During an insurance claim, insureds are sometimes given incorrect information by the insurance company and its agents. Among other things, these misstatements may relate to the terms and requirements of the policy, the safety of the premises, or how repairs must be handled. False statements made in relation to an insurance claim can give rise to a negligent misrepresentation claim. This can be a useful tool in litigation against insurance companies in some circumstances.
Although there are “various tort theories” an insurance company can be sued for, it is well known that bad faith is the “most prominent” tort claim that can be asserted.Bock v. Hansen(2014) 225 Cal.App.4th 215, 228.) Generally, an insured cannot sue his or her insurance company for negligence. (Sanchez v. Lindsay Morden Claims Services, Inc. (1999) 72 Cal.App.4th 249, 254.) However, negligent misrepresentation is a “different tort” than negligence. (Bock, supra, 225 Cal.App.4th at 227.) Indeed, negligent misrepresentation is “a species of the tort of deceit.” (Id. at 228.)
Under California law, under the right circumstances, a cause of action for negligent misrepresentation can be brought against an insurer. Pleading such a claim in litigation against an insurance company can have advantages.
First, negligent misrepresentation claims provide a potentially broader avenue to pursue personal injury claims than a bad faith claim. This is because negligent misrepresentation prohibits “providing false information [which] poses a risk of and results in physical harm.” (Id. at 229.) In one California case, a negligent misrepresentation claim was allowed for personal injuries to an insured who was told by the insurance company adjuster that they were obligated to clean up a tree limb. (Id. at 303-304.) In a bad faith claim, however, certain California case law has indicated that an “economic loss” may be required to recover. (See Richards v. Sequoia Ins. Co.(2011) 195 Cal.App.4th 431, 438.) When personal injuries are involved, a negligent misrepresentation claim may be the most viable claim against an insurance company.
Second, a negligent misrepresentation claim allows for liability against the insurance agent or adjuster that made the misrepresentation. California case law has held that a “cause of action for negligent misrepresentation can lie against an insurance adjuster.” (Id. at 231.)
Finally, a misrepresentation by an insurance company relied on by the insured often trumps unknown terms of the policy contrary to the misrepresentation. Insurance company’s often assert the policyholder’s “duty to read” the policy when relying on terms that the insured did not know about. California Courts, however, recognize that “a very small percentage of policy-holders” actually know the terms of their insurance policy. (Eddy v. Sharp (1988) 199 Cal.App.3d 859, 864.) A negligent misrepresentation lies despite unknown policy terms to the contrary because “an insured should be able to rely on an agent’s representations of coverage without . . . examining the relevant policy provisions.” (Bock, supra, 225 Cal.App.4th at 232.)
A negligent misrepresentation claim is not often asserted in bad faith litigation against insurers. It does, however, offer certain advantages. Policyholders who have relied on false information by their insurance company, and were harmed because of it, should consider such a claim.