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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.