Economic loss rule bars tort claims against broker

Where a party asserted negligence and breach of fiduciary duty claims against its insurance broker for allegedly failing to procure the proper type of insurance, Virginia’s economic loss rule barred the claims.

Background

This case initially involved a dispute over whether a marine insurance policy issued by Atlantic Specialty Insurance Company, or ASIC to Bogdan Bindea, as owner of the supply vessel “M/V Bob Rouse,” covered Bindea’s claimed loss sustained when the vessel capsized in Haitian waters. Bindea filed a counterclaim against ASIC seeking declaratory judgment that the policy fully covered his claimed loss.

ASIC moved for judgment on the pleadings, asking only that the court enter judgment in ASIC’s favor on its own claim that “no coverage is owed” to Bindea for the loss. The court granted ASIC’s motion in September 2022. Neither party filed a dispositive motion as to Bindea’s counterclaim that coverage is owed to him for the same loss.

Bindea also filed a third-party complaint asserting four tort claims against John Uhr, ASAP Insurance Agency and USG Insurance Services. The matter is now before the court on USG’s motion to dismiss Bindea’s third-party complaint.

Analysis

Bindea’s pleading invokes 28 U.S.C. § 1367(a) as the sole statutory basis for this court’s subject-matter jurisdiction over his declaratory judgment action against ASIC. Section 1367(a) would allow the court to exercise supplemental jurisdiction over Bindea’s counterclaim because its operative facts “are so related to claims” in ASIC’s declaratory judgment action within the court’s “original jurisdiction [under § 1333] that they form part of the same case or controversy under Article III of the United States Constitution.”

However, it is clear from the face of Bindea’s pleading that his counterclaim has its own, independent basis in admiralty jurisdiction under § 1333. Dismissing ASIC’s claim against Bindea therefore did not affect this court’s statutory authority to entertain Bindea’s counterclaim against ASIC.

The court has supplemental jurisdiction over Bindea’s third-party claims against Uhr, ASAP and USG because they “are so related to” Bindea’s counterclaim “in the action within [the court’s] original jurisdiction [under § 1333] that they form part of the same case or controversy under Article III of the United States Constitution.” Put differently, the court’s supplemental jurisdiction over Bindea’s third-party claims flows not from ASIC’s original claim against Bindea, but from Bindea’s counterclaim against ASIC that itself falls within this court’s original admiralty jurisdiction.

The third-party complaint alleges that Uhr, ASAP and USG “may be wholly or partly liable” to Bindea “for remedy over, contribution, or otherwise on account of the same . . . series of transactions or occurrences” that led ASIC to issue the insurance policy underlying the original coverage dispute between ASIC and Bindea. Other district courts within the Fourth Circuit have allowed defendants to implead their third-party claims against nonparty insurance agents or brokers in similar cases.

Choice of law

Bindea’s third-party complaint asserts three counts expressly alleging some type of negligence and one count alleging breach of fiduciary duty, all arising out of USG’s unsatisfactory efforts to secure insurance coverage on Bindea’s behalf. He maintains that these are torts.

But Virginia law characterizes Bindea’s claims against USG as contract claims because the duties allegedly breached arose solely out of an alleged agreement for USG to procure marine insurance coverage for the vessel on Bindea’s behalf. As such, Virginia law also governs whether those allegations state any tort claim for which Bindea can recover damages against USG.

Merits

Virginia’s economic loss doctrine is “a remedy-specific application of the source-of-duty rule” discussed above. “Under this doctrine, claims for damages which were within the contemplation of the parties when framing their agreement — such as economic losses to property that is the subject of the agreement — remain the particular province of the law of contracts.”

Bindea’s request that USG step in and compensate him for a loss that would have been covered by ASIC’s policy had USG procured the coverages that Bindea wanted for his vessel is purely a claim for “disappointed economic expectations,” caused by USG’s failure to procure those coverages. The court will grant USG’s Rule 12(b)(6) motion and dismiss Bindea’s third-party complaint against USG because all four counts asserted are tort claims, and not breach-of-contract claims.

Third-party defendant USG Insurance Service’s motion to dismiss granted.

Atlantic Specialty Insurance Company v. Bindea, Case No. 3:21-cv-00002, Feb. 16, 2023. WDVA at Charlottesville (Hoppe). VLW 023-3-066. 26 pp.