8.2 Valued Policy Law, Concurrent Causation and the Florida Insurance Guaranty Association
Key Takeaways
- The Valued Policy Law in F.S. § 627.702 requires an insurer to pay the full face amount of the policy on a total loss to a building caused by a covered peril, without deduction for depreciation.
- The Valued Policy Law applies to buildings and stationary structures only; it does not reach personal property, contents or loss of use, and it creates no coverage where the peril is excluded.
- Under F.S. § 627.702(1)(b) the Legislature repudiated Mierzwa: in a total loss caused in part by a covered peril and in part by an excluded peril, the insurer is liable only for the direct damage the covered peril caused.
- FIGA responds only when an admitted member insurer is placed in liquidation with a finding of insolvency, so surplus lines policyholders receive no protection.
- FIGA pays each covered claim of less than $300,000, plus an additional $200,000 for the structure-and-contents portion of a homeowner’s claim, and under $200,000 multiplied by the number of residential units for condominium and homeowners’ association property claims.
Florida Valued Policy Law (VPL) (F.S. § 627.702)
The Florida Valued Policy Law (VPL), codified in Florida Statute § 627.702, is a foundational property insurance statute governing total structural losses.
Statutory Principle of VPL
Under F.S. § 627.702(1):
- In the event of a total loss of any building, structure, mobile home, or manufactured building located in Florida;
- Caused by a peril covered under the policy;
- The insurer's legal liability under the policy is fixed at the full face amount (Coverage A limit) for which premium was charged and paid.
Practical Operational Meaning
In a covered total loss, the claims adjuster does not calculate depreciation, Actual Cash Value (ACV), or current market value on the building. Even if the home was aging or its market value had plummeted, the insurer is statutorily required to pay the full stated policy limit. VPL eliminates valuation disputes after total structural destruction.
Important Statutory Limitations of VPL
- Buildings Only: VPL applies strictly to buildings and stationary structures. It does not apply to personal property (Coverage C), contents, or loss of use (Coverage D).
- Excluded Perils: VPL applies only if the total loss was caused by a peril covered under the policy contract. If a total loss is caused by an excluded peril (such as earth movement or rising floodwaters on an unendorsed policy), VPL does not create coverage.
Concurrent Causation: Wind vs. Flood in Total Losses (Overruling Mierzwa)
One of the most litigated questions in Florida claims history arose when catastrophic hurricane storm surges demolished coastal structures through combined wind and flood action.
The Mierzwa Conflict
In Mierzwa v. Florida Windstorm Underwriting Ass'n (Fla. 4th DCA 2004), the appellate court ruled that if a covered peril (wind) caused any damage contributing to a total loss, the wind insurer was legally obligated under the Valued Policy Law to pay the entire face amount of the wind policy—even if non-covered flood storm surge caused 90% of the actual physical destruction!
The Legislative Abrogation of Mierzwa
Recognizing that Mierzwa forced wind carriers to indemnify excluded flood losses and threatened market solvency, the Florida Legislature amended Florida Statute § 627.702(1)(b) to explicitly repudiate and overrule the Mierzwa doctrine:
- The Current Rule: When a building suffers a total loss caused in part by a covered peril (e.g., wind) and in part by an excluded peril (e.g., flood/storm surge), the property insurer's liability is limited strictly to the direct physical damage caused by the covered peril.
- Adjuster Responsibility: The adjuster must allocate the damage between wind and flood. The wind carrier is never liable for paying the full face value under VPL unless the covered peril of wind alone was sufficient to render the building a total structural loss.
Florida Insurance Guaranty Association (FIGA) (F.S. Chapter 631)
When private property insurance carriers in Florida become insolvent and enter liquidation, consumer claims are protected by the Florida Insurance Guaranty Association (FIGA), codified in Florida Statute Chapter 631, Part II.
Governance & Nature of FIGA
- Nonprofit Statutory Entity: FIGA is a statutory nonprofit association composed of all authorized property and casualty insurers licensed to do business in Florida.
- Trigger of FIGA Protections: FIGA activates only when an admitted insurer is declared insolvent and placed into formal liquidation with an order of liquidation with a finding of insolvency issued by a court of competent jurisdiction (administered by the DFS Division of Rehabilitation and Liquidation).
- Exclusion of Non-Admitted Carriers: FIGA protects policyholders of admitted (authorized) carriers only. Policyholders carrying coverage through surplus lines insurers (non-admitted carriers) receive zero FIGA protection — the single most important consequence of placing a Florida risk in the surplus lines market.
- "Homeowner's Insurance" Is Defined Narrowly: The extra $200,000 layer applies only to "homeowner's insurance" as defined in F.S. § 631.54(7): personal lines residential coverage written directly to the individual homeowner under homeowner's, dwelling and similar policies. That definition excludes mobile homes, renter's and tenant's coverage, and excludes commercial residential policies covering condominium or homeowners' associations.
FIGA Statutory Claim Limits
FIGA does not have unlimited liability. Florida Statute § 631.57 caps claim payments:
- General Property & Casualty Cap: Up to $300,000 per covered claim for commercial lines and general property damage.
- Special Residential Property Cap: For residential structure claims arising out of homeowners policies, FIGA pays up to $500,000 for direct physical damage to the structure (Coverage A) and contents (Coverage C) combined.
- Condominium and Homeowners' Associations: For a policy covering a condominium association or homeowners' association responsible for insuring residential units, the obligation is each covered property insurance claim less than $200,000 multiplied by the number of residential units (for HOAs, only claims for damage to residential units and structures attached to them).
- Unearned Premium: An unpaid claim for unearned premium is itself a "covered claim" under F.S. § 631.54(4) and is paid subject to the same $300,000 ceiling. Current law contains no $100 per-claim deductible.
- Hard Ceilings: FIGA is never obligated beyond the insolvent insurer's own obligation under the policy, and it is never liable for penalties or interest. Its sinkhole obligation is limited to testing it deems appropriate and the actual repair of the loss — it may not pay attorney fees, public adjuster fees, or a cash payout to the policyholder for a sinkhole loss.
FIGA Assessment & Funding Mechanism
To pay covered claims of insolvent insurers, FIGA has statutory assessment authority over surviving private admitted property and casualty insurers:
- Regular Assessment (§ 631.57(3)(a)): In any one calendar year, assessments levied against an insurer may not exceed 2% of that insurer's direct written premiums in Florida for the kinds of insurance in the affected account.
- Emergency Assessment (§ 631.57(3)(e)): For insolvencies caused by the effects of a hurricane, FIGA may levy an additional emergency assessment that may not exceed 4% of an insurer's Florida written premiums in the relevant account in any one calendar year.
- Advances, Not Taxes: The Legislature declares that assessments are advances of funds from the insurer to FIGA; the insurer may fully recoup them by applying the same uniform percentage to all policies of the kind assessed, or may elect not to recoup.
- Recoupment: Admitted carriers pay the assessment to FIGA and recoup the cost by surcharging their active policyholders at renewal.
Summary of Florida Property Legal & Insolvency Provisions
| Legal / Regulatory Mechanism | Statutory Citation | Key Rule & Coverage Parameters | Practical Impact for Claims Adjusters |
|---|---|---|---|
| One-Way Attorney Fees | Former F.S. § 627.428 (Repealed) | Completely repealed under SB 2A & HB 837; American Rule applies | Eliminates fee-shifting pressure on small disputed claim amounts |
| Assignment of Benefits (AOB) | F.S. § 627.7152(13) | Post-loss AOBs prohibited on policies issued on/after Jan 1, 2023 | Adjuster deals strictly with named insured, not remediation vendors |
| Initial Claim Notice Deadline | F.S. § 627.70132 | Notice must be given within 1 year (12 months) from date of loss | Claims reported after 1 year are barred as a matter of law |
| Supplemental Claim Notice | F.S. § 627.70132 | Notice must be given within 18 months from date of loss | Reopened or supplemental demands barred after 18 months |
| Valued Policy Law (VPL) | F.S. § 627.702 | Covered total loss pays full policy face amount without depreciation | Adjuster does not calculate ACV or depreciation on total structural losses |
| Wind vs. Flood Concurrent Loss | F.S. § 627.702(1)(b) | Overruled Mierzwa; carrier pays only direct covered wind portion | Adjuster must allocate damage between wind and storm surge |
| FIGA Residential Claim Cap | F.S. § 631.57(1)(a)2. | Covered claim under $300,000, plus an additional $200,000 for the structure-and-contents portion of a homeowner's claim ($500,000 combined) | Amounts above the cap become general claims against the liquidation estate |
| FIGA Association Claim Cap | F.S. § 631.57(1)(a)3.a. | Under $200,000 multiplied by the number of residential units | Applies to condominium and homeowners' association property claims |
A coastal residential dwelling insured with a $400,000 Coverage A limit under an HO-3 policy is completely demolished during a major hurricane. Geotechnical and engineering reports establish that 120 mph winds tore off the roof and collapsed second-story walls ($150,000 in direct wind damage), followed immediately by an 18-foot storm surge that washed away the remainder of the structure ($250,000 in flood damage). Under Florida Statute § 627.702(1)(b) governing concurrent causation under the Valued Policy Law, how much is the wind insurer obligated to pay on the Coverage A building claim?
An admitted Florida domestic property insurer becomes insolvent and is placed into court-ordered liquidation following severe hurricane claims. A homeowner insured with that carrier has a valid, covered residential dwelling and contents claim totaling $650,000. Under Florida Statute Chapter 631, what is the maximum amount the Florida Insurance Guaranty Association (FIGA) will pay for this residential structure and contents loss?