Sedgwick Insurance Law Blog: Keeping You Updated on Significant ...

By Benjamin E. Shiftan

In Grissom v. Liberty Mut. Fire Ins. Co., No. 11-60260, 2012 WL 1383069 (5th Cir. Apr. 23, 2012), the U.S. Court of Appeals for the Fifth Circuit overturned a jury verdict in the U.S. District Court for the Southern District of Mississippi, holding that under Mississippi law, a purchaser of flood insurance cannot maintain a negligent misrepresentation cause of action against a flood insurer simply because the insurer failed to inform the consumer that he was eligible for a ?preferred risk? policy.

In 1977, plaintiff James Grissom purchased flood insurance for his home in Mississippi through the Federal Emergency Management Agency?s Write Your Own (WYO) flood insurance program.? Defendant Liberty Mutual Fire Insurance Company acted as Grissom?s WYO insurance provider.? In 1989, a preferred risk flood insurance policy became available for the ?flood zone? on which Grissom?s home sat.

In 2004, Grissom renewed his Liberty Mutual policy with covered total loss of up to $121,200 for a $531 premium.? The 2004 policy renewal notice noted that preferred risk policies existed, but did not indicate whether Grissom was eligible for such a policy.? If Grissom had enrolled as a policyholder under the preferred risk policy, he would have had $350,000 in total covered loss for only a $317 premium.

In August 2005, Hurricane Katrina struck the Gulf Coast, destroying Grissom?s home.? Liberty Mutual paid the full $121,200 under Grissom?s policy.? Grissom then sued Liberty Mutual in Mississippi state court to recover the difference between the proceeds he received ($121,200) and the proceeds he could have received under the preferred risk policy ($350,000).? Liberty Mutual removed the case to the Southern District of Mississippi. The federal trial court denied Liberty Mutual?s motions to dismiss and for summary judgment and matter when to jury.? At trial, a jury awarded Grissom $212,900 in compensatory damages.

The Fifth Circuit reversed.? It reasoned that Mississippi law does not recognize a negligent misrepresentation cause of action under the facts alleged.? The appellate court?s ruling hinged upon whether, under Mississippi law, insurers owe a fiduciary duty to insureds when insurance is purchased.? The Fifth Circuit rejected Grissom?s argument that insurers have a ?duty to use reasonably prudent diligence and care in ?business transactions.??? The court found that under state law no such duty existed, holding that ?the purchase of insurance is an arms-length transaction and no fiduciary duty arises between an insurance company or its agents and the purchaser of the insurance.?

Relying on a recent Mississippi Supreme Court decision, the Fifth Circuit reasoned that the insured bore the burden of researching better options for insurance:? ?[I]mposing liability on agents for failing to advise insureds regarding the sufficiency of their coverage would remove any burden from the insured to take care of his or her own financial needs.?? The Fifth Circuit concluded that ?Liberty Mutual [was] not required to provide advice to insurance customers? and that Mississippi law does not recognize a negligent misrepresentation cause of action for failure to disclose that a less expensive policy with better coverage exists, and remanded the matter to the trial court to dismiss Grissom?s negligent misrepresentation claim.

This entry was posted on Tuesday, May 22nd, 2012 at 9:25 pm and is filed under Insurance Practices. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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