IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
March 7, 2008
No. 06-41387 Charles R. Fulbruge III
Clerk
SMI OWEN STEEL COMPANY INC
Plaintiff-Appellee
v.
MARSH USA INC
Defendant-Appellant
Appeal from the United States District Court
for the Southern District of Texas
Before WIENER, DeMOSS, and PRADO, Circuit Judges.
PER CURIAM:
Plaintiff-Appellee SMI Owen Steel Company, Inc. (“SMI”), a subcontractor,
sued Defendant-Appellant Marsh USA, Inc. (“Marsh”), an insurance broker,
under Nevada law, asserting a tort claim for negligent failure to procure
insurance, and two quasi-contractual claims for third-party beneficiary and
promissory estoppel. The jury found for SMI on all three claims, and the
Magistrate Judge signed a corrected judgment in favor of SMI in the amount of
$7,839,131.
On appeal, Marsh argues that the judgment in favor of SMI should be
reversed and judgment rendered in its favor, or alternatively that the case
should be remanded for a new trial, because (1) SMI failed to prove the causation
No. 06-41387
element of its negligence claim because the insured-versus-insured exclusion
would have precluded coverage under the professional liability (“PL”) policy
issued by St. Paul Fire & Marine Insurance Company (“St. Paul”); (2) SMI’s
negligence claim is barred by Nevada’s economic loss doctrine; and (3) SMI’s
third-party beneficiary and promissory estoppel claims fail as a matter of law
because SMI was not an intended beneficiary of any contract, Marsh made no
promise that it would procure PL insurance for SMI, and SMI did not
detrimentally rely on any promise allegedly made by Marsh regarding PL
insurance.
We hold that SMI’s negligence claim is not barred by Nevada’s economic
loss doctrine. Furthermore, we conclude that there was a legally sufficient
evidentiary basis for a reasonable jury to find that SMI proved the causation
element of its negligence claim. Because Marsh’s two legal challenges to SMI’s
negligence claim fail, we affirm the jury verdict on that basis. We note that SMI
elected to recover on a theory of negligence, and its damages award was
proportionately reduced by Nevada’s comparative negligence statute. Because
SMI’s negligence claim supports the jury verdict, we decline to address Marsh’s
remaining arguments regarding SMI’s third-party beneficiary and promissory
estoppel claims.
I. Factual & Procedural Background
In 1997, Fluor Daniel, Inc. (“Fluor”) contracted with Aladdin Gaming, LLC
(“Aladdin”) to redesign and rebuild the Aladdin Hotel and Casino in Las Vegas,
Nevada (“Aladdin Project”). Fluor, the general contractor, retained Marsh, an
insurance broker, to administer the “wrap-up” insurance scheme for the Aladdin
Project known as a Controlled Insurance Program (“CIP”), which involved
procuring different insurance policies covering various participants. As
compensation, Marsh received a commission from the insurance companies and
a flat fee from Fluor. The insurance provided as part of the CIP scheme
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No. 06-41387
consisted of several types of policies, including but not limited to commercial
general liability coverage, professional liability coverage, pollution liability
coverage, subcontractor default coverage, and excess liability coverage. PL
coverage insures against design errors and omissions. Under the contract
between Fluor and Aladdin, PL coverage was required for Fluor, Aladdin, and
related entities—but not for subcontractors. In May 1998, St. Paul issued a PL
policy that listed no subcontractors as additional named insureds.
In December 1997, SMI’s winning bid of $38.5 Million enabled it to be
retained as a subcontractor to design, engineer, and install the Aladdin Project’s
structural steel and foundation work. At that time, SMI signed a Letter of
Intent with Fluor.
In March 1998, SMI received an Insurance Information Booklet from
Marsh stating that enrolled subcontractors of all tiers would be covered by the
CIP and provided PL coverage. In June 1998, SMI received the Contractor
Handbook, prepared in part by Marsh, which again stated that enrolled
subcontractors would be provided PL coverage under the CIP. However, the
Handbook cautioned that “if any part of the foregoing is in conflict with a
provision of your subcontract agreement, the provisions of the subcontract
agreement will govern.”
In July 1998, SMI enrolled in the CIP and properly completed all
enrollment forms. Although Marsh notes that SMI did not request PL coverage
in its CIP enrollment forms, SMI argues that it was not required to complete
additional forms to obtain the PL coverage.
In August 1998, SMI signed its subcontract, which was retroactively
effective to SMI’s December 1997 Letter of Intent. An attachment to SMI’s
subcontract with Fluor described the CIP and stated that coverage for off-site
work and “Design Professional Errors and Omissions Insurance” were “Not
Included in the CIP.” Under an amendment to SMI’s subcontract, SMI was
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No. 06-41387
required to provide a Certificate of Insurance from McNamara/Salvia, SMI’s
design consultant, showing that McNamara/Salvia had PL coverage and that
SMI and Fluor were additional named insureds. This PL coverage, however,
only protected SMI for vicarious liability.
In October 1998, Marsh sent Certificates of Insurance to SMI stating that
SMI was an additional named insured on Fluor’s PL policy. Unknown to SMI,
in December 1998, Marsh’s project manager for the Aladdin Project, Phil Luecht,
advised his employees to stop sending out certificates for PL coverage to
subcontractors and to amend the Contractor Handbook. Despite this warning,
in September 1999, Marsh sent yet another inaccurate certificate stating that
SMI had PL coverage under the CIP. These two inaccurate certificates each
contained a capitalized caveat: “This certificate is issued as a matter of
information only and confers no rights upon the certificate holder. This
certificate does not amend, extend or alter the coverage afforded by the policies
below.” SMI argues that the Handbook and the two inaccurate certificates led
it to detrimentally rely on Marsh to procure PL coverage. Marsh never obtained
PL coverage for SMI from St. Paul or any other insurer.
SMI was actually covered by four different insurance policies under the
CIP, including a subcontractor default policy. SMI contributed money in the
form of bid deductions to purchase this CIP coverage, but SMI never made a bid
deduction for PL coverage.
From its inception, the Aladdin Project ran behind schedule. On or about
June 1999, several of SMI’s subcontractors defaulted, including Black Hawk. As
the construction continued, other subcontractors defaulted. SMI’s claims for
subcontractor default coverage were initially denied by St. Paul, which caused
SMI to file a lawsuit against St. Paul and Marsh in federal court in Galveston,
Texas (“Galveston Suit”).
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Because of the multiple defaults of SMI’s subcontractors, Aladdin filed
claims in an arbitration proceeding against Fluor. Subsequently, Fluor filed a
related cross-action in the arbitration proceeding against SMI, alleging that SMI
breached its contract, failed to properly design and fabricate its portions of the
Aladdin Project, and failed to perform satisfactorily its professional design and
construction duties (“Arbitration Proceeding”).
St. Paul and SMI eventually reached a settlement in the Galveston Suit.
As part of this settlement, SMI released all claims against St. Paul, including
claims for coverage under the subcontractor default and PL policies. St. Paul
agreed to pay additional amounts if the arbitration among St. Paul, Fluor, and
SMI settled. Despite its settlement with St. Paul, SMI continued to pursue its
claims against Marsh in the Galveston Suit.
The Arbitration Proceeding eventually settled. SMI’s share of the
settlement was $3.5 Million paid to Fluor and Aladdin. St. Paul paid $2.25
Million of the amount, and SMI paid the remaining $1.25 Million.
SMI was forced to defend itself against Fluor in the Arbitration Proceeding
without any defense or indemnity provided by the PL coverage that SMI believed
was provided by the CIP. After SMI settled with St. Paul in the Galveston Suit,
SMI amended its complaint to assert tort and quasi-contractual claims based on
Marsh’s alleged failure to procure PL insurance. SMI argues that if Marsh had
secured PL coverage for SMI, then SMI would have been reimbursed for the
attorneys’ fees incurred by SMI in the Arbitration Proceeding and the $1.25
Million it contributed to the settlement with Fluor and Aladdin. SMI sought an
additional $6.6 Million in damages from Marsh because SMI released its claim
for the unpaid subcontract value as part of its settlement with Fluor. These
damages were not a part of SMI’s settlement with St. Paul.
The case was tried by consent before the Magistrate Judge. The court
ruled that Nevada substantive law applied, and the parties do not contest that
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No. 06-41387
ruling. During the proceedings, Marsh twice moved for judgment as a matter
of law, and the court denied both motions. The jury returned a verdict against
Marsh on SMI’s claims for negligence, and the jury also found that SMI was a
third-party beneficiary of the oral contract between Fluor and Marsh and was
entitled to recovery under the theory of promissory estoppel.1 SMI elected to
recover on a theory of negligence, and the damages award was proportionately
reduced by Nevada’s comparative negligence statute. The jury found SMI
comparatively negligent for 12% of its damages. On July 31, 2006, SMI was
awarded a final judgment of $7,839,131, including interest and costs. The court
overruled Marsh’s post-judgment motions for judgment as a matter of law and
for new trial, and Marsh filed a timely appeal.
II. Analysis
A. Erie Guess
The parties agree that Nevada law applies to this diversity action.2 See
Erie R. Co. v. Tompkins, 304 U.S. 64, 78-80 (1938). Because of the absence of
authority from the Nevada Supreme Court, we must make an Erie guess about
how the Nevada Supreme Court would evaluate the causation and economic loss
arguments related to the negligence claim.3 Am. Int’l Specialty Lines Ins. Co. v.
1
The contract between Fluor and Marsh was oral. On March 9, 2000, Ed O’Dwyer
wrote a memo to David Benoit, a Fluor representative, which stated that “we never achieved
a position where we signed a broker service agreement,” but payments were made to Marsh
under a “flat fee billing format.” In addition to the flat fee from Fluor, Marsh received
“commissions on policy placements.”
2
On April 29, 2003, the district court conducted a choice of law analysis and ruled that
“Nevada law most logically applies to this dispute, which arose out of contracts for the
construction of a Nevada hotel.”
3
Nevada is one of eleven states that do not have any intermediate appellate courts.
Supreme Court of Nevada, Report to the 74th Regular Session of the Nevada State Legislature,
2007, Regarding the Creation of the Nevada Court of Appeals (March 2007), at 8 n.20,
http://www.nvsupremecourt.us/documents/reports/rpt_IAC_2007.pdf. Consequently, we cannot
rely on any intermediate appellate court cases from Nevada to guide our decision. See Howe
ex rel. Howe v. Scottsdale Ins. Co., 204 F.3d 624, 627 (5th Cir. 2000) (“In making an Erie guess
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No. 06-41387
Canal Indem. Co., 352 F.3d 254, 260 (5th Cir. 2003). “In the absence of a final
decision by the state’s highest court on the issue at hand, it is the duty of the
federal court to determine, in its best judgment, how the highest court of the
state would resolve the issue if presented with the same case.” Id. In making
the Erie guess, we may consider, among other sources, treatises, decisions from
other jurisdictions, and the “majority rule.” Am. Indem. Lloyds v. Travelers
Prop. & Cas. Ins. Co., 335 F.3d 429, 435 (5th Cir. 2003). “In that effort, [a]bsent
evidence to the contrary, we presume that the [Nevada] courts would adopt the
prevailing rule if called upon to do so.” Turbo Trucking Co. v. Those
Underwriters at Lloyd’s London, 776 F.2d 527, 529 (5th Cir. 1985) (internal
quotation marks omitted) (first alteration in original).
B. The Causation Issue
1. Standard of Review
Marsh moved for judgment as a matter of law three times (twice at trial
and once post-trial), arguing that SMI presented insufficient evidence of
causation regarding its claim for negligent failure to procure insurance. “A
motion for judgment as a matter of law . . . in an action tried by jury is a
challenge to the legal sufficiency of the evidence supporting the jury’s verdict.”
Hiltgen v. Sumrall, 47 F.3d 695, 699 (5th Cir. 1995). Although we review denial
of a motion for judgment as a matter of law de novo, we note that “our standard
of review with respect to a jury verdict is especially deferential.” Flowers v. S.
Reg’l Physician Servs., Inc., 247 F.3d 229, 235 (5th Cir. 2001) (internal quotation
marks omitted); Brown v. Bryan County, Okla., 219 F.3d 450, 456 (5th Cir.
2000). “A motion for judgment as a matter of law should be granted if ‘there is
no legally sufficient evidentiary basis for a reasonable jury to find for a party.’”
in the absence of a ruling from the state’s highest court, this Court may look to the decisions
of intermediate appellate state courts for guidance.”).
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Pineda v. United Parcel Serv., Inc., 360 F.3d 483, 486 (5th Cir. 2004) (quoting
FED. R. CIV. P. 50(a)). A court should grant a motion for judgment as a matter
of law only when “the facts and inferences point so strongly in favor of the
movant that a rational jury could not reach a contrary verdict.” Id. (internal
quotation marks omitted). “In entertaining a Rule 50 motion for judgment as a
matter of law [we] must review all of the evidence in the record, draw all
reasonable inferences in favor of the nonmoving party, and may not make
credibility determinations or weigh the evidence.” Ellis v. Weasler Eng’g Inc.,
258 F.3d 326, 337 (5th Cir. 2001). However, we will not sustain a jury verdict
based only on a “mere scintilla of evidence.” Brady v. Houston Indep. Sch. Dist.,
113 F.3d 1419, 1422 (5th Cir. 1997) (internal quotation marks omitted).
2. Negligent Failure to Procure Insurance
In at least three separate cases, the Nevada Supreme Court has
recognized the viability of a claim against an insurance broker for negligent
failure to procure insurance. Lucini-Parish Ins., Inc. v. Buck, 836 P.2d 627, 629
(Nev. 1992); Keddie v. Beneficial Ins., Inc., 580 P.2d 955, 956 (Nev. 1978); Havas
v. Carter, 515 P.2d 397, 399 (Nev. 1973).
In Havas, the Nevada Supreme Court recognized that an insurance broker
“who undertakes to procure insurance for another owes an obligation to his
client to use reasonable diligence in attempting to place the insurance and to
seasonably notify the client if he . . . is unable to obtain the insurance.” 515 P.2d
at 399. Regarding the duty element of the claim, the court stated that insurance
brokers are “not obligated to assume the duty of procuring . . . insurance, but
when they [do] so the law impose[s] upon them the duty of performance in the
exercise of ordinary care for the rights and interests of the [intended
purchasers].” Id. The question of whether a broker exercised “the care and
diligence that [the] undertaking required” is a question of fact for the jury. Id.
In Havas, the court held that the plaintiff failed to establish negligence because
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the broker made reasonable efforts to procure the special type of insurance
demanded by the plaintiff, and the broker seasonably notified the plaintiff of his
inability to procure it. Id.
In Keddie, the Nevada Supreme Court repeated that “[o]nce an agreement
to procure insurance has been reached the insurance agent is obliged to use
reasonable diligence to place the insurance and seasonably to notify the client
if he is unable to do so.” 580 P.2d at 956 (citing Havas, 515 P.2d at 399).
Regarding the causation element, the court stated that “[t]he agreement to
procure . . . must be one for a policy of insurance which would have covered the
loss incurred.” Id. Keddie owned a commercial fishing boat, but he submitted
an application to his insurance broker for a yacht insurance policy that only
covered damage to boats not used for commercial purposes. Id. at 955. In
holding that Keddie failed to prove causation, the court observed that the yacht
insurance policy would not have covered the loss incurred even if the broker had
procured the policy pursuant to Keddie’s application. Id. at 956.
In Buck, two horse owners (“the Bucks”) brought an action against an
insurance broker for failure to procure equine mortality insurance. 836 P.2d at
628. The Bucks had insured several horses through Lucini-Parish Insurance
(“LPI”) and always followed the same procedures. Id. The Bucks decided to
purchase a thoroughbred horse named Bluegrass for $75,000. Id. An employee
of the Bucks called LPI and spoke with an LPI representative about adding
Bluegrass to the Bucks’ existing Lloyds of London policy. Id. After giving the
LPI representative the necessary information and faxing her the veterinarian’s
certificate and bill of sale, the employee believed that Bluegrass was insured.
Id. Unkown to the Bucks, LPI lacked binding authority with respect to equine
mortality insurance. Id. The LPI representative forwarded the application via
regular mail to a local agent with binding authority. Id. at 629. Bluegrass died
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shortly thereafter, and LPI informed the Bucks that Bluegrass was not yet
insured at the time of death. Id.
The jury returned a verdict in favor of the Bucks on their breach of
contract and negligent failure to procure insurance claims. Id. In affirming the
judgment, the Nevada Supreme Court approved of the following jury instruction
on the negligence claim: “An insurance agency that undertakes to procure
insurance for another owes an obligation to its client to use reasonable diligence
in attempting to place the insurance and to seasonably notify the client if it, the
insurance agency, is unable to obtain the insurance.” Id. at 629 (emphasis in
original). “The insurance” referred to in the jury instructions was the insurance
that LPI actually agreed to procure: adding Bluegrass to the Bucks’ existing
Lloyds of London policy. Id. at 629-30.
Thus, as recently as 1992, the Nevada Supreme Court has recognized the
viability of a cause of action against an insurance broker for breach of contract
and negligent failure to procure insurance.
3. Lack of Causation as an Affirmative Defense
Havas, Keddie, and Buck are unclear as to which party carries the burden
of proof regarding causation. In cases involving a claim against an insurance
broker for negligent failure to procure insurance, a minority of jurisdictions hold
that the causation issue raised by Marsh is an affirmative defense. See Hans
Coiffures Int’l, Inc. v. Hejna, 469 S.W.2d 38, 40 (Mo. Ct. App. 1971); see also
Patterson Agency, Inc. v. Turner, 372 A.2d 258, 261 (Md. Ct. Spec. App. 1977).
A majority of jurisdictions hold that causation is considered an element of the
offense that must be proven by the plaintiff by a preponderance of the evidence.
See Pac. Dredging Co. v. Hurley, 397 P.2d 819, 822 (Wash. 1964); see Bayly,
Martin & Fay, Inc. v. Pete’s Satire, Inc., 739 P.2d 239, 243-44 (Colo. 1987) (en
banc); see MacDonald v. Carpenter & Pelton, Inc., 298 N.Y.S. 2d 780, 784 (1969).
Because the Nevada Supreme Court cited to Pacific Dredging when it discussed
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causation in Keddie, we conclude that the Nevada Supreme Court would adopt
the majority approach regarding the burden of proof for causation. See Keddie,
580 P.2d at 956. In Nevada, the plaintiff carries the burden of proof regarding
the causation element of a negligence claim, and we see no reason why SMI’s
claim for negligent failure to procure insurance would be subject to a different
rule. See Scialabba v. Brandise Const. Co., 921 P.2d 928, 968 (Nev. 1996).
4. Legally Sufficient Evidentiary Basis
Marsh is correct in observing that it is liable only if the insurance policy
“would have covered the loss incurred.” Keddie, 580 P.2d at 956. Marsh argues
that SMI failed to establish the causation element because the St. Paul policy it
procured for Fluor would have contained an insured-versus-insured exclusion
that would have precluded PL coverage for subcontractors who were listed as
additional named insureds under the St. Paul policy. Thus, SMI suffered no
damages for not being named as an additional named insured on Fluor’s PL
policy because that policy would never have covered SMI’s damages resulting
from Fluor’s claims against SMI in the Arbitration Proceeding. According to
Marsh, there was no evidence that St. Paul or Fluor would have been willing to
delete the exclusion if any subcontractors were added to the PL policy.4
4
In addition to arguing that it would have been covered under the PL policy issued by
St. Paul, SMI also argues that Marsh could have obtained a PL policy for SMI from an
insurance company other than St. Paul. See Pete’s Satire, 739 P.2d at 244 (“Where . . . a claim
for relief is predicated on the negligent failure of an insurance broker . . . to procure a
particular type of insurance coverage sought by the plaintiff, it is incumbent upon the plaintiff
to prove by a preponderance of evidence, as an aspect of causation and damages, that such
insurance was generally available in the insurance industry when the broker or agent obtained
insurance coverage for the plaintiff.”). Tom Veitch, SMI’s insurance expert, testified that “this
policy didn’t have to be with St. Paul. It could have been with another company. Marsh still
had the responsibility to provide the policy . . . .” SMI argues that it did not specifically request
that its PL policy be issued by St. Paul and that PL coverage was generally available in the
insurance industry, so the insured-versus-insured exclusion is irrelevant. We decline to
address this issue because we find that a reasonable jury could have concluded that St. Paul
would have deleted the insured-versus-insured exclusion for enrolled subcontractors.
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At trial, SMI produced more than a scintilla of evidence indicating that (1)
Marsh and Fluor initially intended to obtain PL coverage for subcontractors of
all tiers;5 (2) Marsh submitted a binder proposal to St. Paul requesting PL
coverage for enrolled subcontractors;6 (3) the scope of coverage under the PL
5
On January 15, 1998, Phil Luecht, a Marsh representative, wrote in a memo that
“Fluor wants to bond professional subcontractors. St. Paul agreed to relook at this exclusion.”
On February 9, 1998, Leucht wrote a memo to St. Paul regarding “Project Professional”
coverage stating that “[b]oth options need to include subcontractor design firms without
limitation. This will be treated as a wrap up. I need to get more information on the sub design
firms.” On February 11, 1998, Luecht wrote in a memo that “[c]ertain design work will be
subcontracted and coverage must provide limits either excess of the design firm’s own limits
for the benefit of Marshall and the owner, or primary insurance—depending upon the level of
bid deducts we can obtain.” On February 13, 1998, Luecht wrote in a memo to Fluor that “St.
Paul has quoted professional liability . . . . We need to advise them what, if any, design work
will be subcontracted.” In December 29, 1998, Luecht wrote a memo to St. Paul stating that
“[s]ince this is a project professional placement, all enrolled subcontractors and their sub-tiers
should be included for coverage.” Leucht testified during trial that they called the CIP a “wrap-
up” because “it’s intended to include all the participants on the job sites for certain coverages.”
Most significantly, the jury heard Leucht testify to the following during trial:
Q: I understand. But—so, the answer to the question is yes, that was—as of February 9,
1998, all subcontractors would be included without limitation?
A: That was the goal that was brought out of this wording that we were trying to
negotiate.
Q: And that was the intent of Marsh McLennan to obtain that?
A: My job is to try and negotiate the broadest coverage available.
Q: Was that the intent of Marsh McLennan to obtain the broadest coverage obtainable?
A: At this point in time, that’s my intent.
Q: And that was the intent expressed to you by your client, Fluor?
A: That was what they asked for.
6
On February 9, 1998, St. Paul asked Marsh for “coverage required of all professional
subs.” On February 27, 1998, Luecht sent St. Paul a binder proposal that included SMI as an
additional named insured under the PL policy. In response to Marsh’s request to include all
subcontractors as insureds under the PL policy, St. Paul stated the following: “I thought we
had decided to only cover Fluor, Marshall, Aladdin & get the other subcontractors to provide
their own.”
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No. 06-41387
policy issued by St. Paul was negotiable;7 (4) a Marsh representative made a
verbal assurance to SMI that “there was no need for professional liability
insurance”;8 (5) the actual policy issued by St. Paul deleted the insured-versus-
insured exclusion through endorsement;9 and (6) the Insurance Information
Booklet, the Contractor Handbook, and the two Certificates of Insurance issued
by Marsh all stated that SMI had PL coverage under the CIP. Because our
review of the causation issue is “especially deferential,” we conclude that there
was a legally sufficient evidentiary basis for a reasonable jury to find that SMI
has proven the causation element of its negligence claim.10
7
Marsh’s insurance expert, Professor Jeffrey Stempel, testified that the issuance of a
PL policy for SMI’s benefit with respect to Fluor’s claims was possible, the only issues were
price and obtaining information on the insured. SMI’s insurance expert, Tom Veitch, testified
that the issue of whether St. Paul would have deleted the exclusion for subcontractors was “all
speculation as to what would have been negotiated out” between St. Paul and Marsh. Based
on this expert testimony, the jury could reasonably conclude that the scope of the insured-
versus-insured exclusion in St. Paul’s PL policy was negotiable.
8
A reasonable jury could have found that David Risko, a Marsh representative, stated
to an SMI representative during a meeting on April 2, 1998 that there was “no need for
professional liability insurance.” Bill Saunders, an SMI representative, understood this
statement to mean that SMI did not need professional liability coverage because it was
provided under the CIP.
9
We agree with SMI’s argument that the jury was entitled to rely on the actual PL
policy issued by St. Paul and conclude that SMI, like Aladdin, could have been an additional
named insured that was not subject to the insured-versus-insured exclusion. Furthermore, we
reject Marsh’s argument that St. Paul and Fluor would never have agreed to delete the
exclusion because Marsh’s preliminary negotiations with St. Paul, Marsh’s binder proposal,
the Insurance Information Booklet, the Contractors Handbook, and the two Certificates of
Insurance all contemplated that PL coverage was available for subcontractors like SMI.
10
We acknowledge that Marsh presented some evidence supporting its lack of causation
argument. On February 13, 1998, Lisa Davis, a St. Paul representative, stated that “[w]e are
not willing to delete [the insured-versus-insured exclusion] entirely if we are also adding
subcontractors.” At trial, a St. Paul underwriter testified that they would not delete the
exclusion for subcontractors because St. Paul “[doesn’t] want the policy to become an asset that
[the sub design firm and the primary designer] will claim against each other for just normal
contract disputes.” At trial, a Fluor representative testified that Fluor was “very adamant”
about not deleting the exclusion for subcontractors. Under our standard of review, we may not
make credibility determinations or weigh the evidence. Viewing all reasonable inferences in
favor of SMI, we are unwilling to disturb the jury verdict regarding causation.
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C. The Economic Loss Issue
1. Standard of Review
Because the applicability of Nevada’s economic loss doctrine is a question
of law, we review the issue de novo. Howe ex rel. Howe v. Scottsdale Ins. Co., 204
F.3d 624, 627 (5th Cir. 2000); see also Salve Regina Coll. v. Russell, 499 U.S. 225,
231 (1991).
2. Nevada’s Economic Loss Doctrine
Marsh argues that SMI’s negligence claim is barred by Nevada’s economic
loss doctrine. See Jordan v. State ex. rel. Dep’t of Motor Vehicles & Pub. Safety,
110 P.3d 30, 51 (Nev. 2005); see also Calloway v. City of Reno, 993 P.2d 1259,
1270 (Nev. 2000), overruled on other grounds by Olson v. Richard, 89 P.3d 31,
32-33 (Nev. 2004); see also Local Joint Executive Bd. of Las Vegas v. Stern, 651
P.2d 637, 638 (Nev. 1982). According to Marsh, SMI’s only damages are for an
economic loss—the loss of insurance proceeds, and the economic loss doctrine
precludes recovery in tort for this “expectancy interest.” Marsh argues that
“Nevada’s version of the economic loss doctrine is extremely broad” and applies
to the facts of this case.
The Ninth Circuit recently issued a detailed opinion regarding the scope
of Nevada’s economic loss doctrine. See Giles v. Gen. Motors Acceptance Corp.,
494 F.3d 865, 872-79 (9th Cir. 2007). In Giles, the Ninth Circuit held that the
economic loss doctrine did not bar the plaintiffs’ fraud and conversion claims.
Id. at 879. In holding that the economic loss doctrine did not apply to intentional
torts, the Ninth Circuit described the nature of the economic loss doctrine:
Broadly speaking, the economic loss doctrine is designed to
maintain a distinction between damage remedies for breach of
contract and for tort. The term “economic loss” refers to damages
that are solely monetary, as opposed to damages involving physical
harm to person or property. The economic loss doctrine provides
that certain economic losses are properly remediable only in
contract. The doctrine has roots in common law limitations on
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No. 06-41387
recovery of damages in negligence actions in the absence of physical
harm to person or property.
Giles, 494 F.3d at 873. The Ninth Circuit recognized that outside the products
liability context, the economic loss doctrine “has produced difficulty and
confusion.” Id. at 874.
Marsh cites to language from Stern, which states the following:
The well established common law rule is that absent privity of
contract or an injury to person or property, a plaintiff may not
recover in negligence for economic loss . . . . The primary purpose of
the rule is to shield a defendant from unlimited liability for all of the
economic consequences of a negligent act, particularly in a
commercial or professional setting, and thus to keep to the risk of
liability reasonably calculable.
651 P.2d at 638 (emphasis added). Because SMI’s tort claim is based on Marsh’s
professional negligence in a commercial setting, Marsh argues that the economic
loss doctrine bars the claim.
When making an Erie guess, “[o]ur task is to attempt to predict state law,
not to create or modify it.” Herrmann Holdings, Ltd. v. Lucent Techs., Inc., 302
F.3d 552, 558 (5th Cir. 2002) (internal quotation marks omitted). No Nevada
Supreme Court case had held that the economic loss doctrine bars a claim
against an insurance broker for negligent failure to procure insurance.
Furthermore, the Nevada Supreme Court has recognized the viability of this
particular negligence claim even after Stern was decided.11 See Buck, 836 P.2d
11
At oral argument, Marsh argued that the Buck affirmance was based solely on the
breach of contract claim. We disagree. In Buck, the Nevada Supreme Court explicitly
approved of a jury instruction regarding a claim for negligent failure to procure insurance and
affirmed a judgement for the plaintiffs based on both breach of contract and negligence. See
Buck, 836 P.2d at 629-30. We conclude that SMI could elect to recover on either theory. See
Malfabon v. Garcia, 898 P.2d 107, 109 (Nev. 1995) (“We have traditionally held that a client
may bring [a legal malpractice] action against an attorney based on either a negligence or
contractual theory.”); see also Keller Lorenz Co. v. Ins. Assocs. Corp., 570 P.2d 1366, 1369
(Idaho 1977) (claim for failure to procure insurance may be grounded in either contract or tort,
but double recovery is not allowed); see Hursh Agency, Inc. v. Wigwam Homes, Inc., 664 P.2d
15
No. 06-41387
at 629. The Nevada Supreme Court has held that the economic loss doctrine
applies in certain products liability cases,12 construction defect cases,13 and
negligence cases that do not involve the violation of a professional, extra-
contractual duty imposed by law.14
We conclude that Nevada’s economic loss doctrine does not bar negligence
claims involving the violation of a professional, extra-contractual duty imposed
by law.15 According to Calloway, the applicability of the economic loss doctrine
hinges upon “whether the actions or omissions complained of constitute a
violation of duties imposed by law, or of duties arising by virtue of the alleged
27, 32 (Wyo. 1983) (same).
12
See Cent. Bit Supply, Inc. v. Waldrop Drilling & Pump, Inc., 717 P.2d 35, 36-37 (Nev.
1986) (negligence and strict liability claims regarding defective drill bit); see also Nat’l Union
Fire Ins. Co. v. Pratt & Whitney, 815 P.2d 601, 603-04 (Nev. 1991) (negligence and strict
liability claims regarding defective airplane engine); see also Arco Prods. Co. v. May, 948 P.2d
263, 266 (Nev. 1997) (negligence and strict liability claims regarding defective cash registers).
13
See Calloway, 993 P.2d at 1267 (negligence claims against developer and contractor
for defective roofing and siding).
14
See Stern, 651 P.2d at 638 (negligence and strict liability claims against designers
and builders of a hotel for lost salaries and employment benefits resulting from fire); see also
Jordan, 110 P.3d at 51 (negligence claim against a hotel owner for failing to inform the
plaintiff that one of the hotel’s guests was a known con artist). One district court has held that
a tort claim for negligent supervision and retention was barred by the economic loss doctrine
despite the fact that the Nevada Supreme Court recognized post-Stern that this tort claim is
premised on an extra-contractual duty of care. See Blanck v. Hager, 360 F. Supp. 2d 1137,
1157 (D. Nev. 2005). The Ninth Circuit did not address the economic loss doctrine when it
affirmed the district court’s decision. See Blanck v. Hager, 220 F. App’x 697 (9th Cir. 2007).
Blanck is distinguishable from this case because the defendant in Blanck did not provide any
professional services to the plaintiff. We express no opinion on whether Nevada’s economic loss
doctrine bars tort claims that have been recognized by the Nevada Supreme Court but do not
involve professional malpractice.
15
We note that legal malpractice claims sounding in tort are still viable in Nevada post-
Calloway. See Hewitt v. Allen, 43 P.3d 345, 220-21 (Nev. 2002). Like the duty of care owed
by an insurance broker, it is the “contractual relationship creating a duty of care upon an
attorney which is the primary essential to a recovery for legal malpractice.” Compare
Warmbrodt v. Blanchard, 692 P.2d 1282, 1285 (Nev. 1984) (internal quotation marks and
brackets omitted), with Keddie, 580 P.2d at 956.
16
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express agreement between the parties.” 993 P.2d at 1263 (internal quotation
marks omitted). In Havas, the Nevada Supreme Court stated that insurance
brokers are “not obligated to assume the duty of procuring . . . insurance, but
when they [do] so the law impose[s] upon them the duty of performance in the
exercise of ordinary care for the rights and interests of the [intended
purchasers].”16 515 P.2d at 399 (emphasis added). The cases cited by Marsh are
not factually analogous and do not convince us that the Nevada Supreme Court
would hold that the doctrine bars all negligence claims, without exception,
including those involving the violation of a professional, extra-contractual duty
imposed by law.17 This case does not involve products liability or construction
defects. Furthermore, in Stern and Jordan, the defendants did not owe any
professional, extra-contractual duties to the plaintiffs under established Nevada
Supreme Court precedent.
The Ninth Circuit has concluded that “Nevada’s economic loss doctrine is
generally consistent with the principles discernable in the case law of other
jurisdictions.” Giles, 494 F.3d at 879. Based on our review of case law from
other jurisdictions, we conclude that the majority of those jurisdictions hold that
the economic loss doctrine does not bar a claim against an insurance broker for
negligent failure to procure insurance. See Grynberg v. Agri Tech, Inc., 10 P.3d
1267, 1271 & n.4 (Colo. 2000) (en banc); see Kanter v. Deitelbaum, 648 N.E.2d
1137, 1139-40 (Ill. App. Ct. 1995); see Steiner Corp. v. Johnson & Higgins, 196
16
“The governing issue [in determining whether a claim falls within the professional
services exception of the economic loss doctrine] is whether the law imposed upon [the
defendant] a duty of care.” Springfield Hydroelectric Co. v. Copp, 779 A.2d 67, 72 n.2 (Vt.
2001).
17
In refusing to adopt this blanket rule, we are heeding the Nevada Supreme Court’s
warning that “the more reasoned method of analyzing the [applicability] of the economic loss
doctrine is to examine the relevant policies in order to ascertain the proper boundary between
the distinct civil law duties that exist separately in contract and tort.” Calloway, 993 P.3d at
1266 n.3.
17
No. 06-41387
F.R.D. 653, 656-57 (D. Utah 2000). We believe that the reasoning of Kanter,
which held that the economic loss rule does not bar recovery, is persuasive:
The economic loss doctrine applies to the service industry only
where the duty of the party performing the service is defined by the
contract between him and his client. Where a duty arises outside of
that contract, the doctrine does not prohibit recovery under a tort
theory for the negligent breach thereof . . . . We find that this
failure was a breach of his duty to observe reasonable professional
competence which existed independently of the insurance policy or
contract. We therefore find that [the insurance broker’s] duty to
plaintiffs, his insureds, in performing insurance brokerage services
was not solely defined by contract, but rather was extracontractual
in nature. As such, the economic loss doctrine does not bar
plaintiffs’ recovery of their economic damages under a tort theory for
[the insurance broker’s] negligent breach.
648 N.E.2d at 1140 (citations omitted). We also agree with the Colorado
Supreme Court’s conclusion that “a party suffering only economic loss from the
breach of an express or implied contractual duty may not assert a tort claim for
such a breach absent an independent duty of care under tort law.” Grynberg, 10
P.3d at 1269 (emphasis added). We believe that the Nevada Supreme Court has
imposed “an independent duty of care” on insurance brokers. See id. at 1271 n.4;
see Havas, 515 P.2d at 399.
The Kanter rationale is supported by the Second Circuit’s holding that the
economic loss doctrine allows recovery “in the limited class of cases involving
liability for the violation of a professional duty. To hold otherwise would in
effect bar recovery in many types of malpractice actions.” Hydro Investors, Inc.
v. Trafalgar Power Inc., 227 F.3d 8, 18 (2d Cir. 2000) (New York law). Marsh did
not cite to any cases from other jurisdictions explicitly holding that the economic
loss doctrine bars recovery on a tort claim for negligent failure to procure
insurance. We conclude that the Nevada Supreme Court would hold that the
economic loss doctrine does not bar SMI’s negligence claim.
18
No. 06-41387
III. Conclusion
On appeal, Marsh raised two narrow issues regarding SMI’s tort claim for
negligent failure to procure insurance: (1) SMI failed to prove the causation
element of its negligence claim because the insured-versus-insured exclusion
would have precluded coverage under St. Paul’s professional liability policy, and
(2) SMI’s negligence claim is barred by Nevada’s economic loss doctrine. We
reject both of these arguments, and we affirm on the basis of the negligence
claim.18 Consequently, we find it unnecessary to consider SMI’s quasi-
contractual claims.
AFFIRMED.
18
The Magistrate Judge also denied Marsh’s motion for new trial. Our standard of
review of a denial of a motion for new trial is “more deferential than our review of the denial
of a motion for judgment as a matter of law.” DP Solutions, Inc. v. Rollins, Inc., 353 F.3d 421,
431 (5th Cir. 2003) (internal quotation marks omitted). Because there was no “clear showing
of an abuse of discretion,” we will not disturb the Magistrate Judge’s ruling on this issue. See
id.; see also Hidden Oaks Ltd. v. City of Austin, 138 F.3d 1036, 1049 (5th Cir. 1998) (“In light
of our previous holding that the district court correctly denied the City’s motion for judgment
as a matter of law . . ., we find no abuse of discretion in the district court’s denial of the City’s
motion for a new trial.”).
19