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Erler v. Aon Risks Services12/29/2000
Appeal by plaintiffs and defendants from judgment entered 27 April 1999 by Judge William H. Freeman in Forsyth County Superior Court. Heard in the Court of Appeals 12 September 2000.
In 1984, plaintiffs purchased a building at 823 Reynolda Road in Winston-Salem. This building contains three floors and sits on a sloped grade such that the front entrance opens into the second floor. The first, or lowest, floor is accessible from the rear through a garage door and rear entrance door. Plaintiffs used this lower floor as an inventory storage area. In June of 1996, the building's lower floor was flooded during a storm, and much of plaintiffs' inventory of textbooks was destroyed. Plaintiffs then contacted defendant Susan Cothren (Cothren), an employee of defendant Aon Risk Services (Aon), who wrote flood insurance policies and inquired about expanding their current National Flood Insurance Program (NFIP) policy to cover the contents of the lower floor.
The Standard Flood Insurance Policy (SFIP), issued by the Federal Emergency Management Agency (FEMA), allows coverage to be expanded to "contents" but excludes contents stored in a "basement." A "basement" is defined by the NFIP as "any area of the building having its floor subgrade on all sides." Based on a description of the building given to Cothren by plaintiffs, Cothren initially informed plaintiffs on 17 July 1996 that she believed the lower floor was not a "basement." On 18 July 1996, Cothren visited the building, and after speaking with a representative of the NFIP, she confirmed to plaintiffs that the lower floor was not a "basement" and that their insurance could be expanded to cover the contents of that floor. Cothren based this advice on the fact that the lower floor had a garage door which opened out onto the driveway, thereby making it a "walkout." Cothren believed that a "walkout" was classified separately from a "basement" and thus eligible for contents coverage. In her testimony, Cothren admitted that the SFIP does not contain such an exception for a "walkout." In August 1996, plaintiffs' application for expanded coverage was accepted by the NFIP and plaintiffs began paying an additional premium.
In May 1998, plaintiffs' building again flooded destroying the inventory located on the lower floor. Plaintiffs valued this loss of inventory at $307,958.00 and reported the loss to the NFIP who sent a claims adjuster, Eddie Adams, to examine the damage. Mr. Adams consulted an engineer, John Gardner, who examined the building and determined that the lower floor was a "basement" because it "is below the elevation of the grade on all sides." Based on this determination, the NFIP denied plaintiffs' claim on the basis that the lower floor was in fact a "basement" and that there was no coverage for contents in basement areas. Plaintiffs subsequently filed suit against Aon and Cothren alleging negligent misrepresentation, unfair and deceptive trade practices, and respondeat superior. At trial, the trial court granted defendants' motion for a directed verdict as to plaintiffs' claim of unfair and deceptive trade practices, and submitted issues on negligent misrepresentation and contributory negligence. The jury answered the issues in favor of the plaintiffs and returned a verdict in the amount of $280,001.
We first address defendants' assignments of error. After plaintiffs filed the present lawsuit, they filed an action against FEMA in federal court seeking payment for the loss under the policy. FEMA filed a motion to dismiss on the basis that the proof of claim was not timely filed and that plaintiffs' policy did not cover contents stored in the lower floor because it was classified as a "basement." Plaintiffs then volunta
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