In this week's Alabama Law Weekly Update, we present you with two cases from the U.S. Court of Appeals for the Eleventh Circuit. The first discusses the insurable interest of a property management company in the managed commercial properties. The second case discusses breach of express warranties.
Banta Prop., Inc. v. Arch Specialty Ins. Co., No. 12-14186, --- Fed. Appx. ---, 2014 WL 274478 (11th Cir. Jan. 24, 2014)
Banta Property, Inc. (“Banta”) brought suit against Arch Specialty Insurance Company (“Arch”) for its alleged refusal to honor a secondary insurance policy issued to Banta. Banta managed three separate apartment complexes for a third party in exchange for four percent of the gross monthly income of each complex. Banta took out two commercial property insurance policies, the second of which was an excess policy with Arch. In 2005, all three complexes were badly damaged by Hurricane Wilma, causing Banta to seek to recover under both applicable insurance policies. The primary insurer paid out the policy limits on the insurance policy but Arch refused to pay the excess claim asserted by Banta. Banta then sued Arch for breach of the commercial property insurance policy. A jury subsequently awarded Banta damages against Arch for the damage to the apartment complexes. Arch appealed to the Eleventh Circuit Court of Appeals.
On appeal, the Eleventh Circuit was asked to determine whether a company whose sole interest in a property is the contractual right to receive a percentage of the gross income can recover insurance proceeds for the cost of repairing physical damage to the property far in excess of the revenue stream of the property. Banta argued that the insurance policy covered the damage done to the property and Banta was therefore entitled to recover for the cost of the repairs to the property. Arch, on the other hand, argued that Banta was only entitled to recover for the revenue lost as a result of the property damage. The Eleventh Circuit determined that an insured was only entitled to recover to the extent of its insurable interest in the property. Here, Banta did not have an ownership interest in the properties. Rather, Banta’s sole interest in the properties was the right to receive gross monthly revenues. As such, the Eleventh Circuit determined that Banta’s only insurable interest in the property was the right to revenues, and as such, Banta could only recover for four percent of the lost revenues caused by the damage to the properties, reversing the verdict of the jury.
Lisk v. Lumber One Wood Preserving, LLC, No. 3:13-cv-01402-AKK, --- F. Supp. 2d ---, 2014 WL 66512 (N.D. Ala. Jan. 8, 2014).
Robert Lisk (“Lisk”) hired a third party to install a fence at his home, who subsequently purchased the necessary lumber from a wholesale dealer who had originally purchased the lumber from Lumber One Wood Preserving, LLC (“Lumber One”). The brand of lumber purchased was marketed by Lumber One as treated with technology that would ensure the lumber remained free from rot, fungal decay, and termite attacks for fifteen to thirty years after installation. Three years after the fence was installed, Lisk discovered that the lumber was rotting. He subsequently sued Lumber One for breach of express warranty and violation of the Alabama Deceptive Trade Practices Act (“ADTPA”) in his individual capacity and on behalf of similarly situated consumers. Lumber One moved to dismiss the case.
Initially, Lumber One argued that the complaint was due to be dismissed because no explicit warranty provision existed. The Court disagreed and held that any promise of a product’s capabilities can qualify as an express warranty, such as Lumber One’s guarantee that the subject lumber would remain rot free for fifteen to thirty years. Lumber One then argued that Lisk did not purchase the lumber directly from Lumber One, but rather went through a third party, and as such, was not in privity with Lumber One. The Court again disagreed and held that in order to recover for a violation of an express warranty, Lisk only needed to show that he was an intended third party beneficiary of the sale and purchase of the lumber and that Lumber One had intended to bestow a benefit on end users such as Lisk. The Court, however, determined that Lisk had not sufficiently pled that Lumber One intended to bestow a benefit on end users by including the representations regarding the lumber’s longevity in its marketing material. As such, the Court dismissed the express warranties claim for failure to properly plead the cause of action. Finally, the Court dismissed the ADTPA class action claim after determining that the ADTPA did not permit private class actions, as the protection of legitimate business interests outweighed the need for private class action.