The Florida Supreme Court’s decision that says insurance companies must pay a general contractor’s overhead and profit when indemnifying a homeowner’s claim for replacement of damaged property could have long-reaching ramifications.

With its July verdict of Amado Trinidad vs. Florida Peninsula Insurance Company, the state of Florida’s highest court ruled that homeowners are entitled to the full cost of replacement, whatever that includes and whether or not the repair or reconstruction actually takes place.

In a case that is significant to contractors who do insurance related claim-related work, the state of Florida’s highest court ruled in July’s Amado Trinidad vs. Florida Peninsula Insurance Company decision that homeowners are entitled to the full cost of replacement, whatever that includes and whether or not the repair or reconstruction actually takes place.

“We hold that an insurer’s required payment under a replacement cost policy includes overhead and profit,” Justice Barbara Pariente wrote, “where the insured is reasonably likely to need a general contractor for the repairs, because the insured would be required to pay costs for a general contractor’s overhead and profit for the completion of repairs in the same way the insured would have to pay other replacement costs he or she is reasonably likely to incur in repairing the property.”

The state supreme court’s decision marked a reversal of an earlier ruling by Third District Court of Appeals, which had concluded that Florida Peninsula Insurance Company was not required by either its replacement cost homeowner’s insurance policy or existing state statutes to pay Trinidad, its insured, costs for a general contractor’s overhead and profit because Trinidad did not repair or contract to repair the damage to his home.

The Florida Supreme Court disagreed, saying the previous ruling “impermissibly allowed Florida Peninsula to single out overhead and profit from other replacement costs and withhold payment for only those costs.”

The dispute began when Trinidad filed a claim with his homeowner’s insurance company, Florida Peninsula, for fire damage that occurred to his Miami home on February 11, 2008. Florida Peninsula admitted coverage pursuant to Trinidad’s replacement cost policy and made a payment on the claim for completion of the repairs, even though Trinidad did not make repairs to the home or hire a general contractor to undertake the repairs. Florida Peninsula’s payment, while including other costs that would be necessary to make the repairs, did not, however, include an amount for a general contractor’s overhead and profit. Florida Peninsula asserted that it was entitled to withhold payment of overhead and profit until Trinidad actually incurred those particular expenses in repairing or contracting to repair the home.

Trinidad filed a breach of contract lawsuit against Florida Peninsula, alleging that, like the other costs of repair Florida Peninsula paid despite Trinidad not completing any repairs to the home, Florida Peninsula was required to pay Trinidad costs for overhead and profit.

The state’s highest court ultimately agreed.

“Because replacement cost insurance provides coverage based on the cost to repair or replace the damaged structure on the same premises, we conclude that overhead and profit necessarily must be included within the scope of a replacement cost policy where it is reasonably likely a general contractor would be needed for the repairs,” Pariente wrote. “Accordingly, overhead and profit are a necessary component of replacement costs, just as they are for actual cash value, because replacement cost insurance is intended to compensate the insured for what it would cost to repair or replace the damaged property.

The court’s ruling could have far-reaching implications as to the pricing of future reconstruction jobs. It’s likely now that profit and overhead will automatically be factored into the bill if a general contractor’s services are needed, every but as much an expense as the tools or man-hours needed to accomplish the job. The ruling will also apply to out-of-state companies who do business in Florida.

“We hold that replacement cost insurance includes overhead and profit where the insured is reasonably likely to need a general contractor for repairs,” Pariente wrote. “We therefore conclude that the Third District erred in determining both that the 2008 version of section 627.7011 and the insurance policy itself permitted Florida Peninsula to withhold payment of overhead and profit because Trinidad had not actually incurred those costs.”