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Fifth Circuit Dismisses Policyholder’s Claim For Negligent Misrepresentation

Blogs, Insurance Coverage

The United States Court of Appeals for the Fifth Circuit recently held that a claim for negligent misrepresentation is not available under Mississippi law. Grissom v. Liberty Mutual Fire Ins. Co., 678 F.3d 397 (5th Cir. 2012).

James Grissom purchased flood insurance FEMA’s Write Your Own (“WYO”) flood insurance program, for his home in Pascagoula, Mississippi. During Hurricane Katrina, Grissom’s home was destroyed. Liberty Mutual Fire Insurance Company – Grissom’s WYO insurance provider – paid $121,200, the policy’s maximum, on his claim. Grissom then commenced suit against Liberty Mutual to recover the difference between the coverage he had and the coverage he could have had under a preferred risk policy, under a theory of negligent misrepresentation. At the time Grissom renewed his policy in 2004, he was eligible for a preferred risk insurance policy, but did not know about his eligibility. 

The district court concluded that Grissom’s claim was not preempted by federal law and sent the case to the jury, which awarded Grissom $212,900 in compensatory damages. On appeal, the Fifth Circuit reversed and vacated the jury’s award holding, among other things, that Mississippi does not recognize a cause of action for negligent misrepresentation against an insurer. In so holding, the Court first noted that the Mississippi Court of Appeals has previously held that, “the purchase of insurance is an arms-length transaction and no fiduciary duty arises between an insurance company or its agents and the purchaser of the insurance.” The Court then went on to explain: “Liberty Mutual is not required to provide advice to insurance customers. 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 alternate insurance options, Mississippi law would not recognize negligent misrepresentation as a cause of against Liberty Mutual.”