Marble v. First American Flood Data Services, Inc., No. 87-2-01 Wncv (Teachout, J., July 14,
2003)

[The text of this Vermont trial court opinion is unofficial. It has been reformatted from the
original. The accuracy of the text and the accompanying data included in the Vermont trial court
opinion database is not guaranteed.]


                                  STATE OF VERMONT
                                WASHINGTON COUNTY, SS.

JAMES W. MARBLE and                           )
M. MARTHA MARBLE,                             )
     Plaintiffs,                              )
                                              )      Washington Superior Court
       v.                                     )      Docket No. 87-2-01 Wncv
                                              )
FIRST AMERICAN FLOOD DATA                     )
SERVICES, INC. and                            )
BANKNORTH GROUP, INC.,                        )
     Defendants.                              )

                  Decision on Defendants’ Motions for Summary Judgment

        Plaintiffs James W. Marble and M. Martha Marble own a home in Waitsfield, Vermont
near the Mad River. Plaintiffs obtained a loan secured by a mortgage deed with Defendant
Banknorth Group, Inc. in February, 1998. In the course of that transaction, Defendant First
American Flood Data Services, Inc. (FDSI), issued a Standard Flood Hazard Determination
Form indicating that flood insurance was not required to be purchased on behalf of Banknorth
under the National Flood Insurance Program. Shortly thereafter, Plaintiffs sustained severe flood
damage to their home when the Mad River flooded in June, 1998; it flooded again the following
August. Plaintiffs had never obtained flood insurance. Claiming that the Determination was
inaccurate, Plaintiffs allege negligence against each of the Defendants. Both Defendants have
filed Motions for Summary Judgment. For the following reasons, Defendants’ Motions are
granted.

        Summary judgment is appropriate if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with any affidavits, show that there is no
genuine issue as to any material fact and that any party is entitled to a judgment as a matter of
law. See V.R.C.P. 56(c)(3). In determining whether a genuine issue of fact exists, the
nonmoving party receives the benefit of all reasonable doubts and inferences; however,
allegations to the contrary must be supported by specific facts sufficient to create a genuine issue
of material fact. See Samplid Enterprises, Inc. v. First Vermont Bank, 165 Vt. 22, 25 (1996). “A
summary judgment motion is intended to ‘smoke out’ the facts so that the judge can decide if
anything remains to be tried.” Donnelly v. Guion, 467 F.2d 290, 293 (2d Cir. 1972) (citations
omitted). Ordinarily, “summary judgment is improper where the case stands or falls on the
inference that may be drawn from these facts-particularly where the inferences depend upon
subjective feelings and intent. But this rule applies only where the ‘undisputed evidentiary facts
disclose competing material inferences as to which reasonable minds might disagree’". Id. at
294, citing Cali v. Eastern Airlines, Inc., 442 F.2d 65 at 71 (2d Cir. 1971).



        The following material facts are undisputed. On May 8, 1980, Plaintiffs purchased their
home, which sits on the banks of the Mad River. In seven separate transactions between August
29, 1985 and March 23, 1994, Plaintiffs obtained loans secured by mortgage deeds from
Banknorth, The Howard Bank (Banknorth’s predecessor in interest), and at least one other bank.
No lender required flood insurance in any amount in the course of these transactions. For each
of these transactions, James Marble was aware that the respective lender had not required flood
insurance, but neither of the Marbles recollects ever seeing a “Standard Flood Hazard
Determination Form.” Prior to 1998, the Marbles never attempted to insure their home against a
flood risk.

        Under the National Flood Insurance Act of 1968, 42 U.S.C. §§ 4001-4129, no lender may
“make, increase, extend, or renew any loan secured by improved real estate . . . in an area that
has been identified by the Director [of the Federal Emergency Management Agency] as an area
having special flood hazards and in which flood insurance has been made available under the
[Act], unless the building . . . and any personal property securing such loan is covered for the
term of the loan by flood insurance in an amount at least equal to the outstanding principal
balance of the loan . . . .” 42 U.S.C. § 4012a(b)(1). If at origination or anytime during the term
of the loan the lender determines that the property is covered by less than the required amount (if
any) of flood insurance, the lender must notify the borrower of the need to obtain additional
flood insurance at the borrower’s expense. 42 U.S.C. § 4012a(e)(1). If the borrower fails to do
so within 45 days of notification, the lender must purchase the required insurance and may
charge associated expenses to the borrower. 42 U.S.C. § 4012a(e)(2).

        On February 20, 1998, the closing occurred on another loan to the Marbles secured by a
mortgage deed. This one was from The Howard Bank (now Banknorth, Defendant herein).
Prior to the origination of the loan, Banknorth requested from Defendant FDSI a flood hazard
determination indicating whether flood insurance was required by the Act. The request was
made electronically using software known as FloodCert which was provided to Banknorth by
FDSI. Affidavit of Scott A. Giberson para. 8.

        FDSI, a Texas corporation, is in the business of completing Standard Flood Hazard
Determination Forms. Banknorth has an agreement with FDSI under which Banknorth obtains
all flood hazard determinations from FDSI, and FDSI charges Banknorth a reduced rate of
eighteen dollars each. Section 3.2 of the agreement details the remedies provided to Banknorth
in the event that FDSI provides an “errant determination.” Section 3.2(b) states:

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       If FDSI has incorrectly issued a certification on a property stating that the
       insurable structure is not located within a Special Flood Hazard Area, but was in
       fact discovered to be located in a Special Flood Hazard Area per the Flood Map
       effective as of the date of the certification, FDSI shall compensate [Banknorth]
       for the cost of any uninsured flood loss suffered by [Banknorth] that would have
       been paid by an NFIP policy, less any premiums that would have been paid if an
       NFIP policy had been in effect.

Flood Zone Determination Service Agreement § 3.2(b). “NFIP policy” means “a flood insurance
policy underwritten and administered by the National Flood Insurance Program.” Agreement §
4.5(f). Section 4.7 states: “Nothing expressed or implied in this Agreement is intended, or shall
be construed, to confer upon or give any person or entity other than FDSI and [Banknorth] any
rights or remedies under or by reason of this Agreement.”

        FDSI produced the flood zone determination requested by Banknorth on February 17,
1998, on a one page form entitled “Federal Emergency Management Agency Standard Flood
Hazard Determination” and identified as “FEMA Form 81-93, JUN 95.” The form identifies the
lender and borrower, and the address of the collateral building. The form states that the
applicable NFIP Map Number or Community-Panel Number is 500120 0010 D, with an effective
date of 09/05/84. The form further indicates that federal flood insurance is available in the
regular, as opposed to emergency, program. The determination is located in section D of the
form. There, the form states “IS BUILDING/MOBILE HOME IN SPECIAL FLOOD HAZARD
AREA (ZONES BEGINNING WITH LETTERS ‘A’ OR ‘V’)?” The “NO” box is checked. In
the same section, the form states: “If yes, flood insurance is required by the Flood Disaster
Protection Act of 1973. If no, flood insurance is not required by the Flood Disaster Protection
Act of 1973.”

        Prior to February 20, 1998, Mr. Marble had never had any interest in flood insurance and
had never sought to obtain it. He was not aware of any flood hazard determinations that might
have occurred with past loans. At the time of the February 20, 1998 closing, Mr. Marble
continued to have no interest in flood insurance. The issue of flood insurance was mentioned to
Mr. Marble first by Attorney Sheila Getzinger, who represented the Marbles at the February 20,
1998 closing. Attorney Getzinger notified Mr. Marble that “the bank was getting a flood
certificate, and that based upon that flood certificate we may have to acquire flood insurance.”
Deposition of James W. Marble dated January 14, 2003 at 16. That statement was made over the
telephone in the context of a conversation about “anything that would be needed or possibly
needed to make sure that the closing went smoothly.” Id. at 17. In the course of that
conversation, Mr. Marble asked Attorney Getzinger how the determination about flood insurance
would be made. Without identifying the company, Attorney Getzinger replied that “there is an
expert company that will issue a flood determination certificate.” Id. at 18. She did not explain
how the determination would be made; there was no more discussion on the topic. Id. at 18-19.
Other than mentioning to Martha Marble that they may be required to purchase flood insurance
at the closing, Mr. Marble neither discussed flood insurance with anyone else prior to the closing

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nor considered the possibility of purchasing flood insurance in the event that it would not be
required. Id. at 19. At the closing, there was no discussion of flood insurance other than the
brief mention that flood insurance was not required and thus would not affect closing costs. Id.
at 21.

        Mr. Marble received a copy of the completed Standard Flood Hazard Determination
Form from Banknorth at the closing. The Form was not provided to the Marbles by FDSI, and
FDSI had no specific knowledge that it would be provided to the Marbles by Banknorth.
Affidavit of Scott A. Gibberson paras. 10-16. Mr. Marble also received, read, and signed a
Notice to Borrower Not In Special Flood Hazard Area. Deposition of James W. Marble at 26-
27. The Notice, which was provided by Banknorth at the closing, states that the building is not
in an area designated by the Director of FEMA as a Special Flood Hazard Area and, as a result,
mandatory flood insurance will not be required. Affidavit of Katherine Wallace, para. 12. The
Notice further states, “However, your home may be near a SFHA. As such you, or your lender,
may want to consider the advisability of obtaining flood insurance at reduced rates. You should
check with your insurance agent or company as to the coverage types and amounts available to
you and make your own determination as to whether you desire any such coverage.” Mr. Marble
did not discuss the Notice with anyone before signing it. Both James and Martha Marble signed
this form acknowledging receipt of it.

       Mr. Marble also received at the closing a copy of the appraisal made by Richard
Lagerstedt for Banknorth, dated November 4, 1997. In the Supplemental Addendum, the
Appraisal states:

       The property is located along The Mad River in Waitsfield, VT. The FEMA Map
       number is 5001200010D, and the Date of the Map is 9/05/84. Based on a reading
       of the Map, the subject may possibly be located in Flood Zone A5. The reader of
       this report may want to contact a Professional Engineer or Surveyor if they desire
       an exact determination of the Flood Zone the subject is in. For further
       information, see the attached Flood Map. The reader should also, however, be
       aware that the FEMA Flood maps are drawn from projections from
       orthophotographs, which are taken from low level flight airplanes. While
       reasonably accurate, these maps do not always reflect the physical characteristics
       of the ground through the tree tops of some areas, such as where the subject is
       located. A physical inspection of the house shows that the house is located near
       the Mad River, however the location of the house is on top of a river bank
       approximately 15 to 20 feet high. Adjacent to this area is a 3 to 5 acre field. If
       the river were to flood the field would act as a large reservoir.

Mr. Marble did not read the appraisal report at the closing. It was referred to at the closing only
to ensure that the appraised value of the property would yield an acceptable loan to equity ratio.
Deposition of James W. Marble at 57.


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      Flood insurance was never purchased. On June 27, 1998, the Mad River flooded the
Marbles’ home, substantially damaging it. The Mad River flooded again on August 24, 1998.



                                              Analysis

        The complaint asserts a claim of “negligence” against each Defendant for failing to
“exercise reasonable care in the preparation, processing and issuance of the Determination of
February 17, 1998.” Defendants each have filed Motions for Summary Judgment. The thrust of
Plaintiffs’ claim against FDSI is that FDSI breached a duty owed to Plaintiffs by issuing an
inaccurate Determination. FDSI asserts that the Determination is accurate,1 and that it owed
Plaintiffs no duty that would support a cause of action of negligence. Its position is that its
obligations ran solely to Banknorth, with whom it had an agreement. The thrust of Plaintiffs’
claim against Banknorth is based on Banknorth’s role as a conduit in the communication of the
allegedly inaccurate information.

        In their memoranda, Defendants argue against several different characterizations of
Plaintiffs’ claim. Plaintiffs, in response, at once deny the Defendants’ characterizations of their
claims, but do not set forth clearly the elements of their claim against each Defendant with
supporting evidence, nor do they identify the specific duty that they claim was breached.
Because Plaintiffs state repeatedly that their claims sound in common law negligence (as
opposed to being based on a duty created by statute), and because the only form of negligence
action that is reasonably related to the facts of the case is negligent misrepresentation, the court
concludes that Plaintiffs’ claim against each Defendant is founded on a theory of negligent
misrepresentation.

       The elements of negligent misrepresentation are as follows:

       One who, [1] in the course of his business, profession or employment, or in any
       other transaction in which he has a pecuniary interest, [2] supplies false
       information [3] for the guidance of others in their business transactions, is subject
       to liability for pecuniary loss caused to them [4] by their justifiable reliance
       upon the information, if he [5] fails to exercise reasonable care or competence in
       obtaining or communicating the information.


       1
       Any dispute over the accuracy of the Determination is not material to the disposition of
Defendants’ Motions, as the analysis set forth herein demonstrates.




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Restatement (Second) of Torts § 552(1) (1977) (emphasis added), quoted in Limoge v. People’s
Trust Co., 168 Vt. 265, 269 (1998). (Numbers added to clarify the separate elements of the
cause of action.) Because no evidence in this case supports the element of justifiable reliance,
Plaintiffs’ negligent misrepresentation claim fails as to each Defendant, and it is unnecessary to
examine whether there is evidentiary support for each of the other elements.

        “Justifiable reliance is determined under an objective standard.” Limoge, 168 Vt. at 269.
In Silva v. Stevens, 156 Vt. 94 (1991), the Vermont Supreme Court “affirmed a jury instruction
that stated that purchasers may justifiably rely on a representation ‘when the representation is not
obviously false and the truth of the representation is not within the knowledge of, or known by
the plaintiffs.’” Limoge, 168 Vt. at 269 (quoting Silva, 156 Vt. at 108). In this case, Plaintiffs
claim that the representation that their home did not lay in a Special Flood Hazard Area was not
obviously false and was not generally within their knowledge, and therefore justifiable reliance is
an issue for the jury as factfinder. This argument, however, pertains to a determination of
whether reliance, if any, may be considered justified by the fact finder. Defendants argue that
not only is there no justifiable reliance, there is no evidence to support a factual finding that the
Plaintiffs relied on the representation at all.

        In both Silva and Limoge, the Vermont Supreme Court concluded that the issue of
justifiable reliance should have been determined by the jury. In Silva, the Court rejected the trial
court’s ruling that an “as is” clause in a purchase and sale agreement is a complete defense to a
negligent misrepresentation claim. The Court accepted that the “as is” clause is relevant to the
issue of justifiable reliance, but ruled that the matter was for the jury’s consideration. See Silva,
156 Vt. at 113. Similarly, in Limoge, the Court held that a limited warranty and disclaimer in a
purchase and sale agreement did not convert the issue of justifiable reliance to one of law. See
Limoge, 168 Vt. at 269.

       Silva and Limoge presented different issues from those in this case. Both Silva and
Limoge stand for the proposition that the issue of whether reliance is justified generally will be
reserved for the fact finder, but in both cases, there was evidence in support of reliance itself.
The issue in this case is whether any evidence of reliance exists at all, which is a prerequisite to a
consideration of whether any such reliance is justifiable.

        Plaintiffs here have not put forth facts showing reliance by Plaintiffs on the
Determination as the basis for a decision about whether or not to obtain flood insurance
protection. The uncontroverted facts show that the Plaintiffs never had any interest in flood
insurance, and in fact never purchased it because they were never required to do so, even though
they lived on a riverbank and it was made available to them. They learned shortly before the
closing that it might be a bank requirement. Their interest was not the risk of a flood, but
whether the requirement might result in an additional closing cost. Plaintiffs have not shown that
the Determination Form caused them to believe that their home was safe from a flood risk such
that they decided not to purchase flood insurance.

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        If the facts reasonably supported an inference on the part of reasonable persons that
Plaintiffs relied on the Determination, then even though other persons might infer otherwise on
the same facts, the element of reliance would be sufficiently established for purposes of a prima
facie case of negligent misrepresentation. On these facts, however, jurors could not make an
inference of reliance sufficient to support a verdict because any inference would be too
speculative. “The jury may employ rational inferences to bridge factual gaps left by
circumstantial evidence, but at some point rational inference leaves off and speculation begins.”
State v. Durenleau, 163 Vt. 8, 14 (1994). Plaintiffs’ own facts do not show any reliance at all
making it unnecessary to address whether there is sufficient evidence to go to the jury on
justifiable reliance.

       Choice is integral to reliance. As explained in a leading treatise:

       A representation is not actionable unless the plaintiff in fact relies upon it. To
       rely, the plaintiff must choose her conduct because of the representation, either
       acting or refraining from action because or partly because of the representation.
       For example, the plaintiff who enters into a transaction with the defendant does
       not rely upon the defendant’s misrepresentation if she enters into the transaction
       without a belief in its truth, or doesn’t learn of the misrepresentation until after the
       transaction has closed, or would have entered the transaction whether or not the
       misrepresentation had been made.

2 Dan B. Dobbs, The Law of Torts § 474, at 1358 (footnotes omitted). Plaintiffs have not shown
reliance at its basic level. Behn v. Northeast Appraisal Co., 145 Vt. 101, 105 (1984) (directed
verdict for defendant bank’s appraiser upheld against home seller’s claim of negligent appraisal
by bank’s appraiser where plaintiff introduced no evidence that he relied on the appraisal).

       The negligent misrepresentation claims therefore fail.

                                               Order

       For the foregoing reasons, Defendants’ Motions for Summary Judgment are GRANTED.

       Dated at Montpelier, Vermont this __ day of July, 2003.


                                                       _________________________________
                                                       Mary Miles Teachout
                                                       Superior Court Judge




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