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By some accounts, Hurricane Ian was the third-costliest weather disaster in history. It was also the strongest category 4 hurricane to hit Florida in almost two decades. In the wake of severe weather events like Hurricane Ian, insurance companies face a deluge of claims to process and handle. Insurance companies have a legal right to subrogate, meaning that they have the legal right to seek payment from third parties that bear some or all of the liability for the damage that is the subject of a claim. Oftentimes, when an insurance company subrogates, it is seeking damages from the contractor that built the structure in the first place. Here is what insurance companies need to know when considering whether to subrogate a claim in the wake of a severe weather event like Hurricane Ian.

Florida Buildings Must Follow Code

Considerations regarding subrogation will revolve around the Florida Building Code. In the wake of several major storms that caused catastrophic damage throughout the state, lawmakers developed the Building Code in 2002. There are specific rules and standards that contractors and design professionals must follow with respect to major storms and how a building would withstand them. On several occasions, lawmakers have raised the standards contractors must follow for buildings to withstand a high-impact storm. As a preliminary matter, claims adjusters will need to carefully review the Building Code to determine whether the damaged structure actually met the Code’s requirements.

The Insurance Company Would Need to Determine Whether the Building Met Code

First, the adjuster will need to review the building code that was in place at the time the building was constructed. When applicable standards have been raised over time, the claims adjuster cannot apply a later standard because the contractor would not have needed to follow it at the time it built the structure.

One of the first pieces of information that the adjuster will need is the wind speed at the location of the damaged building. The adjuster will need to compare it to the wind speed requirements in the Building Code. The Code requires buildings to be designed to withstand certain wind speeds depending on where they are located. If the wind that damaged the building was below the speed specified in the table, the adjuster then needs to learn the age of the structure or when work was last performed.

There Is a Limited Amount of Time to Act Against the Contractor

Florida law limits the amount of time that one has to recover financially from a contractor. Florida has a 10-year statute of repose that applies to the design, construction, or improvement of real property in the state. The law states that legal action must be commenced within 10 years of the later of:

• the date of actual possession by the owner,
• the date of the issuance of a certificate of occupancy,
• the date of abandonment of construction if not completed, or
• the date of completion of the contract or termination of the contract between the professional engineer, registered architect, or licensed contractor and his or her employer

The law lengthens the time period for a “product defect.” If a product defect caused the property damage/loss, there is a 12-year statute of repose to recover. A statute of repose is a similar concept to a statute of limitations, but has some key differences.

The Insurance Company Will Need to Work with Experts

Determining that the wind speed was under the amount specified in the Building Code is the first step. Then, the claims adjuster would need to engage an expert to determine whether the construction was the reason the building was damaged. Part of the analysis would be comparing the damage that this particular structure suffered to that of other buildings in the area. The adjuster would also need a meteorological expert to help determine the exact conditions in the area at the time Hurricane Ian came through.

Claims adjusters should be prepared with the questions they’ll want answered through their property inspection or interview of an insured because they may not have future opportunities to inspect the property or interview an insured for any number of reasons, such as scheduling issues. Therefore, it is recommended that adjusters bring a checklist they prepared ahead of time with them to ensure they ask all of the relevant questions. On a related point, given the effort and expense involved in hiring experts and them conducting their investigations, insurance companies need to be selective about which subrogation cases they pursue.

The Insurance Company Must Follow Florida Law for Construction Defects

If there is a possibility of subrogation, an insurance company should place the contractor or other design professional on notice by sending a letter via certified mail. Before the insurance company seeks any payment from the contractor, it must be aware of Florida law. Chapter 558 of the Florida Statutes, also known as Florida's Right to Repair Act, provides an opportunity for an insurance company and contractor to resolve the issue privately without the need for litigation. The contractor, or other professional, has the right to make repairs to the property on their own.

The contractor has the right to inspect the property, and it can respond to a subrogation demand in a number of ways. The contractor could agree to fix the property or it may offer a compromise. Alternatively, the contractor may deny that there is a defect and refuse to make the repairs. Then, the insurance company may need to proceed through the legal process in order to recover money from the contractor.

Insurance Companies Need to Be Prepared to Act Quickly

In the wake of Hurricane Ian and the widespread destruction it caused, insurance companies are still processing a large number of claims. Hopefully, carriers have taken steps to prepare for all of these claims and triage them so they can quickly identify which ones may be appropriate for subrogation. Contact partner Todd Feldman for any subrogation-related questions. Our firm’s subrogation department is teamed by seasoned lawyers and leaders in the insurance coverage

Given the realities of the law, an insurance company may not have much time to make a determination in each case. If the insurance company has a formal and reliable process in place for making quick but thoughtful determinations about which claims are ripe to pursue, there is a higher likelihood that it could recover money from a contractor that may not have followed the Building Code at the time it built a structure that was later damaged when Hurricane Ian swept through.