Fifth Circuit dismisses misrepresentation claim against insurer

Jessica M. Karmasek May 2, 2012, 7:40am


NEW ORLEANS (Legal Newsline) - A federal appeals court last week ordered a district court to dismiss a man's claim for negligent misrepresentation against an insurer.

Plaintiff James P. Grissom bought flood insurance for his home in Pascagoula, Miss., under the Federal National Flood Insurance Program, or NFIP.

Grissom was eligible for a preferred risk insurance policy, but he claims he did not know about his eligibility.

In August 2005, Grissom's home was destroyed by Hurricane Katrina.

Defendant Liberty Mutual Fire Insurance Company paid Grissom's $121,200 claim -- the policy maximum.

Grissom then sued Liberty Mutual in a Mississippi state court to recover the difference between the coverage he had and the coverage he could have had under the preferred risk policy.

Liberty Mutual removed the case to the U.S. District Court for the Southern District of Mississippi.

The district court concluded that Grissom's claim was not preempted by federal law and sent the case to a jury, which awarded him $212,900 in compensatory damages.

Liberty Mutual appealed.

The U.S. Court of Appeals for the Fifth Circuit reversed the lower court's ruling, dismissing Grissom's claim and award.

In its April 23 ruling, the Fifth Circuit explained that the dispute is whether Liberty Mutual's failure to inform a current customer that he or she might be eligible for a richer insurance policy constitutes "claims handling" or is "insurance procurement."

If it is claims handling, Grissom's suit is preempted, the court said.

"Because Grissom's dispute with Liberty Mutual relates to his renewal of a policy already in place -- claims handling, not the initial procurement of the insurance policy -- Campo does not
control and we hold that Grissom's state law claim is preempted," Judge Edith Brown Clement wrote for the Fifth Circuit.

The court also ruled that the case should not have been heard by a jury.

"The right to a jury trial has not been extended by the government to (FEMA's Write Your Own flood program) cases," Clement wrote.

"Because FEMA is presumed to be paying both the litigation expenses and any resulting damage award, the district court erred in submitting this case to the jury."

Grissom's claim of negligent misrepresentation by an insurer also does not find a basis in state law, the Fifth Circuit ruled.

"Liberty Mutual is not required to provide advice to insurance customers," Clement explained.

"Because Liberty Mutual was not offering insurance advice, was not a fiduciary of Grissom, and did not offer any statement to Grissom to imply the lack of alternative insurance options, Mississippi law would not recognize negligent misrepresentation as a cause of action against Liberty Mutual and the submission of negligent misrepresentation to the jury was error."

From Legal Newsline: Reach Jessica Karmasek by email at

More News