Full Opinion

DISTRICT COURT OF APPEAL OF FLORIDA SECOND DISTRICT STATE FARM FLORIDA INSURANCE COMPANY, Appellant, v. ORLINDA GONZALEZ and HARMODIO DIAZ, Appellees. No. 2D20-1268 October 1, 2021 Appeal from the Circuit Court for Hendry County; James Sloan, Judge. Scot Samis of Traub Lieberman Straus & Shrewsberry LLP, St. Petersburg, for Appellant. Bard D. Rockenbach of Burlington & Rockenbach, P.A., West Palm Beach; and Mark D. Press of Mark D. Press, P.A., Hollywood, for Appellees. MORRIS, Chief Judge. State Farm Florida Insurance Co. (State Farm) appeals a final judgment entered in favor of its insureds, Orlinda Gonzalez and Harmodio Diaz. We reverse the final judgment because the trial court improperly construed the relevant provisions of the homeowner's policy. I. Background In December 2016, the insureds sustained damage to their home as a result of an overflow of water from their septic tank. The insureds submitted a notice of loss to State Farm, their homeowners' insurer, and a sworn statement in proof of loss seeking $69,247.62 on the claim. State Farm disputed the amount of the loss, paid $6,230.30 towards the claim, and invoked the appraisal process to determine the amount of the claim. The insureds filed a complaint for breach of contract against State Farm in August 2017. State Farm moved to abate the action and compel appraisal. After the trial court initially denied the motion, the insureds confessed error, and the trial court withdrew its order of denial and ordered appraisal to proceed. The appraisal panel determined an award for "fungus[-]related damages": $39,260.28 (replacement cash value) or $37,044.46 (actual cash value). The award also included $4,500 for additional living expenses. The award further stated that it "is made without 2 consideration of other terms, conditions, provisions or exclusions of the [subject] policy, which might affect coverage or the amount of [State Farm's] [l]iability there under." After receiving the determination from the appraisal panel, State Farm informed the insureds that because the appraisal award "reflects an amount of loss for fungus[-]related damages," the damages are not covered under the policy and payments would not be made under the policy. State Farm filed its answer and affirmative defenses, asserting that the loss is not covered under the policy, which includes a fungus endorsement. The insureds then filed a motion for judgment in accordance with the appraisal award, arguing that State Farm had extended coverage and that the appraisal award simply determined the amount of the loss. At the hearing on the motion, the insureds argued that the "resulting loss" language of the policy covers the septic tank overflow issue and that State Farm had waived any coverage defenses by invoking the appraisal process. In its written response to the motion and at the hearing, State Farm responded that the appraisal panel properly addressed the issue of causation, 3 that the policy does not include coverage for fungus-related damages as determined by the appraisal panel, and that State Farm did not waive the coverage issue by invoking the appraisal process because the policy provides that appraisal has no effect on matters of coverage. After a hearing, the trial court entered a final judgment in favor of the insureds, finding "that the [f]ungus-[r]elated [d]amages were a resulting loss from the septic tank overflow and that the [insureds] are entitled to recover those damages under the policy." II. Analysis On appeal, State Farm contends that the trial court erred in entering summary judgment in favor of the insureds because the trial court misinterpreted the language of the policy by failing to consider an endorsement that amends the policy and specifically excludes coverage for fungus-related damages. "The construction of an insurance contract is a question of law, not a question of fact; therefore, our standard of review is de novo." Fla. Peninsula Ins. Co. v. Cespedes, 161 So. 3d 581, 584 (Fla. 2d DCA 2014) (citing Kattoum v. N.H. Indemn. Co., 968 So. 2d 602, 604 (Fla. 2d DCA 2007)). "If the language in an insurance 4 policy is plain and unambiguous, a court must interpret the policy in accordance with the plain meaning so as to give effect to the policy as written." Id. (citing Wash. Nat'l Ins. Corp. v. Ruderman, 117 So. 3d 943, 948 (Fla. 2013)). "In construing insurance contracts, courts should read each policy as a whole, endeavoring to give every provision its full meaning and operative effect." Id. (quoting Ruderman, 117 So. 3d at 948). The main form of the policy at issue provides in pertinent part: SECTION I - LOSSES NOT INSURED 1. We do not insure for any loss to the property described in Coverage A which consists of, or is directly and immediately caused by, one or more of the perils listed in items a. through n. below, regardless of whether the loss occurs suddenly or gradually, involves isolated or widespread damage, arises from natural or external forces, or occurs as a result of any combination of these: .... i. mold, fungus or wet or dry rot; .... However, we do insure for any resulting loss from items a. through m. unless the resulting loss is itself a Loss Not Insured by this Section. 2. We do not insure under any coverage for any loss which would not have occurred in the absence of one or 5 more of the following excluded events. We do not insure for such loss regardless of: (a) the cause of the excluded event; or (b) other causes of the loss; or (c) whether other causes acted concurrently or in any sequence with the excluded event to produce the loss; or (d) whether the event occurs suddenly or gradually, involves isolated or widespread damages, arises from natural or external forces, or occurs as a result of any combination of these: .... The policy goes on to list excluded events in a. through f. An endorsement to the policy, titled "FUNGUS (INCLUDING MOLD) EXCLUSION ENDORSEMENT," provides in pertinent part: SECTION I - LOSSES NOT INSURED Item 1.i. is replaced with the following: i. wet or dry rot; In item 2., the following is added as item g.: g. Fungus. We also do not cover: (1) any loss of use or delay in rebuilding, repairing or replacing covered property, including any associated cost or expense, due to interference at the residence premises or location of the rebuilding, repair or replacement, by fungus; (2) any remediation of fungus, including the cost to: (a) remove the fungus from covered property or to repair, restore or replace that property; or 6 (b) tear out and replace any part of the building or other property as needed to gain access to the fungus; or (3) the cost of any testing or monitoring of air or property to confirm the type, absence, presence or level of fungus, whether performed prior to, during or after removal, repair, restoration or replacement of covered property. All other policy provisions apply. As State Farm argues, the endorsement amends the policy so that fungus is no longer addressed in item 1. of SECTION I - LOSSES NOT INSURED.1 Rather, by operation of the endorsement, fungus is addressed in item 2. of SECTION I - LOSSES NOT INSURED, which does not include the "resulting loss" language found in item 1. of SECTION I - LOSSES NOT INSURED. The trial court failed to acknowledge or consider the endorsement in its ruling. We conclude that the policy, when considered with the endorsement, specifically excludes fungus-related damages in item 2. and that the trial court therefore erred in ruling that the "fungus- related damages" are covered under the "resulting loss" language in item 1. 1 For purposes of reviewing the basis for the trial court's ruling, we assume that the damages are fungus-related. We note, however, that the insureds dispute that the damages are fungus- related. 7 The insureds argue that the judgment should be affirmed because State Farm waived any coverage defenses by invoking the appraisal process. State Farm argues this issue in their second point on appeal. The final judgment did not include any ruling on waiver, but the trial court made the following findings at the hearing: In this case [State Farm] acknowledged coverage, and they acknowledged coverage by making a partial payment. Then it appeared that the argument became, well, that is the insureds were not happy with the amount they received and said we should have gotten more, that's actually the issue that went to the appraiser, not whether there was coverage or not, because there was coverage already acknowledged, as demonstrated through that partial payment. .... In this particular case the issue was not an issue of coverage; that had been acknowledged and waived by the insurance company by their prior actions. It appears more that they don't like the amount of the appraisal award that was reached, but not that there was an issue of coverage. I find that there was a direct, physical loss caused by a covered peril under the provisions of the insurance policy that I read earlier; therefore, I'm going to grant the motion. Even though the trial court appeared to find waiver at the hearing, the final judgment did not address the issue of waiver. 8 Assuming that waiver by State Farm was an alternative basis for the trial court's ruling and to the extent that the insureds argue waiver as a basis for affirmance, we hold that State Farm did not waive any coverage defenses by invoking the appraisal process. See State Farm Fire & Cas. Co. v. Licea, 685 So. 2d 1285, 1288 (Fla. 1996) (holding that "where there is a demand for an appraisal under the policy," the insurer may still argue "that there is no coverage under the policy for the loss as a whole or that that there has been a violation of the usual policy conditions"); Liberty Am. Ins. Co. v. Kennedy, 890 So. 2d 539, 541-42 (Fla. 2d DCA 2005) ("The issue of coverage is not necessarily a matter of all or nothing. . . . [T]he submission of the claim to appraisal does not foreclose [the insurer] from challenging an element of loss as not being covered by the policy."); Fla. Ins. Guar. Ass'n v. Olympus Ass'n, 34 So. 3d 791, 796 (Fla. 4th DCA 2010) (holding that insurer could contest partial coverage after it had participated in the appraisal process and that trial court had erred in entering judgment in the entire appraisal amount without considering insurer's coverage defenses).2 2 We note that State Farm's failure to dispute coverage prior to appraisal has led to an appraisal award that is arguably unclear as 9 it relates to the issue of causation. "[C]ausation is a coverage question for the court when an insurer wholly denies that there is a covered loss . . . ." Johnson v. Nationwide Ins. Co., 828 So. 2d 1021, 1022 (Fla. 2002). But causation is "an amount-of-loss question for the appraisal panel when an insurer admits that there is covered loss, the amount of which is disputed." Id. [W]hen the insurer admits that there is a covered loss, but there is a disagreement on the amount of loss, it is for the appraisers to arrive at the amount to be paid. In that circumstance, the appraisers are to inspect the property and sort out how much is to be paid on account of a covered peril. In doing so, they are to exclude payment for "a cause not covered such as normal wear and tear, dry rot, or various other designated, excluded causes." Id. at 1025 (quoting and adopting the analysis in Gonzalez v. State Farm Fire & Cas. Co., 805 So. 2d 814 (Fla. 3d DCA 2000)). There is no indication that the appraisal panel sorted out "how much is to be paid on account of a covered peril" or that the panel "exclude[d] payment for 'a cause not covered,' " likely because State Farm did not raise a coverage question in regard to fungus prior to appraisal. When State Farm sought to compel appraisal, State Farm stated that it had "issued payment for the claim, but a dispute existed regarding the amount of the loss." Our record does not reflect that the appraisal panel was charged with excluding payment for an uncovered loss, such as fungus-related damages, and it is not clear from the award whether the fungus-related damages were purposely being excluded by the appraisal panel. Rather, the appraisal award could be read as treating the fungus- related damages as damages from a "covered peril." It also appears that the appraisal award broadly uses the term "fungus-related damages" to include damages that may not be fungus-related. The appraisal award form itself indicates that the "cause of loss" is "overflow of septic tank causing fungal and bacterial damages." The attachment to the appraisal award, consisting of detailed repair estimates, also states that the damage was "due to bacteria and fungus," although it does not differentiate between the two. However, there is no indication in the record that 10 In sum, because the trial court erred in failing to consider the endorsement that applies to the fungus-related damages as found by the appraisal panel and because State Farm did not waive its right to raise coverage defenses, we reverse the final judgment entered in favor of the insureds. We remand for further proceedings. Reversed and remanded. LUCAS and ATKINSON, JJ., Concur. Opinion subject to revision prior to official publication. the insureds sought to clarify the appraisal award. See Citizens Prop. Ins. Corp. v. River Manor Condo. Ass'n, 125 So. 3d 846, 854 (Fla. 4th DCA 2013) (determining whether trial court properly declined to address insurer's claim that appraisal items are duplicative and noting that "[i]f the appraisers improperly duplicated itemized losses, it was incumbent upon [the insurer] to seek clarification and/or modification of the award"); First Protective Ins. Co. v. Hess, 81 So. 3d 482, 485 (Fla. 1st DCA 2011) (in holding that trial court could not look beyond face of appraisal award and hold a hearing to determine basis of award, noting that party objecting to appraisal award had not sought to request clarification of the award). Whether the insureds could have or could now seek clarification of the appraisal award is not an issue before this court. 11