Lumbermens Mutual Casualty Insurance v. First Insurance Services, Inc.

UNPUBLISHED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Affirmed by unpublished per curiam opinion.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Unpublished opinions are not binding precedent in this circuit.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, Lumbermens Mutual Casualty

Company a subsidiary of Kemper (“Kemper”) alleged that the

defendant, First Insurance Services, an independent 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-in-

chief, 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. Upon FIS’s renewal of its oral motion for

judgment as a 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. We affirm.

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 I. BACKGROUND

Kemper offers insurance products through agreements with

independent insurance agencies including FIS. J.A. 330-34.

FIS, an independent insurance agency, handles insurance issued

by multiple insurance carriers, including Kemper. J.A. 373-74,

430-32. 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, and FIS was designated a

“franchise agency.” J.A. 334-37. Houses costing more than

$600,000 required approval from Kemper’s underwriting

department. J.A. 337-38. 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. J.A. 420-21,

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445-46. Curtis submitted the Grahams’ policy information to

Kemper since the cost was above the $600,000 limit and,

accordingly, required approval from Kemper’s underwriters. J.A.

420-21. Curtis and FIS obtained approval for the $850,000

coverage. J.A. 343. Kemper issued the written 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. At lunch, Graham

told Curtis that a Wachovia bank appraisal estimated the

replacement cost of slightly less than $1.3 million. Id.

Graham then gave Curtis a copy of the Wachovia appraisal. Id.

Curtis did not give the Wachovia appraisal to Kemper. J.A. 421-

25. Curtis made a notation in FIS’s records that he felt

Wachovia’s appraisal was inaccurate and knew Kemper would

conduct its own appraisal. J.A. 420, 444.

Kemper’s inspector missed his initial appointment on March

6, 2003; however, the appointment was rescheduled and the

appraisal was completed on March 26, 2003. J.A. 420, 451. The

inspector estimated the replacement cost of the Grahams’ home at

about $1.6 million. Kemper received the report on Friday, April

11, 2003. Kemper did not make any adjustments to the Grahams’

policy. On Thursday, April 17, 2003, a fire severely damaged

the Grahams’ house. J.A. 412. The Grahams received about $3

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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. J.A. 14-20. The district court granted FIS’s

motion for summary judgment only on the breach of contract

claim, thus, a jury trial ensued on three claims. 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

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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. J.A.

715-16. 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. North

Carolina law applies to this diversity action. See Breezewood

of Wilmington Condos. Homeowners’ Ass’n, Inc. v. Amerisure Mut.

Ins. Co., 335 F. App’x 268, 270 (4th Cir. 2009).

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 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. . .” Broussard v.

Meineke Disc. Muffler Shops, 155 F.3d 331, 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.” Id. at 348 (internal

citation omitted) (emphasis added). 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

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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. Id. The 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; and, therefore, no fiduciary

relationship existed. 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. No. 5:06CV32, 2007 U.S. Dist. LEXIS 91814, at *29-

36 (W.D.N.C. Dec. 3, 2007). The court found that the

plaintiff’s allegation that the defendant withheld the total

amount of sales for which the plaintiff was responsible

prevented the plaintiff from accurately keeping track of his

commissions. See id. Thus, the court held that a genuine issue

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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 the fiduciary relationship between

Kemper and FIS. 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 for the customers. The defendant also

contends that Kemper’s claim of negligence, considered and

rejected by the jury, was predicated on the 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

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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 to Tin Originals and Mikels where one party

exercised domination and control over another 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 of the Grahams’ home and FIS. The

evidence presented at trial, the record, and relevant North

Carolina case law demonstrate that no fiduciary relationship

existed between Kemper and FIS; rather, they were mutually

interdependent parties. See Tin Originals, 98 N.C. App. at 666.

Routinely, Kemper did not rely upon FIS’s determinations of

replacement costs but always sent its own inspectors for high

value homes. FIS learned of the Wachovia appraisal after the

policy was issued and during the time period within which

Kemper’s inspection was to take place. Nothing in Kemper’s

designation of FIS as a “franchise agency” 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 policies. That fire

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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. Therefore, the district court properly found

that no genuine 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.

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