Florist's insurer fails to reimburse for inventory destroyed in hailstorm: Breach of contract: Negligence: Business losses: Settlement

Law Reporter, May 2003

Southwest Nurseries, LLC v. Florist Ins. Serv., Inc., U.S. Dist. Ct., D. Colo., No. 00-D-2198, Nov. 30, 2002.

Southwest Nurseries (Southwest) purchased federal crop insurance from Florist Insurance Services (FIS) in 1999. Southwest was a growing concern with rapidly expanding inventory, and Southwest's owner advised FIS agents that he wished to obtain the maximum coverage FIS could provide.

Federal crop insurance is continuous, and policies automatically renew each year at the coverage levels of the prior year. If an insured wishes to change the coverage level, the insured must submit a new report of the value of its plant inventory, upon which its premium will be based.

When the time came to renew the federal crop insurance for 2000, Southwest's inventory had grown from $860,000 to $1.2 million. Southwest informed FIS's agent of this increase, and sent an updated inventory reflecting the increase in value. An FIS agent failed to enter the new inventory values in the renewal application, and failed to advise Southwest that the reimbursement amounts that are provided under the federal program had dropped since the previous year. The agent did not inform Southwest of the dollar amount of its coverage.

In 2000, a hailstorm destroyed Southwest's entire inventory. Southwest valued the inventory at almost $2 million, with a replacement cost of $1.4 million. Although Southwest expected its inventory would be fully covered, it was reimbursed only $234,400 under the policy. Southwest absorbed significant business losses and was forced to lay off its employees.

Southwest filed suit against FIS in federal district court, alleging breach of contract, breach of implied contract, negligence, and bad faith. Suit also alleged violation of Colorado's consumer protection act, Colo. Rev. Stat. [sec][sec]6-1-101 et seq. Under the terms of the policy, a magistrate judge ordered the parties to arbitrate the dispute.

A three-member panel of arbitrators found that defendant had (1) failed to explain the policy terms to plaintiff, (2) failed to advise plaintiff of the actual amount of its insurance coverage, (3) failed to provide additional policy coverage requested by plaintiff, and (4) failed to advise plaintiff that it could update its coverage to reflect its expanding inventory.

The arbitrators awarded plaintiff $658,450. In addition to the award, defendant has paid about $23,100 to reimburse plaintiff's arbitration expenses.

Plaintiff's expert on insurance agent negligence was John Kezer, Denver, Colo.

Plaintiff's claims for additional damages under Colorado's consumer protection act are pending before the court.

Plaintiff's Counsel

*Kirk Patterson Brown, Pueblo, Colo.