Insurance Defense Blog

Maryland federal court decision on broker's failure to procure insurance

 In a recent case, a homeowner brought suit in Maryland federal court against her insurance broker for negligence, breach of fiduciary duty, negligent misrepresentation, intentional misrepresentation, and fraud, after her house sustained fire damage when the contents of the house were not insured.  The Court threw out the breach of fiduciary duty and fraud counts, but held that the defendants had not submitted enough evidence to prevail on the affirmative defense that insurance would not have been available on the property.

 

The house had been insured by Chubb, but Chubb cancelled the policy for nonpayment after having insured it for years.  Subsequently the bank holding the mortgage ordered lender-placed insurance coverage on the house.  The bank notified the homeowner that the lender-placed insurance would not only cost more, but does not provide any coverage for loss or damage to personal property and provided limited coverage in other respects.

 

A couple of months later, the homeowner, who had been traveling, and having realized that the Chubb policy had been canceled, asked her insurance broker, whom she had known for several years and had become good friends with her, to see what could be done, and send him a package of materials concerning the lender-placed insurance.  Upon receipt of the package, the broker passed it to a customer service representative of his firm, and gave instructions to find a new insurance policy for the client.  The customer service representative initiated steps to find a new insurance policy, but delayed on following up.  Unfortunately, 27 days after the broker received the package from the client, a fire broke out in the homeowner's garage and caused extensive damage to the house and its contents.  The lawsuit followed.

 

The defendants moved for summary judgment on the breach of fiduciary duty claim.  The Court agreed that in this case, the breach of fiduciary duty does not constitute a stand alone nonduplicative cause of action.  The Court held that any purported breach of fiduciary duty for monetary damages cannot, standing alone, constitute a separate and distinct cause of action under Maryland law for a tort called breach of fiduciary duty.  The Court stated that the broker may have owed a fiduciary duty to the homeowner, and the alleged breach of fiduciary duty may buttress plaintiff's negligence claim; but it simply does not rise to a cause of action of its own.

 

The defendants also moved for summary judgment on the grounds that given the underwriting rating of the house and Chubb's previous cancellation for nonpayment, no insurer would have provided plaintiff with an insurance policy, and therefore the defendants' actions were not the cause of the homeowner's injuries.

 

The Court denied the motion for summary judgment on those grounds.  The Court noted that under Maryland law, a plaintiff does not need to show that an insurance policy was obtainable in order to prove that a broker's failure to procure such a policy caused her loss.  Instead, the availability of insurance is assumed unless the defendant proves its unavailability as an affirmative defense.  The Court stated that the burden of proof on the issue of nonavailability of insurance coverage is on the defendants.  Further, in order to discharge that burden, the defendants must do more than show that a particular insurer cannot supply insurance.  Finally, if a reasonable fact finder can draw an inference that insurance was available, even if plaintiffs do not provide any evidence on the point, summary judgment for the defendants is inappropriate. 

 

Here, the defendants did not foreclose the possibility that the homeowner could have secured an insurance policy, because the house had been insured for years with Chubb, insurance might have been available from AIG, and finally, a jury could have inferred that the homeowner would have been able to secure a policy from the fact that the bank was able to obtain lender-placed insurance.

 

The Court also raised an issue concerning the negligent misrepresentation count.  A cause of action for negligent misrepresentation may arise when a defendant misrepresents past or existing facts, however, a promissory statement, such as a promise to obtain insurance, generally cannot form the basis of a negligent misrepresentation claim. 

 

The Court granted summary judgment as to the homeowner's fraud claims.  When a plaintiff bases a fraud claim on a defendant's unfilled promise, the plaintiff must prove at trial that the defendant made the promise with a present intention not to perform it.  The homeowner could not meet that burden here, because the defendant broker did initiate steps to replace the insurance.

 

The Court also granted summary judgment on the homeowner's claims for emotional distress.  Generally, emotional distress attendant to property damage is not compensable under Maryland law.  This is because the courts consider injury resulting from a mere damage to property as an unusual and extraordinary result and not contemplated as a natural and probable consequence of the tortious act to the property.  In Maryland, a plaintiff cannot ordinarily recover for emotional injuries sustained solely as a result of negligently inflicted damage to the plaintiff's property.

 

When can a rearender be the proximate cause of a suicide nine years later?

In Sindler v. Litman, No. 1838, Sept. Term, 2004 (Court of Special Appeals of Maryland, Dec. 2, 2005), the plaintiffs originally brought an action for personal injuries based on a motor vehicle accident that occurred on Dec. 7, 1994.  It was a rear-end accident, in which the plaintiff's Cadillac had about $6000 in damages, and the plaintiff was seen but not admitted at a hospital afterwards.

The action was filed in 1997, and in the Court's words, "the pre-trial process was very lengthy" and the case was not tried until September, 2004. However, prior to trial, in July, 2004, the plaintiff driver committed suicide. Two weeks later, her husband filed an amended complaint to include wrongful death and survival claims. The trial court entered summary judgment in favor of the defendants with respect to the wrongful death claim.

The jury returned a verdict for the plaintiff with respect to the survival and loss of consortium claims. Then the trial court granted the defendants' motion to dismiss the entire case based on discovery violations.

On appeal, the Court affirmed the trial court's rulings.

The Court adopted the general rule, and held that “one may not recover damages in negligence for the suicide of another. The act of suicide is generally considered to be a deliberate, intentional, and intervening act which precludes a finding that a given defendant is, in fact, responsible for the decedent’s death.”

While there are exceptions, here, the plaintiff's psychiatric expert did not opine that the decedent was insane or otherwise was in a mental state such that she did not realize the nature and risk of her act of suicide or that she had an uncontrollable impulse or anything sufficiently close to the Restatement test to create a jury question.

Residual Diminution of Value After Repair Held By D.C. Court of Appeals To Be A Recoverable Element of Damages

In American Service Center V. Helton the D.C. Court of Appeals held that remedies for injury to personal property include residual diminution in value after repair. 

In this case, there was an automobile accident involving an Avis rental and a Mercedes Benz owned by a large Mercedes dealership, the American Service Center.  Avis paid for the repairs to the Mercedes, but American Service Center sued to also recover the net residual diminution in value after repair.  The Court held that:

when a plaintiff can prove that the value of an injured chattel after repair is less than the chattel’s worth before the injury, recovery may be had for both the reasonable cost of repair and the residual diminution in value after repair, provided that the award does not exceed the gross diminution in value.