Gust K. Newberg Construction Co. v. E.H. Crump & Co. (818 F.2d 1363, 1987)

ESCHBACH, Senior Circuit Judge.

Gust K. Newberg Construction Company (“Newberg”), the plaintiff in this case, appeals from a judgment entered in favor of the defendant, E.H. Crump & Company (“Crump”) following a bench trial. In this diversity action, the district court held that Crump had no duty, under Florida law, to inform Newberg that an “all risk” insurance policy purchased by Newberg to cover its risk of loss regarding a construction project in Dade County, Florida, excluded loss caused by subsurface water. Under the circumstances of this case, we agree and therefore affirm.

I

Newberg, an Illinois corporation with its principal place of business in Illinois, is engaged in the construction business throughout the country. Crump, a Delaware Corporation with its principal place of business in Tennessee, is engaged in the insurance brokerage business. The business relationship of the parties dates back to 1973, when Crump began obtaining bid bonds and performance bonds for New-berg. Some time later, Crump became the exclusive broker for all surety bonds (bid and performance) written for Newberg. Crump has also sometimes acted as a broker to obtain “builder’s risk” insurance for Newberg. Crump also sought unsuccessfully to become Newberg’s “general comprehensive liability and workmen’s compensation” insurance broker.

A word of explanation about the types of insurance commonly carried by construction companies is warranted. Bid and performance bonds and “builder’s risk” insurance are typically obtained on a job-specific basis, while the comprehensive liability and workmen’s compensation insurance are carried on a continuous basis. “Builder’s risk” insurance, the type involved in this lawsuit, is designed to cover the risk of loss that the builder bears under the construction contract in the event certain catastrophes strike the structure to be built.

“Builder’s risk” policies are of two types: “specified peril” insurance, which covers only those perils specified in the insurance contract, and “all risk” insurance, which covers all losses except those specifically excluded. In sum, under an “all risk” policy, the insurer bears the risk that a catastrophe not mentioned in the policy will occur; in a “specified peril” policy, the insured bears that risk.

Frequently the construction contract will require the builder (rather than the owner) to obtain “builder’s risk” insurance. In such cases, the contract usually specifies which type of insurance is required. If “specified peril” insurance is called for, the perils to be insured against are usually listed. Even though a contract might only call for “specified peril” insurance, however, the builder is always free to obtain better coverage. It was Crump’s policy to always recommend “all risk” insurance. It is uncontested that whenever Crump obtained “builder’s risk” insurance for New-berg, it was of the “all risk” variety. Additionally, Newberg claimed that its practice was to always require “all risk” insurance and that it informed Crump of this policy at the onset of their relationship. Crump denied ever having been informed of such a practice.

As noted above, even “all risk” policies contain some exclusions. These exclusions are not uniform, but vary from company to company within the insurance industry. One such exclusion is for damage due to subsurface water. Slightly more than half of available insurance policies contain this exclusion, but some companies whose policies contain the exclusion will write over it for an additional premium. Although Crump was unaware that some policies did not contain the exclusion, it did know that some companies would write over it.

Newberg obtained the bid for a construction contract in Miami, Florida, which required it to construct concrete and masonry tanks for a sewage treatment plant. The tanks were to be built underground and, it turns out, under the water table. The construction was to be done “in the dry,” i.e., the builder was required to use pumps and other equipment to “dewater” the construction site so that subsurface water would not impede construction.

As was its usual practice, Newberg solicited bids from a number of insurance brokers, including Crump, for the builder’s risk insurance on the project. It sent Crump the insurance specifications for the project, which called for “specified peril” coverage and did not specify subsurface water as one of the perils. Additionally, Newberg told Crump that the site was approximately two miles from the ocean and that flood coverage was not needed. Among the insurance brokers, Crump was the low bidder and provided Newberg with an “all risk” policy. However, subsurface water was among the perils excluded, under section 4(o) of the policy, which provided:

4. PERILS EXCLUDED. This policy does not insure:

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