MEASURE OF DAMAGES IN NEGLIGENT PROCUREMENT OF SURETY BONDS / INSURANCE

shutterstock_675053740My broker procured the wrong insurance and I am exposed to a loss.  My broker failed to procure proper insurance and I am exposed to a loss.  “Where the parties enter into an agreement to procure insurance and there is a negligent failure to do so, an insurance broker may be liable for damages.”  The Lexington Club Community Association, Inc. v. Love Madison, Inc., 43 Fla.L.Weekly D1860a (Fla. 4th DCA 2018).  The proper measure of damages in a negligent procurement of insurance claim is “what would have been covered had the insurance been properly obtained.”   Id. quoting Gelsomino v. ACE Am. Ins. Co., 207 So.3d 288, 292 (Fla. 4th DCA 2016).  This measure of damages  in a negligent procurement of insurance claim is important because it is the measure of damages that dictates recoverable damages under this claim.

 

In Lexington Club Community Association, Inc., condominium associations hired a contractor to perform post-hurricane repairs.  The contractor was required to obtain a performance and payment bond.  The contractor obtained bonds from a non-Florida surety (insurance) company that was not authorized to do business in Florida.  In doing so, the association paid the contractor’s surety agent $327,915 in premium, of which 10% of this amount went to the agent as commission.  The associations thereafter learned the surety was located in Barbados and not licensed in Florida, which raised a red flag, as it should.  The associations then sued, among others, the surety agent that procured the bonds and received the commission for negligent procurement of insurance, a declaration that the bond was unenforceable, and unjust enrichment.  (Notably, although the surety was sued, it did not respond to the complaint and a default was entered against it.). Ultimately, the associations paid a huge premium for a valueless product, i.e., surety bonds backed by a foreign entity that had no incentive to honor the bonds, particularly since it was not licensed to do business in Florida.

 

Of importance, the association had no cause to rely on the bonds because it did not incur any damage or issue to actually trigger the application of the bonds, other than wanting a refund in its premium.  This meant it was suing the surety agent for the $327,915 in premium that was paid to the surety not licensed to do business in Florida.  But, the lack of an actual loss under the bonds is an important consideration when it comes to proving damages.  A jury found that any negligence of the surety agent was not a cause of damage to the associations, presumably because the associations had no proven damage under the bonds.  Instead, the jury awarded the associations the 10% commission the agent received in procuring the bonds, approximately $32,000, through an unjust enrichment claim.  (An analogy would be procuring insurance from a non-Florida entity but not actually having a claim to trigger the insurance coverage.  The same rationale would apply.). 

 

Florida Statute s. 626.901 applies when dealing with an unauthorized insurer, which is an insurer not authorized to transact insurance in Florida, such as the surety in this case.  Section 626.901(2) provides:

 

If an unauthorized insurer fails to pay in full or in part any claim or loss within the provisions of any insurance contract which is entered into in violation of this section, any person who knew or reasonably should have known that such contract was entered into in violation of this section and who solicited, negotiated, took application for, or effectuated such insurance contract is liable to the insured for the full amount of the claim or loss not paid.

 

However, even under s. 626.901, an insurer’s unauthorized policy would still be deemed enforceable in Florida; however, the insurance broker could still be liable for amounts or loss not paid by the insurer.  Fla. Stat. s. 626.901.  Applied here, the bonds would still be enforceable (irrespective of the surety that actually issued the bonds).  But, again, the associations here did not actually incur a loss that would trigger the application of the bonds.

 

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

UNDERTAKER’S DOCTRINE IN NEGLIGENCE CLAIMS — NO GOOD DEED GOES UNPUNISHED?

shutterstock_1035445624There are many times the old adage, “No good deed goes unpunished,” rings true.  At one point in time, or more likely many points in time, we have all felt this why.  We undertook a good deed only to feel unappreciated or the good deed backfires.

 

In Florida, there is a legal doctrine known as the undertaker’s doctrine.   Just the name of the doctrine has a morbid undertone, right?  This doctrine applies in negligence scenarios because it establishes a duty that the undertaker owes to another, even if he undertook a service because he is a swell guy.  This undertaker’s doctrine has been described as follows:

 

Whenever one undertakes to provide a service to others, whether one does so gratuitously or by contract, the individual who undertakes to provide the service — i.e., the ‘undertaker’ — thereby assumes a duty to act carefully and to not put others at an undue risk of harm.  The undertaker is subject to liability if: (a) he or she fails to exercise reasonable care, which results in increased harm to the beneficiary; or (b) the beneficiary relies upon the undertaker and is harmed as a result.

 

Muchnick v. Goihman, 43 Fla.L.Weekly D986b (Fla. 3d DCA 2018 (internal citations and quotations omitted). 

 

An example of the application of the undertaker’s doctrine can be found in Muchnick where the appellate court held former tenants could assert a negligence claim against their real estate rental agent.   In this case, a real estate agent knew a family looking to rent another high-end apartment because they lived in the same building.  He worked for a real estate brokerage firm and he approached the family about renting another unit in the same building.  During the walk through of that unit, there were items the family wanted repaired and the agent assured the family they would be addressed prior to the family moving in.  The family rented the apartment and the brokerage firm was listed as the broker for the transaction.

 

When the family moved into the unit, the items they wanted repaired were not.  And, to make matters worse, the family discovered a serious water intrusion and damage problem that resulted in mold getting into to the apartment’s ventilation system.  The family communicated predominantly with the real estate agent regarding the issues as the owner of the unit lived abroad and the agent lived in the building.  During a deposition, the father claimed that the agent told him that since he lived in the same building he would be the go-to-guy to address any issues with the apartment and undertake repairs.  The issues did not get resolved which impacted the children’s health and they were forced to terminate the lease early and relocate.

 

Initially, the real estate agent argued that his firm, and not him personally, should have been sued, because he was acting in the scope of his employment as a real estate agent in dealing with the family.  The appellate court rejected this argument stating:

 

[J]ust because Goihman [agent] was acting in the scope of his employment when he rented the apartment, promised to fix it, and managed the repairs, doesn’t mean that he was shielded from personal liability under all circumstances.   [O]fficers or agents of corporations may be individually liable in tort if they commit or participate in a tort, even if their acts are within the course and scope of their employment. All that needs to be alleged is that the agent or officer personally participated in the tort, even if the complained of action was because of and entirely within the scope of his or her employment.

 

Muchnick, supra (internal citations and quotations omitted).

 

Next, the real estate agent argued that since he did not own the apartment unit, he did not owe a duty to the family that was renting the unit to fix and manage the repairs.  The appellate court rejected this argument too…because of the undertaker’s doctrine.  Once the real estate agent volunteered, even if gratuitously, to fix the problems and manage the repairs, he assumed a duty to exercise reasonable care in performing those services.  

 

It is great to be a swell guy.  But, when you agree to undertake a service, even if that service is nothing but a good deed you are performing, you have a duty to use reasonable care in performing that service to prevent harm to the beneficiary of that service.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

THERE ARE TIMES AN EQUITABLE SUBROGATION CLAIM IS THE MOST PRACTICAL RECOURSE FOR REIMBURSEMENT

shutterstock_627721505Equitable subrogation is a claim that can be pursued when a party (referred to as the subrogee) pays for damages to protect its interest–perhaps to mitigate its own exposure–seeks reimbursement from another party primarily liable for the damages.  There are times a party seeking reimbursement for purely economic losses is best able to pursue an equitable subrogation claim, as opposed to a common law indemnification or negligence claim.

 

Equitable subrogation is generally appropriate where: (1) the subrogee made the payment to protect [its] own interest, (2) the subrogee did not act as a volunteer, (3) the subrogee was not primarily liable for the debt, (4) the subrogee paid off the entire debt, and (5) subrogation would not work any injustice to the rights of a third party.

Tank Tech, Inc. v. Valley Tank Testing, L.L.C., 43 Fla.L.Weekly D868a (Fla. 2d DCA 2018) quoting Dade Cty. Sch. Bd. v. Radio Station WQBA, 731 So.2d 638, 646 (Fla. 1999).

 

Equitable subrogation is not dependent on a contract—it is simply an “equitable remedy for restitution to one [the subrogee] who in the performance of some duty has discharged a legal obligation which should have been met, either wholly or partially, by another.”  Tank Tech, Inc., supra, quoting W. Am. Ins. Co. v. Yellow Cab Co. of Orlando, Inc., 495 So.2d 204, 206 (Fla. 5th DCA 1986).

 

As shown in the recent decision below, there are times an equitable subrogation claim will generate more traction for purposes of a reimbursement claim than a negligence claim or common law indemnification claim, because an equitable subrogation claim does not require the party seeking reimbursement to show a duty is owed to it by the party it is seeking reimbursement from.

  

The recent decision of Tank Tech, Inc. involved damage to underground petroleum storage tanks at Circle K locations.  Company “A,” the subrogee, had been hired by Circle K to retrofit existing tanks by adding an interior wall inside of the tanks.  Company “B” was separately hired by Circle K to test the interstitial space between the new interior wall installed by Company “A” and the existing tank wall.  There was no contractual relationship between Company “A” and Company “B.”

 

After the tanks were retrofitted, Circle K notified Company “A” that the modified tanks were damaged and failing.  Although Company’s “A” investigation revealed the failure was the result of Company’s “B’s” testing methodology, Company “A” nevertheless repaired the damage to the tanks because its contract with Circle K required it to do so regardless of whether the damage was caused by a third party, such as Company “B.”

 

Company “A” then sued Company “B” for reimbursement of its repair costs under various claims, one of which was equitable subrogation.  Each party had expert opinions that pointed to the other for the cause of the tanks’ failure and damage.  The trial court granted a motion for summary judgment in favor of Company “B” finding that equitable subrogation did not apply.  This summary judgment was reversed on appeal as the Second District maintained that there were factual issues supporting the basis of the equitable subrogation claim:

 

Tank Tech’s [Company “A”] contract with Circle K obligated it to repair damages to the USTs [tanks]. But Tank Tech’s contractual obligation to Circle K did not convert Tank Tech into a “volunteer” to pay for damages caused by a third party and thus did not prevent the application of the equitable subrogation doctrine. Instead, Tank Tech was merely fulfilling its legal obligation to Circle K which was a necessary means of protecting itself from liability to Circle K. And Tank Tech, by virtue of Dr. Cignatta’s affidavit [expert opinion establishing Company “B” caused failure to tanks], established a genuine issue of material fact regarding whether Tank Tech or Valley Tank [Company “B”] was primarily liable for the damages. If Tank Tech is ultimately successful in proving that Valley Tank caused the damage to the USTs, then it would be entitled to seek any damages it incurred as a result of having to repair the damaged USTs.  To hold that Tank Tech is precluded from pursuing a claim for subrogation would leave Tank Tech without a remedy, a “most unfair and inequitable result.” 

Tank Tech, Inc., supra (internal citations omitted).

 

Negligence and Common Law Indemnification

 

Relatedly, Company “A” also sued Company “B” for negligence and common law indemnification for repairing tanks it claimed were caused by Company “B’s” testing methodology.  The trial court also granted summary judgment in favor of Company “B” on these claims.  Unlike the equitable subrogation claim, the Second District affirmed the summary judgment in favor of Company “B” on these claims. 

 

For Company “A” to sustain a negligence claim, it would have to establish that Company “B” owed it a duty.  Without a duty owed, there is no negligence claim.  Whether there is a duty is a question of law for the court.   In this case, when dealing with only economic losses, the relationship between the parties—Company “A” and Company “B”—needs to be examined to determine whether a special relationship exists to warrant creating a duty to protect the economic interests of another.  “[I]n order to proceed on a common law negligence claim based solely on economic loss, there must be some sort of link between the parties or some other extraordinary circumstance that justifies recognition of such a claim.”  Tank Tech, Inc., supra.   Here, the Second District agreed that Company “B” did not owe Company “A” a duty to support a negligence claim:

 

The reason why the negligence claim fails here is because there is neither a special relationship between Valley Tank [Company “B”] and Tank Tech [Company “A”] nor any extraordinary circumstance that would require imposition of a duty. Tank Tech’s injury did not flow from Valley Tank’s testing of the USTs [tanks]. Instead, Tank Tech seeks to recover the money it spent in repairing the USTs, an expense that was the result of a negotiated contract between Tank Tech and Circle K. There was no contract between Valley Tank and Tank Tech obligating Valley Tank to repair any USTs it damaged during testing or otherwise obligating Valley Tank to repay Tank Tech for the expenses incurred pursuant to Tank Tech’s contract with Circle K. And Valley Tank’s testing did not cause any personal injury or property damage to Tank Tech, the types of injuries for which the common law of negligence has historically permitted recovery.

***

This is simply a case of a party attempting to bring a tort claim to recover monies that it spent as a result of a contractual obligation to a third party. But negligence claims cannot proceed based on a party’s desire to relieve itself from a bad bargain.

Tank Tech, Inc., supra.

 

 

Likewise, regarding the common law indemnification claim, “actions for indemnity have been restricted to situations involving either a duty, an express contract, or the existence of active and passive negligence.”  Tank Tech, Inc., supra, quoting Hiller Grp., Inc. v. Redwing Carriers, Inc., 779 So.2d 602, 603 (Fla. 2d DCA 2001).  Since the Second District already agreed there was no special relationship between Company “A” and Company “B” and, thus, no duty owed, the common law indemnification claim failed for the same reasons as the negligence claim.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

SUING A PUBLIC ENTITY FOR NEGLIGENT MISREPRESENTATION …NOT SO FAST

 

shutterstock_111122411Suing a public entity for negligent misrepresentation…let’s just say, is not that easy.  Not that easy at all!  Putting aside the doctrine of sovereign immunity (the doctrine that the king can do no wrong), a public entity does not have an affirmative duty to necessarily convey accurate information, no matter how fair or unfair this may sound.  And, a negligence claim fails without the defendant (in this case, public entity) owing the plaintiff a duty of care.  

 

For example, in City of Dunedin v. Pirate’s Treasure, Inc., 43 Fla. L. Weekly D783a (Fla. 2d DCA 2018), a commercial owner wanted to renovate its property to accommodate a refurbished marina and a new restaurant.  The owner met with the city to review its preliminary conceptual site plan.  Based on this meeting, the owner prepared a costly site plan to comply with the City’s development code for the restaurant and marina.  The City’s engineering department approved the site plan.  However, the City then informed the owner that it had concerns with the restaurant’s square footage and parking.  The owner and City agreed that the site plan for the marina and restaurant would be separated, as the owner did not want to ruffle any feathers.  The City then approved the separate site plan for the marina but told the owner that the site plan approval for the restaurant was terminated as the owner needed to submit a brand-new application and comply with the updated development code. The owner filed suit against the City claiming, among other things, the City made misrepresentations about the site plan approval only to engage in a bait-and-switch tactic where the misrepresentations were made to induce the development of the marina, without the accompanying restaurant. 

 

The City moved to dismiss the negligent misrepresentation claim on sovereign immunity grounds.  The trial court denied the City’s motion finding as a matter of law the City was not entitled to sovereign immunity and the City appealed. 

 

Interestingly, the appellate court rejected the City’s sovereign immunity argument but still reversed the trial court’s holding that the City is not liable to the owner for negligent misrepresentation.  The court based its reversal on its determination that the City did now owe the owner a duty of care, hence the negligent misrepresentation claim failed as a matter of law. 

 

A duty of care analysis is different from the analysis whether the City is sovereignly immune from the suit. If there is no duty owed, there is no reason to delve into whether sovereign immunity applies.   Here, the Court found no duty was owed because the City “does not owe a duty to convey accurate information concerning whether Pirate’s Treasure’s [owner] site plan complied with the City’s development code.”  City of Dunedin, supra.

 

The owner in this case could have been 100% correct.  It had assurances from the City and acted on those assurances in devoting the money and time in finalizing its site plan based on the current development code.  It then submitted separate plans at the behest of the City (to appease the City) only for the City to approve the marina (the project it wanted) while terminating the site plan for the restaurant (the project it really did not want).  But, assuming this is all true, it does not matter because the court found that the City never owed an affirmative duty to the owner to convey accurate information, i.e., in this case, whether the owner’s site plan complied with the development code. 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.