Oregon's Court of Appeals ruled that a homeowner may proceed with his fraud lawsuit against his homeowners insurance company for the misrepresentations of the adjuster.
In Larry Murphy v. Allstate Insurance Company, Mr. Murphy suffered flood damage and needed to restore his home. During the inspection, Allstate's adjuster brought with him a contractor Allstate regularly used "on all our jobs." The homeowner had worked in the construction field, and he asked about whether they would need electrical and building permits. Allstate's adjuster said, flatly, "No." Well, guess what? The City of Grants Pass said the restoration work violated city code because it had been performed without the required permits. As a result, the city barred occupancy and fined Mr. Murphy $495 per day.
The trial court threw out the case on summary judgment for three reasons: (1) expired statute of limitations; (2) Mr. Murphy had no right to rely on the representations of Allstate's adjuster; and (3) because of the contractual relationship between the parties, Mr. Murphy could sue only for breach of contract under the circumstances.
Oregon's Appellate Court disagreed on all three parts. The statute of limitations issue, it found, was a jury question. The judge was wrong to substitute her own opinion.
On the second point, the court offers a good discussion on when people may justifiably rely on the representations of someone else. In Oregon, it is a subjective standard, in which the jury must consider the facts available to both parties, their relative sophistication, and other circumstances.
People, generally, must do what's reasonable to investigate facts before making decisions. If only the unscrupulous liar knows critical information, then a person might have no other option than to rely on the liar. On the other hand, if the truth can be found by going to the nearest computer, then a court might not excuse that self-imposed ignorance when the parties are not in a trusting relationship. The question, said the court, is whether the "information would have been unduly difficult to acquire, and, therefore, that plaintiff need not have sought the information in order to justifiably rely on [the insurer's] statements." A critical fact in this case was another circumstance. When the insurance adjuster showed up with its preferred contractor, they pressured the homeowner to sign the contract on the spot to avoid further water damage from delay. In effect, this cut off Mr. Murphy's opportunity to fact-check the misrepresentations of the insurer and its preferred contractor.
The court also addressed the issue of whether a person can sue an insurer in fraud AND contract. Allstate said, in effect, "look at the Georgetown Realty case, Mr. Murphy is stuck with a breach of contract claim; he can't sue in tort, too." The court distinguished Georgetown Realty v. The Home Ins. Co., because it involved a negligence claim, not fraud. It's a bit mushy to say someone "negligently" violated a contract. If the contract sets the terms, in effect, who cares whether the party breached it negligently or intentionally? But fraud is different, said the court. Fraud sets forth a standard of conduct independent from the contract, and a person may sue their insurer for fraud, without alleging some special relationship of trust.
This case is a pretty big deal. Although insurers routinely threaten people with claims for fraud if they misstate something on a claim form, insurers, themselves, routinely say whatever they want to defeat claims. (Does every person who suffers whiplash return to normal within three months?) This case opens some doors to other claims against insurers that might help achieve a better power balance between insurer and insured.
Jeff Merrick, Oregon Trial Attorney
The above is not legal advice. I cannot give you sound advice without knowing more information. It is intended to raise some issues for you to discuss with your own lawyer.