This article appeared in Law360 on December 15, 2020.
Commentary provided by Damien Reynolds.
More sticker shock in the form of higher premiums may soon be in store for Florida insureds.
The Florida Supreme Court has before it Citizens Property Insurance Corp. v. Manor House LLC — a case that, yet again, invites the court to adopt the doctrine of reasonable expectations in the context of insurance contracts.
A recent Law360 guest article certainly encourages its adoption. Nevertheless, such a move would allow insureds to sue for consequential damages in excess of the benefits provided in their policies — without the need to file a bad faith action under Florida Statute Section 624.155.
This expansion of coverage would quickly increase premiums, as the doctrine's application would affect risk underwriting for all of Florida's insurance policies, including those issued by Citizens, the state-created insurer of last resort that is statutorily immune from bad faith suits.
However, based on Florida's legal precedent, the legislative intent behind the bad faith statute, and the negative effect such a ruling would have on consumers in the insurance market, the Florida Supreme Court should decline that invitation, as Manor House's consequential damages claim is no more than an end run around the statutory rights and obligations created by the bad faith statute.
In 2004, after Hurricane Frances damaged an apartment complex owned by Manor House, which was insured by a Citizens wind-only policy, a long-running dispute ensued. Eventually, Manor House brought suit seeking an appraisal and payment of its claim.
During the litigation, the Circuit Court for Brevard County repeatedly abated the requested appraisal due to Manor House's failure to submit required claim documentation. When Manor House finally complied, the circuit court sent the claim to appraisal, and the outcome was that Citizens was required to pay an additional $5.5 million.
Subsequently, Manor House sued for, among other claims, fraud and breach of contract. On its fraud claim, the circuit court granted judgment on the pleadings, finding the claim barred by the independent tort doctrine and Citizens' statutory immunity from bad faith claims.
On its breach of contract claim, the circuit court rejected Manor House's claim for lost rental income, allegedly resulting from Citizens' delay in adjusting the claim. Because the policy did not expressly provide lost rental coverage, the circuit court granted summary judgment in Citizens' favor on that extracontractual claim.
On appeal, however, the Florida Court of Appeal's Fifth District reversed the circuit court's summary judgment, holding that consequential damages for lost rent were potentially available because those damages were "based squarely on breach of contract claims requiring no allegation or proof that Citizens acted in bad faith." In so holding, the Fifth District said:
In granting summary judgment, the trial court denied Manor House the opportunity to prove whether ... Citizens breached its contractual duties to timely adjust and pay covered damages . ... [W]e reverse that partial summary judgment so that the parties may litigate all issues related to Manor House's claim of lost rent.
Accordingly, if Manor House could prove the parties to the policy contemplated that it would lose rental income in the event Citizens failed to timely adjust and pay covered damages, then Manor House could recover its lost rent as consequential damages.
Under the Fifth District's reasoning, the lost rent would naturally flow from Citizens' alleged delay. The court supported this holding by relying on its decision in Travelers Insurance Co. v. Wells, "which also held that in a claim for breach of an insurance contract, '[c]onsequential or resulting collateral damage may ... be recovered if it can be sufficiently proved.'"
Notably, Travelers represents a short line of cases that prove the adage "hard cases make bad law."
Starting with Life Investors Insurance Co. of America v. Johnson, a case decided by the Florida Court of Appeal's Fourth District in 1982, the same year as the bad faith statute's enactment, these cases apply the Hadley v. Baxendale rule — that a breach of contract may give rise to damages which were in contemplation of the parties at the inception of the contract — to a range of insurance contracts and unusual fact patterns dissimilar to Manor House.
Putting aside the propriety of these decision, and without getting into the weeds, these cases underscore one basic point: In Florida, even when a breach completely undermines a policy's purpose, the Hadley doctrine still only produces an extracontractual recovery in accord with a policy's terms.
Therefore, here, because Citizens' alleged breach did not undermine the policy's purpose (i.e., coverage for wind damage), evidenced by, inter alia, Citizens' payments under the policy, extending Travelers to Manor House is inapposite.
More fundamentally, extending Travelers to Manor House unmoors consequential damages from the Hadley doctrine's limits on reasonable expectations because Manor House's claim for lost rent contradicts the wind-only policy's terms.
More importantly, despite Manor House's extension of Travelers, Florida precedent is to the contrary. In QBE Insurance Corp. v. Chalfonte Condominium Apartment Association in 2019, the Florida Supreme Court reaffirmed a bedrock principle of interpreting Florida insurance contracts — that the express terms of the policy control.
There, the court stated "this Court has specifically declined to adopt the doctrine of reasonable expectations in the context of insurance contracts, concluding that construing insurance policies under this doctrine 'can only lead to uncertainty and unnecessary litigation.'"
Indeed, the Manor House case is a perfect example of the type of litigation the Florida Supreme Court feared would become commonplace, were the doctrine set loose upon Florida's insurance markets.
On its face, Manor House's proposition seems unassuming; after all, as the Chalfonte court noted, Florida law protects contracting parties' reasonable expectations through an implied covenant of good faith and fair dealing.
Nevertheless, digging a little deeper, one finds that such claims are extremely limited. Under Florida law, the parties' reasonable expectations cannot contradict a contract's express terms, nor stand apart from an action for breach of those express terms.
Thus, as a starting point, Florida's general rule restricts a contracting party's reasonable expectations to the terms of the contract — and that is just the tip of the iceberg.
With regard to insurance policies, Florida law limits reasonable expectations even further. As the Florida Supreme Court held in Auto-Owners Insurance Co. v. Anderson, "Florida law provides that insurance contracts are construed in accordance with the plain language of the policies as bargained for by the parties."
Thus, the unambiguous terms of the Citizens wind-only policy reflects the terms of the actual bargain between it and Manor House. Consequently, the party's reasonable expectations, as a means of understanding what an insurance policy covers, are of no moment.
Or, as the Florida Supreme Court said in Deni Associates of Florida Inc. v. State Farm Fire & Casualty Insurance Co. in 1998, "[t]o apply the doctrine to an unambiguous provision would be to rewrite the contract and the basis upon which the premiums are charged." This reasoning, alone, is sufficient to reaffirm Florida's rejection of the reasonable expectations doctrine.
Of even greater import, such consequential damages claims merely attempt to circumvent the requirements of the bad faith statute.
The Florida Supreme Court explained, in Allstate Indemnity Co. v. Ruiz, that the bad faith statute was designed to create a civil remedy where none existed.
Note that the court said "civil remedy," meaning there were no tort or extracontractual remedies available for first party bad faith claims before 1982.
In Macola v. Government Employees Insurance Co., the court reiterated that prior to the bad faith statute's enactment and absent an independent tort, "the only common law action available to the insured was a breach of contract action against the insurer in which damages were limited to those contemplated by the parties in the insurance policy."
Accordingly, Manor House's consequential damages claim for lost rents was not a possibility under the common law. Thus, Manor House's extracontractual lost rents claim properly lies under the bad faith statute.
Additionally, Manor House's claim for lost rental income revolves around Citizens' alleged failure to timely adjust and pay covered losses. The Manor House opinion, nonetheless, does not reference any specific policy provision Citizens purportedly breached.
This omission is glaring because, under Florida law, Manor House cannot claim consequential damages in the absence of a breach, nor in contravention of the terms expressly covered by the policy.
Furthermore, because an action based on an insurer's failure to timely adjust and pay covered damages is premised on the idea that the alleged failing was unreasonable or unnecessary, it is akin to a statutory bad faith claim. Otherwise, there would be no grounds to complain. For example, in Trief v. American General Life Insurance Co. in 2006, where the U.S. District Court for the Southern District of Florida rejected a claim similar to Manor House's, the court held:
The Policy does not mention how Defendant must adjust, investigate, or to pay claims and Plaintiff fails to allege that an express term of the contract has been breached. Additionally, even if the Court found that Plaintiff properly alleged breach of an express contract provision, the allegations resemble a claim for statutory bad faith.
Thus, allowing an insured to recover in a breach of contract action for damages in excess of the benefit provided in the policy defeats Florida's statutory framework.
In interpreting the bad faith statute, the courts have consistently held that bad faith claims are not actionable unless and until a plaintiff establishes he or she has coverage under the policy. 
Permitting insureds to seek consequential damages based on terms not contained in their policies would allow litigants to do an end run around this bifurcation; indeed, litigants could try bad faith claims without establishing coverage beforehand.
Not only would such a result undermine the Legislature's intent for Citizens to be immune to bad faith claims, it would also open the floodgates for a tidal wave of extracontractual claims on all non-Citizens policies. On these two fronts, Manor House would contravene legislative intent.
Moreover, there is another important consideration to keep in mind.
Citizens' legislative mandate, as Florida's property insurer of last resort, is based on the state's compelling interest in having a stable and affordable property insurance market. The same can be said for the state's interest in keeping all other forms of insurance accessible and affordable.
However, Manor House's acceptance of the doctrine of reasonable expectations would subject Citizens, as well as all other insurers, to consequential damages lawsuits, thereby defeating the Florida legislature's goal by forcing insurers to account for expensive and fickle litigation.
Worse yet, if Manor House is the model, litigants could delay compliance with their policy, like Manor House's years of noncompliance with the wind-only policy's claims processing requirements, in order to rachet-up their damage award. The brunt of this uncertainty and expense would surely be passed along to Florida's taxpayers and private insurance companies.
The preceding demonstrates Florida law has rightly rejected the reasonable expectations doctrine and should continue to do so, particularly in the insurance context. Although Manor House's proponents suggest consequential damages naturally flow from an insurance policy's breach under the Hadley doctrine, that analysis skews Florida insurance law.
Accordingly, the Florida Supreme Court should decline the invitation to fundamentally change Florida contract law. It is a thread that, if pulled, would unravel decades of precedent, override legislative intent and cost the Floridian consumer dearly.
Damien Reynolds is an associate at Shutts & Bowen LLP.
 Ron Hurtibise, Property Insurance Sticker Shock, S. Fla. Sun Sentinel, Nov. 15, 2020, at 1 (chronicling recent homeowner's insurance premium spikes).
 SC19-1394, 2019 WL 4915441, at *1 (Fla. Oct. 4, 2019).
 See e.g. Deni Assocs. of Fla., Inc. v. State Farm Fire & Cas. Ins. Co. , 711 So. 2d 1135, 1140 (Fla. 1998).
 See Manor House, LLC v. Citizens Prop. Ins. Corp. , 277 So. 3d 659, 659–61 (Fla. 5DCA 2019).
 Id. at 660.
 Id. at 662.
 Id. at 661.
 Id. at 662.
 Id. at 661.
 Id. (quoting 633 So.2d 457, 461 (Fla. 5th DCA 1993)).
 422 So. 2d 32, 33 (Fla. 4th DCA 1982).
 9 Exch. 341, 156 Eng. Rep. 145 (1854).
 Johnson, 422 So. 2d at 34.
 See Johnson, 422 So. 2d at 33 (credit disability insurance case); T.D.S. Inc. v. Shelby Mutual Insurance Co. , 760 F.2d 1520 (11th Cir. 1985) (independent tort case for insurer fraud); Rondolino v. Nw. Mut. Life Ins. Co. , 788 F. Supp. 553, 555 (M.D. Fla. 1992) (denying defendant's motion to dismiss and motion to strike as premature; however, summary judgment in favor of the defendant was granted in Rondolino v. Nw. Mut. Life Ins. Co. , 92-321-CIV-T-17B, 1997 WL 118430, at *5 (M.D. Fla. Feb. 10, 1997), aff'd sub nom. Rondolino v. Nw. Mut., 132 F.3d 1460 (11th Cir. 1997)); Travelers, 633 So.2d at 458 (worker's compensation insurance).
 See 422 So. 2d at 33 (holding repossession of the plaintiff's car entitled her to consequential damages amounting to the greater of the disability payments or the value of the car, plus loss of use and interest, on a credit disability insurance policy); Travelers, 633 So.2d at 458 (holding closure of the plaintiff's mill entitled it to consequential damages amounting to lost net profits, on a worker's compensation policy).
 See 94 So. 3d 541, 548 (Fla. 2012) (citing Barnes v. Burger King Corp. , 932 F.Supp. 1420, 1438 (S.D. Fla. 1996)).
 Id. at 548 (quoting Deni, 711 So. 2d at 1140).
 See Chalfonte, 94 So. 3d at 548.
 756 So. 2d 29, 33 (Fla. 2000) (citing Prudential Property & Cas. Ins. Co. v. Swindal , 622 So.2d 467, 470 (Fla.1993)).
 Deni, 711 So. 2d at 1140.
 899 So. 2d 1121, 1124 (Fla. 2005).
 See Buckley Towers Condo., Inc. v. QBE Ins. Corp., 07-22988-CIV, 2008 WL 2490450, at *8 (S.D. Fla. June 18, 2008), report and recommendation adopted, 07-22988-CIV, 2008 WL 2856457 (S.D. Fla. July 24, 2008) (The Court's use of the term "civil remedy" [in Ruiz] is significant. The Court did not merely say civil tort claim or non-contractual claim or extra-contractual claim. It said no "civil remedy" was available. That would obviously include the claim presented here . . . . This rebuts Buckley's argument that its . . . claim is not preempted by section 624.155 because it is contractual, while the statutory bad faith claim is extra-contractual. Both types of claims never existed prior to 1982.).
 953 So. 2d 451, 455–56 (Fla. 2006) (citing Talat Enters., Inc. v. Aetna Cas. & Sur. Co. , 753 So.2d 1278, 1281 (Fla.2000)).
 See Buckley, 2008 WL 2490450 at *8.
 See Petitioner's Initial Brief at 14, Citizens Prop. Ins. Corp. v. Manor House, LLC , SC19-1394, 2019 WL 4915441, at *1 (Fla. Oct. 4, 2019).
 See Chalfonte, 94 So. 3d at 548 ("This covenant is intended to protect 'the reasonable expectations of the contracting parties in light of their express agreement.' . . . However, there are two limitations on such claims: (1) where application of the covenant would contravene the express terms of the agreement; and (2) where there is no accompanying action for breach of an express term of the agreement." (quoting Barnes v. Burger King Corp. , 932 F.Supp. 1420, 1438 (S.D.Fla.1996.
 See Portofino South Condominium Association of West Palm Beach, Inc. v. QBE Insurance Corp. , 664 F. Supp. 2d 1265 (S.D. Fla. 2019) (finding the "allegations that QBE failed to 'reasonably' and 'promptly' investigate and pay its claim are 'analogous to the term "wrongful" which would imply a statutory bad faith claim under § 624.115.'" (quoting Quadomain Condo. Ass'n, Inc. v. QBE Ins. Corp. , Case No. 07–60003–CIV–MORENO, 2007 WL 1424596 (S.D. Fla. May 14, 2007.
 444 F. Supp. 2d 1268, 1270 (S.D. Fla. 2006).
 See Chalfonte, 94 So. 3d at 547–48 (citing federal cases that have reached this conclusion).
 See Citizens Prop. Ins. Corp. v. Perdido Sun Condo. Ass'n , 164 So. 3d 663, 666 (Fla. 2015) (holding that under § 627.351(6)(s) of the Florida Statutes, Citizens is immune from first-party bad faith claims under the Bad Faith Statute).
 § 627.351(6)(a)1., Fla. Stat. (2020) ("The state therefore has a compelling public interest and a public purpose to assist in assuring that property in the state is insured and that it is insured at affordable rates . . . .").