Lumbermans Mutual Casualty Ins v. First Insurance Services, Inco, No. 09-1691 (4th Cir. 2011)

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UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 09-1691 LUMBERMENS MUTUAL CASUALTY INSURANCE COMPANY, Plaintiff - Appellant, v. FIRST INSURANCE SERVICES, INCORPORATED, Defendant - Appellee. Appeal from the United States District Court for the Eastern District of North Carolina, at Greenville. Malcolm J. Howard, Senior District Judge. (5:04-cv-00580-H) Argued: October 26, 2010 Decided: January 14, 2011 Before WILKINSON and MOTZ, Circuit Judges, and Damon J. KEITH, Senior Circuit Judge of the United States Court of Appeals for the Sixth Circuit, sitting by designation. Affirmed by unpublished per curiam opinion. ARGUED: Chad Eric Jacobs, DREW, ECKL & FARNHAM, Atlanta, Georgia, for Appellant. Michael Terry Medford, MANNING, FULTON & SKINNER, Raleigh, North Carolina, for Appellee. ON BRIEF: Paul W. Burke, DREW, ECKL & FARNHAM, Atlanta, Georgia, for Appellant. William S. Cherry, III, MANNING, FULTON & SKINNER, Raleigh, North Carolina, for Appellee. Unpublished opinions are not binding precedent in this circuit. PER CURIAM: A jury trial began in the Eastern District of North Carolina on May 26, 2009 pursuant to diversity jurisdiction on the plaintiff s claims of breach of fiduciary duty, misrepresentation, and negligence arising under North Carolina law. The plaintiff, an insurer, a subsidiary of Kemper Company defendant, First Insurance Lumbermens ( Kemper ) Services, an Mutual alleged independent Casualty that the insurance agency ( FIS ) sold one of its homeowners insurance policies but unlawfully withheld appraisal information. Kemper contended that it would not have provided the insurance coverage had FIS timely informed it of a Wachovia bank appraisal FIS received. The insured home was damaged by fire and the plaintiff paid over $3 million to cover the homeowners loss. At trial, following the close of the plaintiff s case-inchief, FIS orally moved for judgment as a matter of law, which the district court held in abeyance until after the close of the defendant s evidence. judgment as a Upon FIS s renewal of its oral motion for matter of law, the court orally granted the motion, but only as to Kemper s breach of fiduciary duty claim. The jury returned a verdict in favor of the defendant as to the other two claims. Kemper appeals the district court s order granting FIS s motion for judgment as a matter of law on its claim of breach of fiduciary duty. 2 We affirm. I. BACKGROUND Kemper independent offers insurance insurance products agencies through including agreements FIS. J.A. with 330-34. FIS, an independent insurance agency, handles insurance issued by multiple insurance carriers, including Kemper. 430-32. J.A. 373-74, Kemper and FIS entered into a franchise agreement which permitted FIS to bind insurance coverage for houses costing less than $600,000 on Kemper s behalf, franchise agency. J.A. $600,000 required approval department. J.A. 337-38. and 334-37. from FIS was Houses designated costing Kemper s more a than underwriting After it issued an insurance policy for a home, Kemper sent inspectors to the insured property if it was valued at more than $400,000. J.A. 374-75. Kemper generally sent these inspectors within thirty to sixty days of issuance of the insurance policy to determine the replacement cost of the insured home. J.A. 375-76, 441-43. Sally and John Graham were long-time Kemper policyholders and customers of FIS. J.A. 407-08, 413-14. The Grahams built a new home and sought to obtain a Kemper insurance policy from FIS. J.A. 407-08. The stated replacement cost of the Grahams 6400 square foot home was $800,000, which equaled the cost of the home s construction. J.A. 408-09, J.A. 444-45. John Curtis, an FIS agent, added, as buffer, an additional $50,000 coverage for a total policy amount of $850,000. 3 J.A. 420-21, 445-46. Kemper Curtis submitted the Grahams policy information to since limit and, accordingly, required approval from Kemper s underwriters. J.A. 420-21. the Curtis coverage. J.A. cost and was FIS 343. above obtained Kemper the $600,000 approval issued the for the written $850,000 homeowner s insurance policy with an effective date of February 15, 2003. J.A. 449. Curtis ate lunch with John Graham on February 26, 2003 and planned to deliver the homeowner s insurance policy to him and obtain his signature. J.A. 419-21. told bank Curtis that replacement cost a of Wachovia slightly less At lunch, Graham appraisal than $1.3 estimated million. Graham then gave Curtis a copy of the Wachovia appraisal. Curtis did not give the Wachovia appraisal to Kemper. 25. Curtis Wachovia s made a notation appraisal was conduct its own appraisal. in FIS s inaccurate records and knew that the Id. Id. J.A. 421he Kemper felt would J.A. 420, 444. Kemper s inspector missed his initial appointment on March 6, 2003; however, the appointment was appraisal was completed on March 26, 2003. rescheduled and J.A. 420, 451. the The inspector estimated the replacement cost of the Grahams home at about $1.6 million. 11, 2003. policy. Kemper received the report on Friday, April Kemper did not make any adjustments to the Grahams On Thursday, April 17, 2003, a fire severely damaged the Grahams house. J.A. 412. The Grahams received about $3 4 million from Kemper to cover their losses from the fire. J.A. 412-13. Kemper filed suit against FIS under North Carolina law for breach of contract, breach of fiduciary duty, misrepresentation, and negligence. motion for J.A. 14-20. summary The district court granted FIS s judgment only on the breach claim, thus, a jury trial ensued on three claims. of contract J.A. 124-128. At trial, Kemper s underwriter contended that Kemper would have canceled the Grahams homeowners insurance policy had it known about the Wachovia appraisal, J.A. 345-46; that Kemper had never approved policies over $1 million, J.A. 389-90; and that Kemper would not have approved the Grahams policy if it had known that the home was not within 1,000 feet of a fire hydrant, J.A. 127; 398-99. Trial evidence also included issuance of a Kemper policy for a home with a replacement cost of $1.4 million to another FIS customer from 2002 to 2003, J.A. 390-92; testimony that there was no rigid cut-off beyond which homes would not be insured, J.A. 479; testimony that Kemper never communicated a cut-off to FIS, J.A. 479; testimony that Kemper always sent its inspectors to evaluate high-value homes after policy issuance to determine replacement cost, J.A. 440-43; and testimony that Fire Protection Class 10 (and nothing lower) was the only category for homes that resulted in automatic, non-renewal of a homeowners insurance policy at the end of a policy term such 5 that the Grahams home in Class 9 would not have necessitated policy cancellation or non-renewal, J.A. 456-59. The district court granted FIS s motion for judgment as a matter of law pursuant to Federal Rule of Civil Procedure 50, having found that FIS owed no fiduciary duty to Kemper. 715-16. J.A. Kemper timely appealed. II. JUDGMENT AS A MATTER OF LAW A. STANDARD OF REVIEW A district court s ruling on a motion for judgment as a matter of law is renewed de novo. Myrick v. Prime Ins. Syndicate, Inc., 395 F.3d 485, 489 (4th Cir. 2005). If a reasonable jury could reach only one conclusion based on the evidence or if the verdict in favor of the non-moving party would necessarily be based upon speculation and conjecture, judgment as a matter of law must be entered. If the evidence as a whole is susceptible of more than one reasonable inference, a jury issue is created and a motion for judgment as a matter of law should be denied. Id. (internal citations omitted); see Fed. R. Civ. P. 50. Carolina law applies to this diversity action. North See Breezewood of Wilmington Condos. Homeowners Ass n, Inc. v. Amerisure Mut. Ins. Co., 335 F. App x 268, 270 (4th Cir. 2009). 6 B. ANALYSIS Pursuant to North Carolina law, a fiduciary duty exists where: there has been a special confidence reposed in one who in equity and good conscience is bound to act in good faith and with due regard to the interests of the one reposing confidence . . ., [and] it extends to any possible case in which a fiduciary relationship exists in fact, and in which there is confidence reposed on one side, and resulting domination and influence on the other. Dalton v. Camp, 353 N.C. 647, 651-52 (2001) (quoting Abbitt v. Gregory, 201 N.C. 577 (1931)) (emphasis in original) (additional internal citations omitted). North Carolina law generally provides that contracting parties owe no special duty to one another beyond the terms of the contract. . . Muffler Shops, 155 F.3d 331, Broussard v. Meineke Disc. 347-48 (4th Cir. 1998). Only when one party figuratively holds all the cards -- all the financial power or technical information, for example -have North Carolina courts found that the special circumstance of a fiduciary relationship has arisen. citation omitted) (emphasis added). Id. at 348 (internal Generally, the existence of a fiduciary relationship is a question of fact for a jury. Tin Originals, Inc. v. Colonial Tin Works, Inc., 98 N.C. App. 663, 666 (1993). In Tin Originals, the defendant s tin items constituted eighty percent of the plaintiff s sales and the defendant was 7 the plaintiff s only source of those items, but, ultimately, the defendant began to sell its items directly to the public and sought to take over the relevant market. Id. at 665-66. The defendant asserted that despite the special trust and confidence the plaintiff placed in the defendant, the defendant held no corresponding superiority or influence necessary to establish a fiduciary relationship. The Id. North Carolina Court of Appeals affirmed the trial court s grant of a directed verdict to the defendant, having found that the parties had mutually interdependent businesses; relationship existed. and, therefore, no fiduciary Id. In Mikels v. Unique Tool & Mfg. Co., the district court denied the defendant s motion for summary judgment where the plaintiff, who sold the defendant manufacturing company s products as a representative, alleged that the defendant company failed to properly pay him commissions and fraudulently concealed information which it had a duty to disclose to him as a fiduciary. 36 No. 5:06CV32, 2007 U.S. Dist. LEXIS 91814, at *29- (W.D.N.C. Dec. 3, plaintiff s allegation amount sales of for 2007). that which The the court defendant the found withheld plaintiff was that the the total responsible prevented the plaintiff from accurately keeping track of his commissions. See id. Thus, the court held that a genuine issue 8 of material fact existed since only the defendant had access to the aggregate sales. Id. Kemper argues that the franchise agreement is of paramount importance and establishes Kemper and FIS. the fiduciary relationship between Kemper contends that it relied on FIS since Kemper generally has no contact with its insured, the agent is the sole source of information for Kemper, and, therefore, FIS bore a fiduciary duty to Kemper and should have relayed the Wachovia appraisal to Kemper. Kemper states that it would have declined insurance for the Grahams home if it knew the home s true value. Kemper contends that it presented sufficient evidence for a jury to consider its breach of fiduciary duty claim and find in Kemper s favor. FIS asserts that no authority exists to establish that a fiduciary relationship is created between an insurance carrier and an independent insurance agency where the independent insurance agency handles insurance issued by multiple carriers and acts an agent contends that rejected by for Kemper s the jury, the claim was customers. The of negligence, predicated on the defendant also considered and same assertions Kemper makes in support of its fiduciary duty claim that it would not have insured the Grahams home if it had known that the replacement cost exceeded $1 million and that Kemper placed special trust in FIS as its franchise agency and only source 9 of information about the replacement cost. Further, FIS asserts that coverage had begun already at the time Curtis learned of the Wachovia appraisal. Thus, FIS states that Kemper was too late to reject the application for coverage solely based on the Wachovia appraisal and that FIS and its agent Curtis acted reasonably. Contrary exercised to Tin domination Originals and and control Mikels over where another one party, party in the instant action, the evidence presented at trial established that FIS was not the sole means of Kemper s ability to calculate replacement cost value evidence presented at Carolina case demonstrate existed law between of trial, Kemper and interdependent parties. Routinely, Kemper did the Grahams the record, that FIS; home and The relevant and FIS. North no fiduciary rather, they relationship were mutually See Tin Originals, 98 N.C. App. at 666. not rely upon FIS s determinations of replacement costs but always sent its own inspectors for high value homes. policy was Kemper s FIS learned of the Wachovia appraisal after the issued inspection designation of FIS and during was to as a the take time place. franchise period Nothing agency within in which Kemper s transformed the parties relationship into that of a fiduciary, since Kemper continued to do its own inspections and continued to require approval for issuance of its insurance 10 policies. That fire destroyed the Grahams home so soon after the issuance of the policy is unfortunate, but Kemper had opportunity to conduct its own inspection and had access to the replacement cost of the Grahams home. Indeed, Kemper received the inspector s report prior to the fire. that no genuine Therefore, the district court properly found issue of material fact existed such that judgment as a matter of law was appropriate on Kemper s claim of breach of fiduciary duty. III. CONCLUSION The judgment of the district court is AFFIRMED. 11

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