The Eleventh Circuit recently reduced a $4 million jury verdict to $1,600 after finding that the policyholder, a property management company, lacked an insurable interest in the ownership of the property to justify any higher award.
The plaintiff, Banta Properties (Banta), served as the property management company for three apartment complexes in Broward County, Florida. The three complexes were all separate legal entities that were not owned by Banta. In exchange for managing the complexes, the owners paid Banta 4 percent of gross income.
Banta purchased property insurance for the three complexes. The primary policy provided coverage for damage up to $2.5 million, not including a $550,186 deductible. The excess policy, which was issued by the defendan,t Arch Specialty Insurance Company (Arch), provided $8.5 million in additional coverage.
In October 2005, the three complexes were severely damaged by Hurricane Wilma. Due to the storm, the complexes suffered $39,000 in lost rents. Banta’s share of the rents was $1,600. Banta eventually settled its property damage claims with the primary insurer for $2.5 million. It then alerted Arch of the loss. Unable to resolve the claim, Banta sued Arch. The case proceeded to trial, during which the jury found that Banta had a $5 million insurable interest in the complexes and had suffered $4 million in property damage. Accounting for payments made under the primary policy, the district court entered a nearly $1.3 million judgment against Arch.
On appeal, the Eleventh Circuit held that the measure of a party’s insurance interest is the loss the insured might sustain from damage to the property. The court held that because Banta actually had no property rights in the apartment complexes whatsoever, the jury verdict could not stand. Rather, the court held that Banta’s interest was limited to its contractual right to receive 4 percent of gross income in exchange for its service as property manager. The court, therefore, reduced the verdict from $4 million to $1,600, Banta’s share of the $39,000 in business interruption.
For a copy of the decision, click here.