Coconut Key Homeowners Ass’n, Inc. v. Lexington Ins. Co., No. 08-60640, ___ F. Supp. 2d ___ (S.D. Fla., August 28, 2009)

Coconut Key Homeowners Association, Inc., brought suit after its insurer, Lexington Insurance Company, allegedly failed to pay for covered losses incurred as a result of Hurricane Wilma. 

Lexington filed a Motion for Partial Summary Judgment, arguing that Coconut Key did not comply with an inspection provision in the policy which was a condition precedent to recovery. The provision at issue stated:

3. Duties In The Event of Loss Or Damage

You must see that the following are done in the event of loss or damage to Covered Property:

* * *

f. Permit us to inspect the property and records prov-ing the loss or damage. Also, permit us to take samples of damaged property for inspection, testing or analysis.

Coconut Key provided Lexington access to the majority of the property, but a few unit owners refused to make their units available for inspection. Lexington argued it needed access to “the entirety of damaged property” in order for Coconut Key to present a claim regarding that property, and, as a result, it was entitled to partial summary judgment for damage to the units it had not been able to inspect.

Coconut Key argued the inspection provision was a cooperation clause, not a condition precedent, and Lexington's motion should be denied because the record evidence showed Coconut Key cooperated with Lexington's request for inspections.

The issue before the United States District Court for the Southern District of Florida was whether the inspection provision was a condition precedent or a cooperation clause. The difference between the two is that a condition precedent must be performed before the contract becomes effective; there is no recovery if the insured materially breaches or does not fulfill condition precedent at issue. The insurer does not have to show prejudice. Cooperation clauses however, are less burdensome on insured parties. To establish a defense based on breach of a cooperation clause, the insurer must show both a material breach and substantial prejudice.

The Court looked to caselaw regarding insurance policies to determine that the inspection provision at issue was a cooperation clause. The Court relied on a few factors in reaching this conclusion. First, the inspection provision helped Lexington obtain evidence, a key purpose of cooperation clauses. Second, the Court found no Florida law to support Lexington’s contention that inspection provisions are typically considered to be a condition precedent. Finally, the rule of interpretation that policy provisions limiting liability are construed in favor of the insured weighed in favor of holding the provision was a cooperation clause. If the provision were a condition precedent, it would be more difficult for Coconut Key to recover.

As the inspection provision was a cooperation clause, Lexington needed to show as a matter of law that Coconut Key materially breached the inspection provision and that it was prejudiced by the breach to prevail on the motion for summary judgment. The Court concluded that Lexington did not meet this burden. It was undisputed that Coconut Key extended four invitations for reinspection by Lexington. Further, the Court noted that the record indicated the cause of Lexington's inability to access the property was the individual unit owners and there was no evidence that Coconut Key could compel the unit owners to assist Lexington. As a result, Lexington did not show, as a matter of law, that Coconut Key materially breached the inspection provision.

Moreover, Lexington offered no evidence that a meaningful amount of Coconut Key's damages were located in the inaccessible units nor did it explain why it must access each and every unit to respond effectively to Coconut Key's claims. Additionally, Lexington's assertion that it found no additional damage to unit interiors during re-inspection tended to show that lack of access to the remaining units has had little impact on its assessment of Coconut Key's claimed damages. Accordingly, Lexington's motion also failed because it did not demonstrate substantial prejudice.

Court Slip Opinion