Is Negligent Misrepresentation a Covered ‘Occurrence’?

Generally there is a split among the jurisdictions as to whether negligent misrepresentation generally constitutes an “occurrence.” Steven Plitt and Jordan R. Plitt, Practical Tools for Handling Insurance Cases, § 13:2(B)(4), pp. 13-28 through 13-30 (Thomson Reuters) (2011 and 2013 Supplement).

Those courts holding that negligent misrepresentation does constitute an “occurrence” generally reach one of three conclusions: (1) the insured lacks intent to misrepresent; (2) the insured lacks intent to cause injury; and/or (3) the injury is not foreseeable by the insured.

For those jurisdictions that hold that negligent misrepresentation is not an “occurrence” they typically find one of the following: (1) the insured intends to induce reliance on the statement; (2) the negligent misrepresentation is a form of fraud; and/or (3) the injury is foreseeable by the insured.

In Langevin v. Allstate Ins. Co., 66 A.3d 585 (Me. 2013), the Supreme Judicial Court of Maine recently held negligent misrepresentation was not an occurrence.

In Langevin, the Supreme Judicial Court of Maine considered whether there was coverage for a negligent misrepresentation claim under a homeowner’s policy. The facts before the Court established that Patricia and Cora Langevin had purchased a home from Charles Johnson. During the pendency of the home sale, it was alleged that Johnson misrepresented the condition of the property and failed to disclose its prior use as a junkyard. As a result of these misrepresentations, the Langevins purchased the property for $315,000. Johnson was insured under a homeowner’s policy with Allstate. The insuring clause of the Allstate policy provided coverage for defined “bodily injury” and “property damage” caused by an “occurrence.”

The Langevins sued Johnson for the misrepresentations. In turn, Johnson tendered the Complaint to Allstate. Allstate refused to defend or indemnify Johnson. Following this denial, the Langevins and Johnson reached a consent agreement resolving the underlying Complaint which resulted in a judgment being entered against Johnson in the amount of $330,000. The judgment did not specify the basis for liability or damages. The trial court held that the damages sought by the Langevins did not constitute property damage caused by an occurrence. On appeal, the Langevins argued that the trial court erred in finding that the Allstate policy did not cover the damages awarded in the underlying judgment. The first argument made by the Langevins was that the judgment damages were for loss of investment and physical problems with the property related to the negligent misrepresentation claim. The judgment also involved damages for emotional distress under the intentional infliction of emotional distress or negligence claims.

The Maine Court began its analysis by identifying which of the damages sought in the underlying Complaint constitute the $330,000 judgment that was entered. The stipulated agreement did not specify the basis of Johnson’s liability nor did it specify what damages the $330,000 was awarded to redress.

Turning to the negligent misrepresentation claim for which the Langevins contended that a portion of the judgment was awarded for their loss of investment and undisclosed physical problems with the property, the Court rejected this claim because the loss of investment did not constitute “property damage” under the Allstate policy. Langevin, 66 A.3d at 590 citing Vigna v. Allstate Ins. Co., 686 A.2d 598, 600 (Me. 1996) (“Economic injury does not constitute ‘property damage’ for purposes of insurance coverage.”).In an attempt to overcome this Langevins argued that they also sought recovery for physical problems with the property and therefore their judgment damages for negligence misrepresentation fell within the definition of property damage. However, the Court rejected this argument stating that the physical problems with the property did not result from the “occurrence” alleged in the Langevins’ negligent misrepresentation count.

According to the Maine Court, the Allstate policy required that damages for property damage be caused by an occurrence. In reviewing the Langevins’ Complaint, the Court observed that the only factual allegation in the Complaint that arguably constituted an occurrence was Johnson’s act of misrepresenting the condition of the property. The Langevins’ theory of damages was based solely on those misrepresentations. Therefore, in order to be compensable as property damages, the damages for the physical problems with the property must have resulted from Johnson’s misrepresentation. Any physical damage to the property resulted from its actual use as a junkyard which pre-dated Johnson’s statements regarding the condition of the property. Therefore, any damages for undisclosed physical problems were not covered by the policy because those physical problems did not result from the occurrence, i.e., the misrepresentations alleged in the underlying Complaint.