Waiver of Right to Neutral Evaluation is Not an Issue for the Court and a Stay of Litigation is Mandatory

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On January 31, 2014, Florida’s Second District Court of Appeal issued a decision holding that courts do not have jurisdiction to determine that a party waived its right to the neutral evaluation of a sinkhole claim.  Moreover, the appellate court held that a stay of litigation pending the completion of neutral evaluation is mandatory.  This opinion is favorable to insurance companies as it affords strength to the statutory language providing for this valuable alternative dispute resolution tool.

In Citizens Property Insurance Corporation v. Trapeo, the insurer sought certiorari review of a trial court’s order denying a stay of litigation pending the neutral evaluation of a sinkhole claim.  2014 WL 340670 (Fla. 2d DCA 2014).  Neutral evaluation is an alternative dispute resolution for sinkhole insurance claims, provided by Florida Statute § 627.7074.  In this case, a lawsuit followed a dispute over the proper remediation protocol for sinkhole damage to the insured property.  After engaging in discovery, the insurer filed a request for neutral evaluation with Florida’s Department of Financial Services and filed a notice of automatic stay of the litigation, “pending completion of the neutral evaluation and for 5 days after the filing of the neutral evaluator’s report with the court.”  Id. at 1.  In response, the Plaintiff objected to the stay, arguing that the insurer waived its right to demand neutral evaluation based upon denials contained within the Answer, Affirmative Defenses, and its participation in litigation for approximately ten months.  Id.

The trial court sustained the Plaintiff’s objection to neutral evaluation and held that the insurer “waived its right to neutral evaluation when it participated in litigation” and that “the right to neutral evaluation, like any statutory or contractual right, can be waived and that waiver did occur in the instant action.”  Id. at 2.  The insurer appealed, asserting that the governing statute requires a stay of proceedings that cannot be waived by participating in litigation.  The appellate court first considered which version of § 627.7074 is applicable in the case, as the original statute was enacted in 2006 yet substantially amended in 2011 and Plaintiff filed a Motion to Prevent the Retroactive Application of Florida Statutes 627.706 Through 627.7074.  Id. at 1-2.  Relevant to the issue before the appellate court, the amendment provided “Regardless of when noticed, any court proceeding related of the subject matter of the neutral evaluation  shall be stayed pending completion of the neutral evaluation and for 5 days after the filing of the neutral evaluator’s report with the court.”  Id. citing § 627.7074(10) (emphasis added); and ch. 2011-39, § 27, Laws of Fla. (2011) .  The court determined that the amended language was applicable, as the stay subsection of the statute is procedural in nature and thus governed by the laws in effect at the time the issue arises.  Id. at 3.

The appellate court concluded that the trial court departed from the essential requirements of law as neutral evaluation, once requested, is mandatory and the trial court’s determination that neutral evaluation was waived conflicts with the express language of the statute.  Id. at 5.  The court further held that the trial court acted in excess of its jurisdiction by determining that neutral evaluation had been waived.  Instead, whether a party can or has waived neutral evaluation is a determination within the Department of Financial Service’s authority and power.   Id. at 6.  The court converted the portion of the certiorari petition regarding the trial court’s denial of a stay into a petition for writ of mandamus.  Ultimately, the court held that mandamus relief is warranted, as the language requiring a stay of the litigation pending the completion of neutral evaluation is mandatory.  Id. at 6 – 7.   According to the court, the notice of stay was all that was necessary to effectuate the stay.  Id. at 7.

On the same day, the Second District Court of Appeal also quashed the trial court’s ruling in Citizens Property Insurance Corporation v. Finley, to the extent that it purports to prohibit neutral evaluation.  2014 WL 340668 (Fla. 2d DCA 2014).  The Finley court cited the reasoning of Trapeo and directed the trial court to stay the litigation pending the completion of the neutral evaluation.  Id. at 1.

If you would like to discuss first party property claims with Lisa Debroux, please contact her at ldebroux@dellgraham.com or 352.372.4381.  Mrs. Debroux has handled first party property claims for over ten years.