NEGLIGENT MISREPRESENTATION OF HOUSE CONDITION HELD NOT COVERED

NEGLIGENT MISREPRESENTATION OF HOUSE CONDITION HELD NOT COVERED 469_C048

NEGLIGENT MISREPRESENTATION OF HOUSE CONDITION HELD NOT COVERED

A homeowners insurer sought a declaration that it had no duty to defend or indemnify its insureds, under the liability provisions of their policy, in an underlying action in a state court.

The purchaser of a home had alleged that the sellers (insureds) misrepresented facts to induce her to enter into a contract. She said that they failed to disclose defects, including: "(1) a structurally unsound garage; (2) a lack of hot water and internal plumbing defects;(3) water and sludge backup caused by defective sewer lines; (4) roof leaks; (5) drainage and electrical wiring problems; (6) a special assessment imposed (by the city) for certain construction costs."

Liability insurance in the policy purported to pay for damages which an insured person becomes legally obligated to pay "because of bodily injury or property damage arising from an accident" covered by the policy.

The court cited several California cases in which it was held that negligent misrepresentations made in connection with the selling of property did not constitute an "accident" with respect to insurance coverage. The court said that California appellate authority has held that negligent misrepresentation is within the boundaries of fraud, not ordinary negligence.

Safeco Insurance Company of America v. Andrews, 915 .2d 500 (9th Cir. 1990) was cited as, in a comparable situation, concluding that such misrepresentations were not an occurrence within the meaning of the policy. There, the court said that the damages allegedly caused by the insured in failing to inspect and inform the buyer of defects "inured not to the physical condition of the property, but rather, to the property's value and desirability."

Accordingly, in the matter under review, the court ordered that the insurer's motion for summary judgment be granted and that judgment be entered in its favor.

(ALLSTATE INSURANCE COMPANY, Plaintiff v. CHANEY ET .AL., Defendants. United States District Court for the Northern District of California. No. C-91-3532 SBA(ENE). June 1, 1992. CCH 1993 Fire and Casualty Cases, Paragraph 4004.)