Insurance Adjusters: Negligent Misrepresentation

Bock v. Hansen, (First District, April 2, 2014) 2014 WL 1315314, — Cal.Rptr.3d —-

Two homeowners who suffered property damage when a 41-foot long, 7,300 pound tree limb crashed onto their house, filed an action against their insurance carrier and the adjuster who was assigned to the claim. The plaintiffs asserted, inter alia, a cause of action for negligent misrepresentation, and alleged that the adjuster falsely told them that their policy did not cover the cost of cleanup; that he either knew the representations were false when he made them, or he made them with reckless disregard of their truth; and that they relied on his false statements and performed the cleanup on their own, to their detriment.

The defendants demurred to the complaint, arguing that a negligent misrepresentation claim cannot lie against an insurance adjuster based on conduct that occurred while adjusting a claim because, as a matter of law, the adjuster does not owe the plaintiffs a legal duty. The adjuster further argued that any liability for an adjuster’s actions lies with the insurer so long as the agency was disclosed to the insured and the conduct took place within the course and scope of such agency.

The trial court sustained the demurrer without leave to amend, but the court of appeal reversed, holding that negligent misrepresentation can be asserted against an insurance adjuster, and that such a claim was adequately pleaded by the plaintiffs:

As quoted above, Hansen’s fundamental position, based on Sanchez, is that he owed no duty to the Bocks. It is true that, as in negligence, “responsibility for negligent misrepresentation rests upon the existence of a legal duty, imposed by contract, statute or otherwise, owed by a defendant to the injured person. The determination of whether a duty exists is primarily a question of law.” (citation.) We answer that question of law against Hansen, and easily find such duty here.

In Vu v. Prudential Property & Casualty Ins. Co. (2001) 26 Cal.4th 1142, the Supreme Court recognized that while the relationship between the insurer and insured is not a true fiduciary one, it is nevertheless “special,” citing and quoting from cases that have used various terms to describe that relationship: “[L]ater cases have built upon this premise and declared that an insurer and its insured have a ‘special relationship’ [citations]. Under this special relationship, an insurer’s obligations are greater than those of a party to an ordinary commercial contract….  It is, rather, a relationship often characterized by unequal bargaining power [citation] in which the insured must depend on the good faith and performance of the insurer [citations]. This characteristic has led the courts to impose ‘special and heightened’ duties, but ‘[w]hile these “special” duties are akin to, and often resemble, duties which are also owed by fiduciaries, the fiduciary-like duties arise because of the unique nature of the insurance contract, not because the insurer is a fiduciary.’”

Such special relationship leads to the conclusion that Hansen, the employee of the party in the special relationship, had a duty to the Bocks. Likewise, the general law of negligent misrepresentation.  It is generally said that “California courts have recognized a cause of action for negligent misrepresentation, i.e., a duty to communicate accurate information, in two circumstances. The first situation arises where providing false information poses a risk of and results in physical harm to person or property. The second situation arises where information is conveyed in a commercial setting for a business purpose.” (citation.) The setting here involves both: Mrs. Bock was injured as a result of Hansen’s misrepresentation. And Hansen said what he said for a business purpose.

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