Hunton Insurance Recovery Blog

The owner of a fire-damaged warehouse in Florida is battling in the Fifth Circuit to revive a claim alleging that a broker and insurer negligently failed to procure adequate insurance for the warehouse—by arguing that the lower court should have applied a different state’s law to its summary judgment determination. The warehouse owner leased the warehouse to a Florida-based produce distributor, which in turn procured a $5 million insurance policy from Alterra American Insurance Co. A fire later caused $10 million worth of damage to the warehouse, toward which Alterra paid the $5 million policy limit.

The warehouse owner then sued the broker and insurer, seeking to obtain the difference between the policy limit and the actual damage to the warehouse. But a Mississippi court dismissed the suit, finding that under Mississippi law, the owner lacked standing to sue because it was not a third-party beneficiary to the contract that the lessee executed with the broker to obtain insurance for the warehouse.

On appeal, the owner argues that Florida law, not Mississippi law, should apply. Under Florida law, the negligence claim could stand even if the owner was not a beneficiary to the insurance policy. The lower court had rejected the owner’s request that it conduct a choice-of-law analysis and apply Florida law to the case.

While it remains to be seen how the Fifth Circuit will rule, the case shows the importance of early analysis of what state’s law should apply to each potential claim—especially tort claims, such as negligence, which may not be determined by a policy’s choice-of-law provision. It may make the difference in whether a suit survives, and, ultimately, whether a loss is recovered.

The case is Emerald Coast Finest Produce Co. Inc. v. Alterra American Insurance Co. et al., case number 16-60471, in the U.S. Court of Appeals for the Fifth Circuit.