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Marsh did not breach contract with condo group: Court

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ATLANTA—Marsh Inc. did not breach its contract or negligently misrepresent the windstorm coverage it procured for a Florida client that sustained extensive hurricane damage in 2004, a federal appeals court has ruled.

Whether the lower court correctly dismissed claims of negligence and breach of fiduciary duties is best answered by the Florida Supreme Court, the 11th U.S. Circuit Court of Appeals in Atlanta ruled Thursday.

The case, Tiara Condominium Assn. Inc. vs. Marsh & McLennan Cos. Inc., Marsh Inc. and Marsh USA Inc., centers on Palm Beach County, Fla.-based Tiara's condominium tower, which was damaged in 2004 by hurricanes Frances and Jeanne.

Tiara Condominium Assn., which manages the tower, thought it had purchased windstorm coverage from Citizens Property Insurance Corp. through Marsh with a per-occurrence limit of about $50 million. But after the damage, Citizens said it was responsible for only one aggregate limit.

Tiara sued Citizens and the two settled for $89 million—about $10 million less than Tiara would have been entitled to under its own interpretation of its insurance policy, court papers say.

Tiara sued Marsh in 2007, alleging the broker breached its contract by failing to procure the correct per-occurrence insurance policy.

In March 2009, the U.S. District Court for the Southern District of Florida dismissed the suit, ruling that the insurance policy in question contained a per-occurrence limit as Tiara had directed and, as a result, Marsh did not breach its duty of care in its conduct or its representation to Tiara nor its fiduciary duty as Tiara's insurance broker.

Tiara appealed and a three-judge panel for the 11th Circuit unanimously upheld the lower court's decision in part.

“To the extend that Tiara's claims for negligence or breach of fiduciary duty rest of Tiara's incorrect interpretation of the Citizens policy as per-occurrence, the district court's grant of summary judgment on these claims was appropriate; however, to the extent that Tiara's claims are based on collateral failures, we find that Florida law is not sufficiently clear on whether such claims are barred as extra-contractual under the economic loss rule,” the appeals court said in its opinion.

In its suit, Tiara cited several “collateral failures,” such as Marsh's failure to advise it of its belief that it was underinsured and to properly advise it regarding its complete insurance needs.

Under Florida law, insurance brokers owe a fiduciary duty to clients, but the law also recognizes the economic loss rule, which bars recovery for economic damages that arise in contractual disputes.

An exception to the economic loss rule applies when the contract relates to professional services. The 11th Circuit noted that it is unclear under Florida law whether an insurance broker provides professional services and that that question is best answered by the Florida Supreme Court.

A spokesperson for Tiara declined to comment on pending litigation. A Marsh spokesperson was not immediately available for comment.