The Eleventh Circuit court concluded Florida law was unclear regarding claims of negligence and breach of fiduciary duty, and a contract dispute between an insurance broker and a Florida condo association made its way to the state Supreme Court for resolution following an appeal to the Eleventh Circuit in Tiara Condominium Assn. Inc., A Florida Non-Profit v. Marsh & McLennan Cos. Inc., A Delaware Corp., No. 09-11718 (11th Cir. 04/16/2013).

The Florida Supreme Court, in turn, stated that the application of the economic loss rule is limited to products liability cases in Tiara Condominium Assn. Inc. v. Marsh & McLennan Cos. Inc., Fla: Supreme Court No. SC10-1022, Supreme Court of Florida, March 7, 2013.

This case is important to insurance agents and brokers doing business in Florida or any other state that limits the economic loss rule to products liability. It means that an insurance broker can be sued for its negligence even though the damages are only for economic losses.

Tiara Condominium Assn. (Tiara) retained Marsh & McLennan (Marsh) as its insurance broker. One of Marsh's responsibilities included securing condominium insurance coverage. Marsh secured windstorm coverage through Citizens Property Insurance Corp. (Citizens), which issued a policy that contained a loss limit in an amount close to $50 million.

Tiara condominium tower suffered extensive wind damage from two hurricanes in September 2004. The condominium association claimed that Marsh caused part of its losses by failing to procure an adequate insurance policy for the condominium.

Related: Read “Agree to Disagree.”

In October 2007, Tiara filed suit against Marsh, alleging breach of contract, negligent misrepresentation, breach of the implied covenant of good faith and fair dealing, negligence and breach of fiduciary duty. The trial court granted summary judgment in favor of Marsh on all claims and Tiara appealed to the Eleventh Circuit. In 2010, 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.

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 the Florida Supreme 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.

Concerning the claims for negligence and breach of fiduciary duty, because the Eleventh Circuit concluded that Florida law was unclear, certified the following question to the Supreme Court of Florida concerning Florida's application of the economic loss rule:

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?

Related: Read “Sam Goldwyn was Right.”

In certifying the question, the Eleventh Circuit noted that the Supreme Court of Florida retains the discretion to restate the issue and to answer the question in the manner it chooses. 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?

Simply put, the economic loss rule is a judicially created doctrine that sets forth the circumstances under which a tort action is prohibited if the only damages suffered are economic losses. The rule has its roots in the products liability arena, and was primarily intended to limit actions in the products liability context.

Having reviewed the origin and original purpose of the economic loss rule, and what has been described as the unprincipled extension of the rule, the Supreme Court took the final step and held that the economic loss rule applies only in the products liability context. In so doing, the Florida Supreme Court moved off its prior rulings to the extent that they have applied the economic loss rule to cases other than products liability. The Supreme Court's experience with the economic loss rule over time, which led to the creation of the exceptions to the rule, now demonstrates that expansion of the rule beyond its origins was unwise and unworkable in practice. By this opinion, the Supreme Court returned the economic loss rule to its origin in products liability.

Because we now limit the application of the economic loss rule to cases involving products liability, it is not necessary for us to decide whether the economic loss rule exception for professionals applies to insurance brokers. Based on the foregoing, the Supreme Court answered the rephrased certified question in the negative and held that the application of the economic loss rule is limited to products liability cases. Having answered the rephrased certified question, it returned this case to the Eleventh Circuit Court of Appeals.

Related: Read “Worst of the Best.”

By answering the question in the negative, the Supreme Court of Florida limited the application of the economic loss. Based on the opinion, the Supreme Court of Florida the Eleventh Circuit vacated the district court's grant of summary judgment in favor of Marsh on Tiara's claims for negligence and breach of fiduciary duty and remanded those claims for the district court to reconsider in light of the Supreme Court of Florida's opinion.

Special Reports /

Florida Supreme Court: Brokers Can Be Sued for Economic Loss Negligence

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