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Travelers Indemnity Co. v. Children's Friend and Service12/1/2005
996); see also Dykstra v. Foremost Ins. Co. 14 Cal. App. 4th 361, 366 (Cal. Ct. App. 1993); Chatton v. National Union Fire Ins. Co., 10 Cal. App. 4th 846, 861-62 (Cal. Ct. App. 1992). Thus, since intentional or fraudulent acts are considered purposeful-not accidental-under California law, negligent misrepresentation is excluded from policy coverage. Miller, 41 Cal. App. 4th at 1150 (citing Chatton, 10 Cal. App. 4th at 860-61).
As in California, intent to induce reliance is an element of negligent misrepresentation in Rhode Island. See Mallette v. Children's Friend & Serv., 661 A.2d 67, 69-70 (citations omitted). California and Rhode Island are not unique in this requirement, however, and other courts sharing this requirement have ruled contrary to the California courts. In Maryland, for instance, the Court of Appeals ruled that even though intent to induce reliance was an element of negligent misrepresentation, "the falsity in the statement and the resulting injury or damage may be accidental." Sheets v. Brethren Mut. Ins. Co., 679 A.2d 540, 551 (Md. 1995). In Sheets, the plaintiffs in the underlying suit-the Christensens-had purchased a home from the defendants-the Sheetses. Shortly after the Christensens moved into the home, the septic system failed and was condemned by the local health department. Id. at 541. The Christensens filed suit against the Sheetses, alleging that the failure of the septic system was the result of "the Sheetses' misrepresentations that it was in 'good working condition' because, had it not been for those misrepresentations, the Christensens, whose family was too large for the system to operate properly, would not have moved into the house." Id. Subsequently, the Sheetses' insurer, Brethren Mutual Insurance Company ("Brethren"), argued that it owed no duty to defend the Sheetses because the claims made against them were not covered under their insurance policy. Id. Specifically, Brethren argued that "(1) 'there is no causal nexus or direct causation between the misrepresentation and the property damage;' (2) 'the claims for misrepresentation in the complaint are claims only for economic losses-they are not claims for property damage;' and
(3) 'the Sheetses' misrepresentations to the Christensens are not an occurrence.'" The trial court granted summary judgment in favor of the defendant insurer on the basis that it had no duty to defend or indemnify its insured against a claim of negligent misrepresentation in the sale of property. Id. The Court of Appeals reversed and remanded. Id.
Only Brethren's third argument-that misrepresentations are not an "occurrence"-is before this Court, and, lacking Rhode Island precedent that is squarely on point, this Court finds the Court of Appeals' treatment of that argument persuasive. In Sheets, the court opined that, rather than follow those cases characterizing negligent misrepresentation as a form of fraud, it "prefer to follow those cases that treat negligent misrepresentation like other forms of negligence, which are covered as accidents if the insured did not expect or foresee the resulting damage." Id. at 551. Thus, the court ruled in favor of the insured, concluding that whether negligent misrepresentation constitutes an "accident" depends, ultimately, on whether the resulting damage is "an event that takes place without one's foresight or expectation." Sheets, 679 A.2d at 551 (quoting Harleysville Mut. Cas. Co. v. Harris & Brooks, Inc., 235 A.2d 556, 559) (MD. 1966). The court's conclusion, in that regard, is entirely consistent with existing Rhode Island cases in which the Rhode Island Supreme Court has held, albeit outside the context of a claim of negligent misrepresentation, that an intentional act on th
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