The owner of a large property, whose business was incorporated, sold the land to a developer who learned later of restrictions on the number of units that could be built. A written understanding between the two parties resolved an ensuing dispute. It included a provision that the seller would sign a guarantee, if the need arose, enabling the buyer to secure construction financing.

The seller balked when asked later to sign such a commitment. A breach of contract lawsuit ensued. The seller's general liability insurer advised its insured that there was no coverage when furnished with a copy of the complaint. The matter went to trial and the judgment of the court required the seller to sign the agreement and to pay the buyer's attorneys' fees and costs.

The insured (the seller) carried contractual liability insurance. The record was clear that he asked the agent who supplied his insurance needs, both before and after signing the agreement that resolved the dispute, if the insurance would cover a lawsuit if he later refused to sign the document described in the agreement. The agent confirmed, after reviewing the agreement, that coverage would be applicable.

The insured, alleging negligent misrepresentation, sued the agent to recover the substantial sum he was forced to pay to the buyer of the property plus his own attorneys' fees incurred in his defense. The trial court awarded him approximately $160,000, having determined that the agent was liable as alleged.

On appeal, the court found the evidence of misrepresentation substantial. It verified that, at the outset, the agent told the insured that he was covered for "any lawsuit (he might) have with (the purchaser) in regard to the sale of the property." Of special importance, the subject contractual liability insurance applied only to occurrences involving "personal injury" and "property damage." This was not communicated to the insured by the agent. The insurer relied on these provisions in denying coverage.

Concluding that the insured reasonably relied on the agent's representation of coverage, the appeal court affirmed the judgment of the trial court in favor of the insured and against the agent.

(CLEMENT ET AL., Plaintiffs-Respondents v. SMITH, Defendant-Appellant. California Court of Appeals, Fourth District, Division 1. No. D014452. May 27, 1993. CCH 1993-94 Fire and Casualty Cases, Paragraph 4541.)