FPCA Homeowners Division: Second District Court of Appeal Upholds Constitutionality of 2010 Insurance Sinkhole Claims Neutral Evaluation Law
Jul 13, 2012
Florida Property and Casualty Association Homeowners Division Members:
The News Service of Florida reported for the second time in less than two weeks that, on July 11, 2012, the Second District Court of Appeal upheld the constitutionality of a 2010 law aimed at spurring neutral evaluations of insurance sinkhole claims. The court sided with Sunshine State Insurance Company, overturning a Hillsborough County circuit judge’s ruling that the law was unconstitutional.
The three-judge appellate panel cited a June 29 ruling in which it ruled in favor of State Farm Florida Insurance Company in a similar case from Pasco County. Lawmakers approved the law amid insurer complaints about growing financial losses because of sinkhole claims — particularly in areas north of Tampa. The law set up a process that required neutral evaluations of sinkhole claims if requested by policyholders or insurers.
Policyholders challenged the constitutionality of the law, at least in part, because of questions about whether it usurped the authority of courts to decide disputed coverage issues, according to the State Farm case. The appeals court, however, found that the law “does not encroach on the circuit court’s judicial authority.”
To view the July 11 Second District Court Opinion, click here.
State Farm Florida Ins. Co. v. Buitrago (June 29 Decision)
On June 29, 2012 in State Farm Florida Ins. Co. v. Buitrago, the Second District Court of Appeals once again upheld the constitutionality of the neutral evaluation process, set forth in section 627.7074, Fla. Stat. This is the second decision out of the Second DCA to hold that the process is constitutional. Previously, on December 30, 2011, the Second DCA upheld the constitutionality of section 627.7074 in Cruz v. Cooperativa de Seguros Multiples de Puerto Rico, Inc. This decision is currently on appeal in the Florida Supreme Court.
In Buitrago, State Farm denied the insureds’ sinkhole claim and the insureds filed suit. State Farm requested neutral evaluation and the insureds objected to State Farm’s request, claiming that section 627.7074 is unconstitutional because it violates the separation of powers doctrine by usurping the court’s ability to adjudicate coverage disputes, and that it violates due process rights by requiring the trial court to consider a written recommendation that may not comply with the Florida Evidence Code. The trial court entered an order finding the statute unconstitutional, and State Farm appealed.
The Second DCA noted that the purpose of the statute is to efficiently resolve sinkhole disputes by mandating that the parties participate in neutral evaluation as a condition precedent to litigation, and stated that this purpose would not be accomplished if the litigation was not stayed, or if the neutral evaluation was not permitted to occur.
The court explained that it has already held in Cruz that the statute does not unconstitutionally violate the separation of powers, and that in considering analogous statutes, the Florida Supreme Court has recognized that the Legislature can compel parties to participate in alternative dispute resolution, and can provide that findings from such proceedings are admissible. For instance, Florida’s Lemon Law was held constitutional because the statute does not require the trial court to presume that the arbitration board’s decision is correct, but only allows it to be considered as part of the evidence.
Similarly, section 627.7074 “merely states that the neutral evaluator’s written recommendation is admissible in a subsequent action.” Buitrago, p. 7. The court explained that “this subsection does not require the circuit court to be bound by the neutral evaluator’s recommendation, nor does it require the circuit court to place greater weight on the recommendation than on any other evidence.” Id. at 7-8. Therefore, it does not violate separation of powers.
As for the insureds’ argument that the statute requires a trial court to consider a recommendation that may not comply with the Florida Evidence Code, the court explained that a trial court must still consider the admissibility of the recommendations under the Florida Evidence Code. This is significant because while the statute plainly states that the recommendation “is admissible,” the court held that the recommendations are admissible, unless they are otherwise inadmissible under the rules of evidence.
Therefore, this decision once again confirms the constitutionality of the neutral evaluation statute, but explains that an evaluator’s recommendations are still subject to exclusion under the rules of evidence. According to this decision, the statute’s declaration that the recommendation “is” admissible is not absolute.
However, this decision considered the neutral evaluation statute as it existed prior to the May 17, 2011, amendments. As amended, the statute now reads: “The neutral evaluator’s written recommendation, oral testimony, and full report shall be admitted in any action, litigation, or proceeding. . . .” Section 637.7074(14), Fla. Stat. Therefore, it is not entirely clear how this decision would apply to this subsection, as amended.
 As explained below, the statute was amended effective May 17, 2011, and now states that the recommendations, oral testimony and full report of the evaluator “shall be admitted”. Compare Section 627.7074(14), Fla. Stat. (2010), with Section 627.7074(14), Fla. Stat. (2011).