The Louisiana Court of Appeal affirmed the trial court's finding of liability on the part of the insurer and the agent for their failure to properly procure flood insurance for the insureds. Barnett v. Fid. Nat'l Prop. & Cas. Co., 2013 La. App. LEXIS 856 (La. Ct. App. May 1, 2013).
The plaintiffs' home was destroyed in 2005 by Hurricane Rita. After the hurricane, Travelers refused to continue providing flood insurance because the property was located within a Coastal Barrier Resource System (CBRS).
The plaintiffs contacted an agent at Insurance Unlimited of Louisiana, Inc., to inquire about obtaining a policy under the National Flood Insurance Program (NFIP). The plaintiff did so after hearing that a neighbor had been able to insure his property through the agency. Plaintiffs' application was completed and Fidelity issued the policy, effective July 2, 2008.
After the plaintiffs' house was damaged by Hurricane Ike in September 2008, however, Fidelity issued a notice of cancellation indicating that the policy was cancelled, retroactive to the policy inception date of July 2, 2008. The basis for the cancellation was the property's location within a CBRS zone.
The plaintiffs sued Fidelity and Insurance Unlimited, seeking damages for breach of contract, negligence, and negligent misrepresentation. The trial court entered judgment in favor of plaintiffs. It found Insurance Unlimited was negligent in failing to follow federal guidelines in processing the application. It also found that both Insurance Unlimited and Fidelity were negligent in failing to determine that the property was in a CBRS zone and that they had negligently misrepresented the validity of the flood insurance policy. Damages were awarded in the amount of $50,000.
The appellate court first rejected Fidelity's preemption argument that only a federal court had jurisdiction over the dispute. The plaintiffs' case involved a policy procurement problem, not a claims handling matter. The matter did not involve federal question jurisdiction and the policy procurement claims were not preempted by federal law.
Next, the court agreed that Fidelity had breached a standard of care owed to plaintiffs. An expert for plaintiffs testified that Fidelity had a duty to notify the plaintiffs that their property was potentially located in a CBRS zone. Fidelity should have informed plaintiffs of the potential that their policy was null and void due to the property's location.
Insurance Unlimited also breached its duty in failing to follow the guidelines of the NFIP manual in processing the application and in failing to determine that plaintiffs' property was located in a CBRS zone. The application forwarded to Fidelity was insufficient under the NFIP manual. The agent failed to consult the map to determine if the property was located in a designated CBRS area.
Consequently, the trial court decision was affirmed.
