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A Markel Corp. unit was not negligent in failing to provide adequate insurance for the owner of a leased warehouse that was subsequently heavily damaged in a fire, says a federal appeals court, in upholding a lower court ruling.
Pensacola, Florida-based Emerald Coast Finest Produce Co. Inc. entered into a lease agreement with Pensacola-based Sunrise Fresh Produce L.L.C. in 2013 that required Sunrise to obtain fire and extended coverage property damage insurance on the premises equal to 100% of its replacement value, according to Thursday’s ruling by the 5th U.S. Circuit Court of Appeals in New Orleans in Emerald Coast Finest Produce Co. Inc. v. Alterra American (sic) Insurance Co.; BancorpSouth Insurance Services Inc.
Sunrise’s vice president and chief financial officer informed Sunrise’s insurance agency, BancorpSouth Insurance Services, a unit of Tupelo, Mississippi-based BancorpSouth Inc., that the building had a value of about $5 million.
Bancorp added the warehouse insurance policy to Sunrise’s existing property damage insurance policy with Alterra America, a unit of Glen Allen, Virginia-based Altera America Insurance Co., including the $5 million limit on the warehouse. An endorsement added Emerald to the policy as a “mortgagee.”
In April 2013, three months after the parties entered into the lease agreement, a fire broke out in the warehouse that substantially damaged the building, according to the ruling. Emerald believed the fire was caused by Sunrise’s improper installation of two 48-volt forklift chargers in the warehouse.
After the fire, Alterra hired a company that determined the warehouse’s replacement cost was $15.3 million, far exceeding the $5 million in coverage. Another report said repairs would cost $10 million.
Emerald received coverage under the $5 million policy, but claimed the defendants should have placed $15 million in coverage. It filed suit in October 2014 in U.S. District Court in Hattiesburg, Mississippi, charging BancorpSouth and Alterra with negligence for failing to procure the proper amount of insurance for the warehouse. It also filed suit against Sunrise, but that litigation was subsequently settled.
The District Court ruled in the insurer’s and agency’s favor, which a three-judge appeals court panel affirmed on appeal.
“Whether Emerald, who was not the insured, can maintain its claims against the defendants depends on whether the defendants owed it a duty in procuring the insurance,” said the ruling.
“Emerald was added to the policy as a mortgagee by an endorsement that became effective the same day Sunrise and Emerald entered into the lease agreement.
“Emerald concedes that no Mississippi case recognizes a duty owed by an agent to a party in Emerald’s position when the agent procures insurance for its insured. Emerald nevertheless argues it was owed such a duty,” the ruling said.
“Even in the context of the insured’s relationship with the agent, the agent’s duty is limited. The agent, for example is under no ‘affirmative duty to advise buyers regarding their coverage needs,’ as ‘insurers are in a better position’ to make that assessment,” said the ruling, in quoting an earlier case
“Emerald’s claims have other shortcomings,” said the ruling. “It received a certificate of insurance that listed the $5 million coverage limit on the warehouse, yet Emerald never questioned the amount of coverage,” said the panel, in affirming the lower court’s ruling.
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