Public adjuster expenses not recoverable for insured

A federal district court in Florida has rejected an insured’s bid to recover, as “consequential damages” in its breach of contract lawsuit against its insurance carrier, the expenses it incurred to retain a public adjuster.

A Best Western hotel operated by Kingshill Hospitality, Inc., in Leesburg, Fla., was damaged by fire. Kingshill’s insurer, American Economy Insurance Company, sent a third-party adjuster to inspect the damage.

Three days later, Kingshill hired a public adjuster to assist it in submitting its insurance claim to American Economy. Toward that end, Kingshill estimated its damages to be $114,526.04.

American Economy sent a letter partially denying Kingshill’s claim, its estimate of the covered damage, and payment of $4,203.90 after deductible.

Kingshill alleged that the partial denial of coverage and payment of only $4,203.90 was a material breach of the insurance policy, and it filed a breach of contract lawsuit against American Economy. Kingshill sought “an award of compensatory damages, consequential damages, pre-judgment interest, post-judgment interest, costs of this action, attorney fees; and such other and further relief as this [c]ourt may deem just and proper.”

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Determining consequential damages

American Economy moved to strike Kingshill’s claim for consequential damages.

The district court granted American Economy’s motion. In its decision, the district court explained that because consequential damages were special damages, Kingshill had to plead them specifically in its complaint. The district court found, however, that Kingshill had not pleaded any basis for awarding consequential damages.

The district court was not persuaded by Kingshill’s argument that it pleaded a basis for consequential damages when it alleged that “it had to retain the services of an insurance claims professional (Public Adjuster) to pursue its claim.” The district court reasoned that, even assuming that was true, the expenses of obtaining a public adjuster did not flow from American Economy’s alleged breach of contract. Instead, it observed, Kingshill chose to incur those costs just three days after American Economy had sent an adjuster to inspect the fire damage and before American Economy had made a coverage determination.

Because Kingshill incurred these costs before the alleged breach of contract had occurred when American Economy partially denied coverage, Kingshill’s public adjuster expenses could “not be categorized as consequential damages.” And because Kingshill pointed to no other allegations supporting a claim of consequential damages, the district court concluded that Kingshill failed to plead a basis for them.

Accordingly, the district court struck the request for consequential damages as immaterial and impertinent.

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The case is Kingshill Hospitality, Inc. v. American Economy Ins. Co., No: 5:18-cv-520-Oc-30PRL (M.D. Fla. Dec. 5, 2018).

FC&S Legal insights

It is worth noting that the court in the Kingshill case pointed out that if an insured believed that its insurer was not attempting to settle a claim in good faith and hired a public adjuster to refute the damage estimate or coverage determination proffered by the insurer, the expenses could be considered consequential damages. Under those facts, the court added, the consequential damages would be extracontractual damages that only could be recovered in a bad faith action, pursuant to QBE Ins. Corp. v. Chalfonte Condominium Apartment Ass’n, Inc., 94 So.3d 541 (Fla. 2012).

Those were not the facts in the Kingshill case, however. Kingshill did not allege that it retained its public adjuster because American Economy had acted in bad faith. Instead, it alleged that it retained a public adjuster to assist it in submitting its claim.

Steven A. Meyerowitz, Esq., (smeyerowitz@meyerowitzcommunications.com) is the director of FC&S Legal, the editor-in-chief of the Insurance Coverage Law Report, and the founder and president of Meyerowitz Communications Inc. This story is reprinted with permission from FC&S Legal, the industry’s only comprehensive digital resource designed for insurance coverage law professionals.