Could A Declaratory Action Help You Avoid Arbitration in a Home Warranty Claim?

Many new home purchases also include structural warranties, which, as the name suggests, provide warranty coverage for problems with the home’s structure, including walls, columns, framing, and roofing.  These warranties often include arbitration clauses, which can have consequences for the homeowner’s legal strategy if he has to file suit to enforce his warranty claims.

For example, Homeowner purchases a new home from a builder, and, in making the purchase, he also takes out a structural warranty on the home, which includes an arbitration clause.  A few years pass and Homeowner notices some cracks in his backyard patio, and submits a claim to the warranty company to have the cracks repaired.  However, the warranty company denies that the damage is covered by the warranty, so the homeowner makes a written demand to the builder to fix the cracks, and the builder denies liability for the cracks.  Homeowner then consults with an attorney about his claim, and the attorney explains that, because of the arbitration clause in the warranty, the warranty company will likely invoke arbitration if Homeowner sues the company.  Homeowner is displeased, because, for a variety of reasons, he would rather avoid arbitration.  Unfortunately for Homeowner, it seems his choice is either to drop his claim or submit to arbitration.

However, Homeowner may have another option: bringing a declaratory action to determine if warranty coverage exists.  It is a well-established principle under Florida law that, in insurance contexts, where an insurance policy contains an arbitration clause, the issue of whether a legal claim is covered by the insurance policy at issue is not an arbitrable issue.  Instead, the question of whether a claim is covered by an insurance policy is an issue for the court’s determination.  See generally U.S. Fid. & Guar. Co. v. Woolard, 523 So. 2d 798 (Fla.1st DCA 1988); Nationwide Insurance Company v. Cooperstock, 472 So.2d 547 (Fla. 4th DCA 1985); Vigilant Insurance Company v. Kelps, 372 So.2d 207 (Fla. 3d DCA 1979); and Cruger v. Allstate Insurance Company, 162 So.2d 690 (Fla. 3d DCA 1964).

This principle is applicable to the scenario involving Homeowner because warranties are essentially a form of insurance[1].  Thus, under the principle that insurance coverage questions are matters within the court’s purview and not for arbitration, the question of whether Homeowner’s warranty covers the damage to his home is arguably one that a court should hear via declaratory action by Homeowner.  And since Homeowner’s ultimate goal is to have the damage to his home covered by the warranty, the declaratory action provides him the means to achieve his goal without submitting to arbitration.

One must note, however, that this is an untested principle under Florida law; it does not appear that this issue has been addressed in a reported Florida court decision.  Nonetheless, this theory may provide a creative method to avoid arbitration in home warranty claim disputes.

[1] Florida Statutes Chapter 634, which is part of the Florida Insurance Code, governs home warranties.  Section 634.325 states, “Nothing in the Florida Insurance Code or in this part shall be deemed to authorize any home warranty association to transact any insurance business other than that of home warranty …” (emphasis added).  Resultantly, the argument can be made that the Florida Statutes acknowledge warranties are a form of insurance.