court to allow American Integrity leave to file, consistent with this opinion's conclusions, any amended affirmative defenses related to Estrada's post-loss obligations, and Estrada similarly should be given leave to file appropriate replies to such affirmative defenses.

         2. The Florida Supreme ...


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