Tiara Condo. Ass'n, Inc. v. Marsh & McLennan Cos.

• Decision Date: 16 April 2013
• Docket Number: No. 09–11718.,09–11718.
• Citation: 714 F.3d 1253
• Court: U.S. Court of Appeals — Eleventh Circuit
• Parties: TIARA CONDOMINIUM ASSOCIATION, INC., A Florida non-profit corporation, In its own name and as agent for all owners of record of all individual condominium parcels with the Tiara Condominium, Plaintiff–Appellant, v. MARSH & McLENNAN COMPANIES, INC., a Delaware Corporation, Marsh, Inc., Marsh, USA, Inc., Defendants–Appellees.

714 F.3d 1253

TIARA CONDOMINIUM ASSOCIATION, INC., A Florida non-profit corporation, In its own name and as agent for all owners of record of all individual condominium parcels with the Tiara Condominium, Plaintiff–Appellant,

v.MARSH & McLENNAN COMPANIES, INC., a Delaware Corporation, Marsh, Inc., Marsh, USA, Inc., Defendants–Appellees.

No. 09–11718.

United States Court of Appeals, Eleventh Circuit.

April 16, 2013.

Mark L. McAlpine, McAlpine, P.C., Auburn Hills, MI, for Plaintiff–Appellant.

Sylvia H. Walbolt, Chris S. Coutroulis, Carlton Fields, P.A., Tampa, FL, Francis A. Anania, Anania, Bandklayder, Blackwell, et al., Roberto A. Torricella, Jr., Anania, Bandklayder, Blackwell, Baumgarten & Torricella, Miami, FL, Mitchell J. Auslander, Lawrence O. Kamin, Christopher J. St. Jeanos, Willkie, Farr & Gallagher, LLP, New York City, Gregory K. Conway, Willkie, Farr & Gallagher, LLP, Washington, DC, for Defendants–Appellees.

Appeal from the United States District Court for the Southern District of Florida.

Before DUBINA, Chief Judge, KRAVITCH, Circuit Judge, and EDENFIELD, ^* District Judge.

DUBINA, Chief Judge:

As we stated in our earlier opinion reported at Tiara Condominium Association, Inc. v. Marsh & McLennan Companies, Inc., 607 F.3d 742 (11th Cir.2010), this appeal arises from a contract between an insurance broker and the association responsible for managing the condominium tower located on Singer Island, Florida. The tower suffered extensive wind damage from two hurricanes in September 2004. The condominium association claimed that the broker caused part of its losses by failing to procure an adequate insurance policy for the condominium. In our earlier opinion, we were able to resolve the issues raised on appeal with respect to the association's claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and negligent misrepresentation. We affirmed the district court's grant of summary judgment on all of those claims. Concerning the claims for negligence and breach of fiduciary duty, because we concluded that Florida law was unclear, we certified the following question to the Supreme Court of Florida concerning Florida's application of the economic loss rule:

CERTIFICATION FROM THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT TO THE SUPREME COURT OF FLORIDA, PURSUANT TO FLA. R. APP. P. 9.150(a). TO THE SUPREME COURT OF FLORIDA AND ITS HONORABLE JUSTICES:

DOES AN INSURANCE BROKER PROVIDE A “PROFESSIONAL SERVICE” SUCH THAT THE INSURANCE BROKER IS UNABLE TO SUCCESSFULLY ASSERT THE ECONOMIC LOSS RULE AS A BAR TO TORT CLAIMS SEEKING ECONOMIC DAMAGES THAT ARISE FROM THE CONTRACTUAL RELATIONSHIP BETWEEN THE INSURANCE BROKER AND THE INSURED?

In certifying our question, we noted that the Supreme Court of Florida retains the discretion to restate the issue and to answer the question in the manner it chooses. See Stevens v. Battelle Mem'l Inst., 488 F.3d 896, 904 (11th Cir.2007). The Supreme Court of Florida did precisely that. It restated the certified question as follows:

DOES THE ECONOMIC LOSS RULE BAR AN INSURED'S SUIT AGAINST AN INSURANCE BROKER WHERE THE PARTIES ARE IN CONTRACTUAL PRIVITY WITH ONE ANOTHER AND THE DAMAGES SOUGHT ARE SOLELY FOR ECONOMIC LOSSES?

The Supreme Court of Florida answered its question in the negative and held that the application of the economic loss rule was limited to products liability cases. Accordingly, based on the opinion the Supreme Court of Florida filed with the Eleventh Circuit Court of Appeals on March 11, 2013, and attached hereto as “Appendix I,” we vacate the district court's grant of summary judgment in favor of Marsh on Tiara's claims for negligence and breach of fiduciary duty and remand those claims for the district court to reconsider them in light of the Supreme Court of Florida's opinion.

VACATED and REMANDED.

APPENDIX I

Supreme Court of Florida

No. SC10–1022

TIARA CONDOMINIUM ASSOCIATION, INC., etc., Appellant,

vs.

MARSH & MCLENNAN COMPANIES, INC., etc., et al., Appellees.

[March 7, 2013]

LABARGA, J.

This case is before the Court for review of a question of Florida law certified by the United States Court of Appeals for the Eleventh Circuit that is determinative of a cause pending in that court and for which there appears to be no controlling precedent. We have jurisdiction. Seeart. V, § 3(b)(6), Fla. Const. In Tiara Condominium Ass'n, Inc. v. Marsh & McLennan Co., Inc., 607 F.3d 742, 749 (11th Cir.2010), the Eleventh Circuit certified the following question to this Court:

DOES AN INSURANCE BROKER PROVIDE A “PROFESSIONAL SERVICE” SUCH THAT THE INSURANCE BROKER IS UNABLE TO SUCCESSFULLY ASSERT THE ECONOMIC LOSS RULE AS A BAR TO TORT CLAIMS SEEKING ECONOMIC DAMAGES THAT ARISE FROM THE CONTRACTUAL RELATIONSHIP BETWEEN THE INSURANCE BROKER AND THE INSURED?

Because the question as certified by the Eleventh Circuit is premised on the continued applicability of the economic loss rule in cases involving contractual privity, we restate the certified question as follows:

DOES THE ECONOMIC LOSS RULE BAR AN INSURED'S SUIT AGAINST AN INSURANCE BROKER WHERE THE PARTIES ARE IN CONTRACTUAL PRIVITY WITH ONE ANOTHER AND THE DAMAGES SOUGHT ARE SOLELY FOR ECONOMIC LOSSES?

We answer this question in the negative and hold that the application of the economic loss rule is limited to products liability cases. Therefore, we recede from prior case law to the extent that it is inconsistent with this holding. We begin by discussing the facts and procedural background of this case. We then turn to our analysis.

FACTS AND PROCEDURAL BACKGROUND

The facts of this case are set forth in the Eleventh Circuit Court of Appeals' opinion in Tiara Condominium Ass'n, Inc. v. Marsh & McLennan Co., Inc., 607 F.3d 742 (11th Cir.2010). We summarize the facts here. Tiara Condominium Association (Tiara) retained Marsh & McLennan (Marsh) as its insurance broker. One of Marsh's responsibilities was to secure condominium insurance coverage. Marsh secured windstorm coverage through Citizens Property Insurance Corporation (Citizens), which issued a policy that contained a loss limit in an amount close to $50 million. In September 2004, Tiara's condominium sustained significant damage caused by hurricanes Frances and Jeanne. Tiara began the process of loss remediation. After being assured by Marsh that the loss limits coverage was per occurrence (meaning that Tiara would be entitled to almost $100 million rather than coverage in the aggregate, which would be half of that amount), Tiara proceeded with more expensive remediation efforts. However, when Tiara sought payment from Citizens, Citizens claimed that the loss limit was $50 million in the aggregate, not per occurrence. Eventually, Tiara and Citizens settled for approximately $89 million, but that amount was less than the more than $100 million spent by Tiara.

In October 2007, Tiara filed suit against Marsh, alleging (1) breach of contract, (2) negligent misrepresentation, (3) breach of the implied covenant of good faith and fair dealing, (4) negligence, and (5) breach of fiduciary duty. The trial court granted summary judgment in favor of Marsh on all claims and Tiara appealed to the Eleventh Circuit. The appeals court concluded that summary judgment was proper as to the breach of contract, negligent misrepresentation, and breach of implied covenant of good faith and fair dealing claims.¹ However, the appeals court did not affirm the summary judgment granted by the trial court on the negligence and breach of fiduciary duty claims, which were based on Tiara's allegations that Marsh was either negligent or breached its fiduciary duty by failing to advise Tiara of its complete insurance needs and by failing to advise Tiara of its belief that Tiara was underinsured. As to these two claims, the appeals court certified a question to this Court to determine whether the economic loss rule prohibits recovery, or whether an insurance broker falls within the professional services exception that would allow Tiara to proceed with the claims. We turn now to a discussion of the economic loss rule.

ANALYSIS

Origin and Development of the Economic Loss Rule

“The exact origin of the economic loss rule is subject to some debate and its application and parameters are somewhat ill-defined.” Moransais v. Heathman, 744 So.2d 973, 979 (Fla.1999). In its simplest form, we noted, the rule appeared initially in both state and federal courts in products liability type cases. Id. at 979. A historical review of the doctrine reveals that it was introduced to address attempts to apply tort remedies to traditional contract law damages. In Casa Clara Condominium Ass'n, Inc. v. Charley Toppino and Sons, Inc., 620 So.2d 1244 (Fla.1993), we recognized the economic loss rule as “the fundamental boundary between contract law, which is designed to enforce the expectancy interests of the parties, and tort law, which imposes a duty of reasonable care and thereby encourages citizens to avoid causing physical harm to others.” Id. at 1246 (quoting Sidney R. Barrett, Jr., Recovery of Economic Loss in Tort for Construction Defects: A Critical Analysis, 40 S.C.L.Rev. 891, 894 (1989)). We have defined economic loss as “damages for inadequate value, costs of repair and replacement of the defective product, or consequent loss of profits—without any claim of personal injury or damage to other property.” Casa Clara, 620 So.2d at 1246 (quoting Note, Economic Loss in Products Liability Jurisprudence, 66 Colum. L.Rev. 917, 918 (1966)). We further explained that economic loss

includes “the diminution in the value of the product because it is inferior in quality and does not work for the general purposes for which it was manufactured and sold.” Comment, Manufacturers' Liability to Remote Purchasers for “Economic Loss” Damages—Tort or Contract?, 114 U. Pa. L.Rev. 539, 541 (1966). In other words, economic losses are “disappointed economic expectations,”which are...