Which State’s Law Applies to The Property Insurance Policy? Florida Looks to Where the Property Is Located

States have different laws that apply to property insurance contracts. This blog writes about the variances of those state laws all the time. For example, in Florida, absent a provision in the insurance policy, judges will rule that the place where the property is located determines which state law applies.

This “choice of law” issue came up in a Hurricane Michael loss involving an appraisal.1 The insurance company argued that the appraisal and contract were governed under Missouri or Alabama law. The policyholder argued that Florida law applied.

The insured property is in Florida. The plaintiffs say Florida law governs and that the appraisal process thus will reach issues of coverage and causation as well as the dollar amount attributable to any covered loss. The defendant has asserted that Alabama or Missouri law applies because the last act necessary to formation of the insurance contract occurred in one of those states. The defendant says those states reserve coverage and causation issues for the court, limiting appraisal to the dollar amount attributable to a covered loss.

Many insurance companies do not like that causation can be considered in the appraisal process. Some states allow causation to be determined in appraisal, while others do not. That is why the “choice of law” issue becomes important.

The federal court ruled that Florida law should apply because the property was located in Florida:

In Shapiro v. Associated International Insurance Co., 899 F.2d 1116 (11th Cir. 1990), the Eleventh Circuit addressed an umbrella policy that covered real property in multiple states. The claim at issue related to property in Florida, so the court held Florida law applied. In LaFarge v. Travelers Indemnity Co., 118 F.3d 1511 (11th Cir.1997), the court extended this holding to a dispute over the coverage of property insurance. These cases are controlling.

In any event, Florida had embraced lex loci contractus as a principle applicable to other forms of insurance….The Eleventh Circuit acknowledged this but held the principle inapplicable to property coverage. The difference was this: insured people and vehicles are transitory; real property is not. An insured should not be able to subject an insurer to the law of any jurisdiction to which a risk might be relocated. But the insurer knows, when it insures real property, where the property is located; there is no risk the property will move.

Do all states follow this reasoning to determine which state’s law applies to a property insurance policy? No. There is an entire body of law known as ‘conflicts of law,” which is one of the most esoteric and exception-riddled studies a legal scholar can undertake.

The court actually noted this because the “place of performance” was raised as an issue. In addition, the court noted some common sense which is not always part of resolving conflicting state laws:

This makes it unnecessary to address an additional issue: whether, even if Alabama or Missouri law governs interpretation of this insurance policy, the scope of appraisal is an issue of performance, not interpretation. Under Florida choice-of-law principles, issues of performance of a contract, as distinguished from issues of formation or interpretation of the contract, are governed by the law of the place of performance. …The place where any appraisal will be performed is Florida.

Finally, a more general observation. Hurricane Michael came ashore in Florida and damaged the Florida real property at issue. The defendant insurer, knowing the property was in Florida, accepted a premium to insure it. Competent appraisers will be familiar with the governing Florida law, the standards that apply to construction and repair of structures in Florida, and the cost of such construction and repair. The assertion that Missouri law, or even Alabama law, should govern the appraisal makes no sense. Florida law applies.

Shane Smith has written about “choice of law” problems in Choice of Law in Florida Property Insurance Disputes.

Please watch out for provisions in policies that note which state law will apply, as I warned in Surplus Lines Carriers Select Arbitration and Choice of Law in New York to Pay Less Coverage and Less on Claims.

Thought For The Day

Change is the law of life. And those who look only to the past or present are certain to miss the future.
—John F. Kennedy
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1 Wilson v. Federal Ins. Co., No. 5:19-cv-371 (N.D. Fla. Apr. 8, 2020).
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