Misrepresentation
Case Analysis
The
effect of the decision is to render wholly ineffective the standard CGL exclusions
of coverage for misrepresentations.
Claims
under sec. 100.20 are now ubiquitous, whenever the facts give rise to an action
for common-law misrepresentation, and with good reason — the statute authorizes
double damages and attorney fees.
In
addition, it is generally easier to prove a cause of action under ch. 100 than
a common law misrepresentation claim. Common law misrepresentation requires proof
of reasonable reliance; the statute requires none. K & S Tool & Die Corp.
v. Perfection Machinery Sales, Inc., 2006 WI App 148, par. 41.
In
contrast, virtually all statutory misrepresentation claims could also be brought
under the common law. As the court in the case at bar notes, the statute was enacted
to address shortcomings of common law causes of action. Admittedly, there may
exist some set of facts under which the common law would apply, but not the statute,
but such a case would be rare.
Thus,
a CGL exclusion that bars coverage for misrepresentation fails its purpose, entirely,
if it does not also bar statutory claims. Furthermore, the insurer is not merely
liable, but is liable for double damages and attorney fees. In light of this decision,
insurers must either raise CGL premiums, or adopt a broader exclusion.
Given
that the purpose of the exclusion fails altogether unless statutory misrepresentation
claims are also excluded from coverage, the court’s conclusion — “We
assume that if an insurer wished to lump this special form of misrepresentation
in with the more familiar common-law misrepresentations, it would have specifically
mentioned the latter. Because it does not, we can assume that the insurer did
not intend its exclusion to apply to code misrepresentation” — is highly
questionable.
The
court’s analysis is also flawed in its distinguishing of the Wisconsin Supreme
Court’s decision in Everson v. Lorenz, 2005 WI 51, 280 Wis.2d 1, 695 N.W.2d
298, in which the court held that, under an identical insurance policy, negligent
and strict responsibility misrepresentation do not constitute “accidents”
that trigger coverage (it was undisputed that intentional misrepresentation is
not an “accident”).
The
court of appeals distinguished Everson for one reason — a statutory misrepresentation
claim requires no element of scienter or intent.
The
problem with this analysis is that strict liability misrepresentation doesn’t
contain any such element, either, and yet, the Supreme Court held there was no
coverage for it.
The elements
of strict liability misrepresentation are: (1) the representation must be of a
fact and made by the defendant; (2) the representation of fact must be untrue;
(3) the plaintiff must believe such representation to be true and rely thereon
to his or her detriment; (4) the representation must be made on the defendant’s
personal knowledge or under circumstances in which he or she necessarily ought
to have known the truth or untruth of the statement; and (5) the defendant must
have an economic interest in the transaction. Kailin v. Armstrong, 2002 WI 70,
252 Wis.2d 676, 643 N.W.2d 132, 148, fn. 23.
These
elements are not identical to those in a statutory misrepresentation claim —
(1) an advertisement, announcement, statement, or representation; (2) made with
the intent to sell a product, service, or anything else; (3) that contains any
assertion, representation, or statement of fact which is untrue, deceptive or
misleading.
Nevertheless,
the court of appeals’ observation in the case at bar — “Missing
from these elements is any sort of scienter, negligence included, with respect
to the truthful or misleading nature of the communication” — is equally
true of a strict liability misrepresentation claim, which the court in Everson
held excluded from coverage under identical policy language.
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David Ziemer
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David
Ziemer can be reached by email.
