The nature of this dispute stemmed from more than $100 million in damages that this Riviera Beach community suffered in 2004 from two separate hurricanes. The board had been assured by its insurance broker that the association had $50 million in coverage per occurrence. In reality, the association discovered it had only $50 million in total coverage. The association settled with its insurance company for $89 million and sued the broker for the rest.
The trial court dismissed Tiara's claims and the U.S. Court of Appeals for the Eleventh Circuit affirmed that Tiara's claims for breach of contract, negligent misrepresentation and breach of good faith had been properly dismissed.
The following certified question was sent to the Florida Supreme Court:
Does the Economic Loss Rule prevent a policyholder from suing its broker if they have a contract where the only damages sought are economic?
The economic loss rule originated in the product manufacturing arena to limit losses and the ability to pursue a tort claim to a customer's expectations of a particular product. Over the years, courts began expanding the reach of the economic loss rule to other areas and to contracts for professional services such as those provided by accountants, insurance brokers, etc. This expansion of the rule required attorneys seeking recovery for damages that were purely tied to a loss of money (as opposed to loss of life, injury, property damage, etc.) to perform extraordinary mental gymnastics to attempt to collect when those claims were otherwise supported by contract law.
Justice Jorge Labarga, writing for the majority, stated that the Economic Loss Rule was not a bar to the Tiara board's claim against its broker and went even further by proclaiming that from this point forward that rule would once again apply only to product liability cases.
So what does this case mean for your association? It underscores the need for your community to really understand what kind of insurance coverage you are purchasing. The Tiara board wound up making legal history with its claim but something tells me that they would rather have foregone the battle and simply reaped the benefits of the coverage they thought they had.