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Fed Court Wants Florida Supremes to Clarify Rule that Can Bar Subrogation Recovery *Centurion Insurance AFS*
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In the next year or so, the Florida Supreme Court will decide on the exact meaning of a legal doctrine that, under one interpretation, has blocked the recover of millions of dollars per year in subrogation recovery for liability insurance companies.
The 11th U.S. Circuit Court of Appeals late last month submitted a certified question to the state high court, asking it to clear up conflicts between differing court rulings on what’s known as the economic loss rule, an often-controversial idea in tort litigation. As it stands now, manufacturers and corporations facing subrogation and negligence claims have, in many cases, been shielded by a Florida case law that limits damage awards to no more than the economic value of the product at fault.
In some instances, that has amounted to zero dollars.
“It lets the manufacturer completely off the hook,” said Josh Goodman, of Miami, an insurance subrogation specialist with the Cozen O’Connor law firm.
Goodman is the lead attorney for the plaintiffs in NBIS Construction and Transport Insurance Services vs. Liebherr-American Inc., the case that prompted the 11th Circuit to ask the state justices for clarity.
The case began in February 2018, when a massive construction crane built by Liebherr in Germany was delivered to Sims Crane & Equipment Co., based in Tampa. After Sims workers set the crane to hold a 276-foot boom, the boom suddenly collapsed, fatally injuring a worker for the erector company. The worker’s name was Christopher Wade, of Villa Rica, Georgia.
The crane was also heavily damaged in the collapse. NBIS, also known as NationsBuilders Insurance and owned by Align Financial Holdings Inc., paid Sims Crane $3.2 million to cover the cost of the crane, plus $180,000 for towing and salvage. NBIS was able to sell the damaged equipment for $1.65 million. That left about $1.74 million, for which NBIS sued the manufacturer in federal court.
Liebherr argued that it had no duty to protect the insurance company against purely economic harms, that its actions were not the cause of the boom’s collapse, and that Florida’s economic loss rule prevented NBIS from recovering the money.
The rule has continued to evolve through the years, but seems to have begun with court rulings in the late 1980s and 1990s. It developed largely to protect manufacturers from liability for economic damages caused by a defective product, beyond those damages provided by a warranty. The rule arose in part to limit tort claims when contracts already governed a product or service, the court explained.
The Florida Supreme Court in 1993 defined economic losses as “damages for inadequate value, costs of repair and replacement of the defective product, or consequent loss of profits—without any claim of personal injury or damage to other property,” the appellate judges noted. Liebherr lawyers argued that the rule prevents a claim against a product manufacturer when the product damages only itself.
After a bench trial, the federal district court judge in 2022 disagreed with Liebherr’s argument, however, and awarded NBIS the $1.7 million, plus interest. Liebherr appealed.
And that’s where things got complicated.
The crux of Goodman’s and NBIS’ argument is that the claim against Liebherr was not about a faulty product or product liability, to which the economic loss rule has historically applied – at least in some cases. Liebherr knew that if pins on the crane boom were not placed in exactly the right position, or that if one of them were moved, it could result in death, injury and property damage, NBIS argued. A similar collapse had happened in 2017 in Japan.
Yet, the manufacturer did not provide enough training to Sims workers and did not provide a crucial safety bulletin and warning signs to Sims – documentation that would have explained the importance of proper pin placement – until one week after the collapse.
All other crane operator firms that had purchased Liebherr cranes had received the bulletin, NBIS contended.
That makes it a negligent service suit, not a product liability claim, Goodman explained.
“As a direct and proximate result of defendant’s negligence,” Sims and NBIS sustained damage, NBIS’s initial complaint said. Liebherr owed a duty to Sims to provide the bulletin and proper training.
The appeals court pointed out that a number of court rulings over the last few decades have raised questions about what circumstances the economic loss rule applies to. In one ruling, the Florida high court limited tort liability to those cases in which damage happened to more than just the product itself. But in other decisions, the courts have found that a product may be considered defective because of inadequate warnings, a line of thought that Liebherr embraced in the NBIS suit. Liebherr was essentially using its own alleged failure to warn about the crane boom as a defense in the negligence claim.
The economic loss rule has frustrated insurance subrogation recovery, in some cases, for decades. As long ago as 2002, a Cozen attorney wrote for the Florida Bar that few subjects generate more controversy and confusion than Florida’s “ever-evolving version” of the rule.
The 11th Circuit said it’s time to settle the matter once and for all.
“We find Florida law unclear as to the economic loss rule’s applicability here,” Judge Barbara Lagoa wrote in the Feb. 29 opinion. “On one hand, we see merit in Liebherr-America’s argument that NBIS’s theories of negligence are like the failure-to-warn theories found in products liability law.” But on the other hand, NBIS is correct in arguing that the economic loss rule applies only to product defects, the judges said.
The 11th Circuit will take up the lawsuit again after the Florida Supreme Court answers the certified question.
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