California Court Holds an Adjuster May Be Personally Liable for Misrepresentations Made to the Insured

Earlier this month, an intermediate level California court rejected arguments that an insurance company’s adjuster owes no independent duty to the policyholders and cannot be liable even for “appalling” misconduct if he is acting within the course and scope of his employment. According to the panel, the adjuster occupies the same “special relationship” with the insured as the insurance carrier does, and he can, therefore, be independently liable for the tort of negligent misrepresentation during the adjustment.

shutterstock_88955176In Bock v. Hansen, — Cal.Rptr.3d —, 2014 WL 1315314 (Cal. App. 1st Dist. Apr. 2, 2014), Michael and Lorie Bock submitted a claim to their insurerafter a 41-foot, 7,300 pound tree limb crashed onto their home. The insurer assigned an adjuster, Craig Hansen, to handle the loss. As the appellate court explained:

On Hansen’s first visit to the scene (which lasted no more than 15 minutes), he altered the scene before taking pictures, spoke derogatorily to Mr. Bock, and misrepresented the policy coverage, causing the Bocks to begin the clean up themselves, in the course of which Mrs. Bock was injured.

 It was all downhill from there. According to the Bock’s complaint, Hansen subsequently revised an estimate to include a false statement by the Bocks and conspired with an unlicensed contractor to create a false report. Hansen’s conduct, as alleged by the Bocks and admitted by Hansen himself in his demurrer, was described by the court as “appalling.”  The Bocks requested that their insurer replace Mr. Hansen, but this request was ignored.

The Bocks sued both the insurer and Hansen,  alleging, inter alia, that both were guilty of negligent misrepresentation and intentional infliction of emotional distress. The negligent misrepresentation claim against the adjuster was based on Hansen’s statement that the policy did not cover the cost of cleanup, while the emotional distress claim was based on allegations that Hansen’s conduct was knowingly outrageous and extreme.

Hansen demurred, and the lower court agreed with him, holding that “plaintiffs’ complaint does not, and cannot, state causes of action for [either tort] . . . in what is a contract based action.”  The appellate panel unanimously disagreed, however.

With respect to negligent misrepresentation,  Hansen argued that he did not owe any duty to the Bocks and that he also could not be liable as an agent because he was acting within the course and scope of his employment.  Justice James A. Richman’s opinion rejected both contentions.  After noting that California law recognized that insurers have a “special relationship” with their policyholders, the court held that “Hansen, the employee of the party in the special relationship, had a duty to the Bocks.”  Judge Richman’s decision also concluded that an agent who commits an independent tort remains liable despite the fact that the principal, by ratification, also becomes liable.

In addition, the court held that Hansen owed a duty to the Bocks under the general principles of negligent misrepresentation because the duty to communicate accurate information exists where providing false information poses a risk of and results in physical harm to person or property and where information is conveyed in a commercial setting for a business purpose.  The court found that both these situations existed because Mrs. Bock was injured as a result of Hansen’s misrepresentation and the statements were made for a business purpose.

The appellate panel held that the emotional distress claim was not adequately pleaded, but it directed that the Bocks be given given leave to amend.

About The Author

Nejat Ahmed joined Cozen O’Connor’s Houston office in May 2010. As a member of the Global Insurance Group, she focuses her practice in the areas of insurance coverage and commercial litigation.

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About The Property Insurance Law Observer
For more than four decades, Cozen O’Connor has represented all types of property insurers in jurisdictions throughout the United States, and it is dedicated to keeping its clients abreast of developments that impact the insurance industry. The Property Insurance Law Observer will survey court decisions, enacted or proposed legislation, and regulatory activities from all 50 states. We will also include commentary on current issues and developing trends of interest to first-party insurers.
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