Negligent Misrepresentation

Plaintiffs are unable to allege fraud so they resort to an alternative theory.[1] The tort of negligent misrepresentation occurs when the defendant, in the course of business, profession, employment, or a transaction in which the defendant has a pecuniary interest, negligently supplies false information for the guidance of others in their business transactions, and the plaintiff justifiably relies to his detriment.[2] To succeed in a claim for negligent misrepresentation the plaintiff must present evidence that is clear, cogent, and convincing.[3]

To determine whether a plaintiff can recover for negligent misrepresentation, Washington courts apply the Restatement of Torts standard.[4] Under this rule,[5] liability does not extend to every person who ultimately becomes aware of the defendant's misstatement.[6] Rather, because of the important social policy of encouraging the flow of commercial information upon which the operation of the economy rests, the defendant must be manifestly aware of the use to which the information was to be put and intended to supply it for that purpose.[7]

The test for negligent misrepresentation has been described as a six-element test:

A plaintiff claiming negligent misrepresentation must prove by clear, cogent, and convincing evidence that (1) the defendant supplied information for the guidance of others in their business transactions that was false, (2) the defendant knew or should have known that the information was supplied to guide the plaintiff in his business transactions, (3) the defendant was negligent in obtaining or communicating the false information, (4) the plaintiff relied on the false information, (5) the plaintiff's reliance was reasonable, and (6) the false information proximately caused the plaintiff damages.[8]

An important limitation on the availability of negligent misrepresentation is the economic loss rule.[9] Under the economic loss rule, a claim for what amounts to a breach of contract cannot be litigated in the guise of the tort of negligent misrepresentation.

Since liability for negligent misrepresentation is premised on false information, unless there is clear, cogent and convincing evidence that the information supplied by the defendant is false, a claim for negligent misrepresentation cannot be maintained.[10] If the defendant knew an opinion will be relied on, it is no defense that the false information is a true and accurate representation of the defendant's opinion at the time.[11]

Liability for negligent misrepresentation is thus limited to cases where (1) the defendant has knowledge of the specific injured party's reliance; or (2) the plaintiff is a member of a group that the defendant seeks to influence; or (3) the defendant has special reason to know that some member of a limited group will rely on the information.[12]

It is not necessary that the maker should have any particular person in mind as the intended, or even the probable, recipient of the information. In other words, it is not required that the person who is to become the plaintiff be identified or known to the defendant as an individual when the information is supplied.[13] It is enough that the maker of the representation intends it to reach and influence a particular person or persons, distinct from the much larger class who might reasonably be expected sooner or later to have access to the information and foreseeably to take some action in reliance upon it. It is enough, likewise, that the maker of the representation knows that his recipient intends to transmit the information to a similar person, persons, or group. It is sufficient, in other words, insofar as the plaintiff's identity is concerned, that the maker supplies the information for repetition to a certain group or class of persons and that the plaintiff proves to be one of them, even though the maker never had heard of the plaintiff by name when the information was given.

Reasonable or justifiable reliance is properly defined as any reliance reasonable under the surrounding circumstances. Whether the plaintiff reasonably relied upon the defendants' representations is ordinarily a question of fact for the trier of fact.[14]

A party may have a duty to disclose such that it may be held liable for negligent misrepresentation if such party fails to make a full disclosure. Ordinarily, the duty to disclose exists only when there is a fiduciary relationship, and not when the parties are dealing at arm's length. A duty to disclose may even arise outside of a fiduciary relationship where the facts are peculiarly within the knowledge of one person and could not be readily obtained by the other, or where, by the lack of business experience of one of the parties, the other takes advantage of the situation by remaining silent.[15]

In Washington, a court will find a duty to disclose where the court can conclude there is a quasi-fiduciary relationship, where a special relationship of trust and confidence has been developed between the parties, where one party is relying upon the superior specialized knowledge and experience of the other, where a seller has knowledge of a material fact not easily discoverable by the buyer, and where there exists a statutory duty to disclose.[16] Absent one of these types of special relationships, there is no duty to disclose in Washington.[17] Thus, no fiduciary duty arose from a guaranty contract between a lender and a guarantor despite allegations of inappropriate control of the bank over the debtor.[18] Nor did it arise between a university and its employees with regard to a pension plan administered by the university for its employees.[19]

On the other hand, a duty to a purchaser of real property did arise on the part of a real estate appraiser who prepared a report regarding the property. Even in the absence of contractual privity, it was enough that the appraiser has reason to know that the purchaser will rely on the information in making a decision.[20] However, no action will lie against such an appraiser unless justifiable reliance can be shown.[21]

Negligent misrepresentation can occur by making false statements concerning the defendant's intent regarding future conduct. Where the plaintiff provided evidence that the defendant made a promise “for the purpose of deceiving and with no intention of performing,” a claim of negligent misrepresentation was made out.[22]

Contributory negligence is a valid defense to a negligent misrepresentation claim. However, proof of contributory negligence does not bar the plaintiff's claim, but (like other claims based on fault) diminishes the recovery in proportion to the plaintiff's negligence.[23]

[1] This section quotes from 16 WAPRAC § 18.10.

[2] Peterson v. Big Bend Ins. Agency, Inc., 150 Wash. App. 504, 202 P.3d 372 (Div. 3 2009), as amended on reconsideration, (July 14, 2009) (trial court erroneously dismissed negligent misrepresentation claim against insurance agent who misrepresented cost of replacement coverage); Ross v. Kirner, 162 Wash. 2d 493, 172 P.3d 701 (2007) (Court of Appeals erroneously determined conduct to constitute negligent misrepresentation as a matter of law); Baddeley v. Seek, 138 Wash. App. 333, 156 P.3d 959 (Div. 3 2007) (negligent misrepresentation claim properly dismissed where no representations were made); Ross v. Ticor Title Ins. Co., 135 Wash. App. 182, 143 P.3d 885 (Div. 2 2006) (trial court properly dismissed negligent misrepresentation claim where defendant had no duty to disclose); Van Dinter v. Orr, 157 Wash. 2d 329, 138 P.3d 608 (2006) (trial court properly dismissed claim against vendor and title insurer, where defendants had no duty to disclose capital facilities rate); Shah v. Allstate Ins. Co., 130 Wash. App. 74, 121 P.3d 1204 (2005) (trial court erroneously dismissed claim for negligent misrepresentation); Lawyers Title Ins. Corp. v. Baik, 147 Wash. 2d 536, 55 P.3d 619 (2002); Restatement (Second) of Torts § 552(1) (1977).

[3] Van Dinter v. Orr, 157 Wash. 2d 329, 138 P.3d 608 (2006) (trial court properly dismissed claim against vendor and title insurer, where defendants had no duty to disclose capital facilities rate); Hoel v. Rose, 125 Wash. App. 14, 105 P.3d 395 (Div. 1 2004) (as a matter of law, buyer's reliance on seller's statement, which was clearly contradicted by appraisal report, was unreasonable); Elliott Bay Seafoods, Inc. v. Port of Seattle, 124 Wash. App. 5, 98 P.3d 491 (Div. 1 2004) (trial court properly dismissed claim for negligent misrepresentation); Trimble v. Washington State University, 140 Wash. 2d 88, 993 P.2d 259 (2000); ESCA Corp. v. KPMG Peat Marwick, 135 Wash. 2d 820, 959 P.2d 651 (1998); Havens v. C & D Plastics, Inc., 124 Wash. 2d 158, 876 P.2d 435 (1994).

[4] Van Dinter v. Orr, 157 Wash. 2d 329, 138 P.3d 608 (2006) (trial court properly dismissed claim against vendor and title insurer, where defendants had no duty to disclose capital facilities rate); Flower v. T.R.A. Industries, Inc., 127 Wash. App. 13, 111 P.3d 1192 (Div. 3 2005) (trial court erred in dismissing negligent misrepresentation claim where employee presented evidence that defendant employer misrepresented his intent with respect to whether he would terminate him only for cause); Hoel v. Rose, 125 Wash. App. 14, 105 P.3d 395 (Div. 1 2004) (trial judge erroneously entered judgment on jury verdict where evidence failed to support finding that buyer justifiably relied on seller's representations concerning size of real property); Lawyers Title Ins. Corp. v. Baik, 147 Wash. 2d 536, 55 P.3d 619 (2002) (appeals court erred in affirming summary judgment for defendant when elements of falsity of information, whether the defendant knew the information used in guiding plaintiff's business decisions and whether plaintiff's reliance was justified were issues of fact for the jury).

[5] Restatement (Second) of Torts, § 552:

(1) One who, in the course of his business, profession, or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.
(2) Except as stated in subsection (3), [which pertains to the liability of one who is under a public duty to furnish such information] the liability stated in subsection (1) is limited to loss suffered (a) by the person or one of a limited group of persons for whose benefit and guidance he intends to supply the information or knows that the recipient intends to supply it; and (b) through reliance upon it in a transaction that he intends the information to influence or knows that the recipient so intends or in a substantially similar transaction. See Elliott Bay Seafoods, Inc. v. Port of Seattle, 124 Wash. App. 5, 98 P.3d 491 (Div. 1 2004) (trial court properly dismissed claim for negligent misrepresentation); Lawyers Title Ins. Corp. v. Baik, 147 Wash. 2d 536, 55 P.3d 619 (2002) (trial court erroneously granted summary judgment to defendant law firm where plaintiff presented evidence that lawyers knew the information they were supplying was false).

[6] Haberman v. Washington Public Power Supply System, 109 Wash. 2d 107, 744 P.2d 1032 (1987), opinion amended, 109 Wash. 2d 107, 750 P.2d 254 (1988).

[7] Id.; Restatement (Second) of Torts, § 552, comment a (1977).

[8] Ross v. Kirner, 162 Wash. 2d 493, 499, 172 P.3d 701, 704 (2007); Bloor v. Fritz, 143 Wash. App. 718, 180 P.3d 805 (Div. 2 2008) (trial court properly imposed liability for negligent misrepresentation).

[9] Alejandre v. Bull, 159 Wash. 2d 674, 153 P.3d 864 (2007) (trial court properly applied economic loss rule in dismissing negligent misrepresentation claim against vendor of residence).

[10] Elliott Bay Seafoods, Inc. v. Port of Seattle, 124 Wash. App. 5, 98 P.3d 491 (Div. 1 2004).

[11] Lawyers Title Ins. Corp. v. Baik, 147 Wash. 2d 536, 55 P.3d 619 (2002).

[12] Trimble v. Washington State University, 140 Wash. 2d 88, 993 P.2d 259 (2000) (professor was not misled by statement that his position was “tenurable”); ESCA Corp. v. KPMG Peat Marwick, 135 Wash. 2d 820, 959 P.2d 651 (1998) (evidence at trial failed to support bank's claims against auditor for negligent misrepresentation, since no justifiable reliance was shown); Schaaf v. Highfield, 127 Wash. 2d 17, 896 P.2d 665 (1995) (purchaser of real property was owed a duty by real estate appraiser, despite lack of contractual privity, but could not prevail in absence of justifiable reliance upon alleged misrepresentation); Haberman v. Washington Public Power Supply System, 109 Wash. 2d 107, 744 P.2d 1032 (1987), opinion amended, 109 Wash. 2d 107, 750 P.2d 254 (1988).

[13] Haberman v. Washington Public Power Supply System, 109 Wash. 2d 107, 744 P.2d 1032 (1987), opinion amended, 109 Wash. 2d 107, 750 P.2d 254 (1988); Restatement (Second) of Torts, § 552, comment h (1977).

[14] Shah v. Allstate Ins. Co., 130 Wash. App. 74, 121 P.3d 1204 (2005) (trial court erroneously dismissed negligent misrepresentation claim where issue of reliance was for jury); Hoel v. Rose, 125 Wash. App. 14, 105 P.3d 395 (Div. 1 2004) (although ordinarily a question of fact, undisputed evidence can be reviewed to determine whether plaintiff's reliance was reasonable under the circumstances); Lawyers Title Ins. Corp. v. Baik, 147 Wash. 2d 536, 55 P.3d 619 (2002).

[15] Ross v. Ticor Title Ins. Co., 135 Wash. App. 182, 143 P.3d 885 (Div. 2 2006) (trial court properly dismissed negligent misrepresentation claim where defendant had no duty to disclose); Taliesen Corp. v. Razore Land Co., 135 Wash. App. 106, 144 P.3d 1185 (Div. 1 2006) (no negligent misrepresentation claim could be sustained where defendant had no duty to disclose); Van Dinter v. Orr, 157 Wash. 2d 329, 138 P.3d 608 (2006) (trial court properly dismissed claim against vendor and title insurer, where defendants had no duty to disclose capital facilities rate); Richland School Dist. v. Mabton School Dist., 111 Wash. App. 377, 45 P.3d 580 (2002) (custodian's former employer school district did not have a duty to disclose to current employer school district allegations of child molestation involving custodian); Colonial Imports, Inc. v. Carlton Northwest, Inc., 121 Wash. 2d 726, 853 P.2d 913 (1993).

[16] Colonial Imports, Inc. v. Carlton Northwest, Inc., 121 Wash. 2d 726, 853 P.2d 913 (1993); Favors v. Matzke, 53 Wash. App. 789, 770 P.2d 686 (1989), review denied 113 Wash. 2d 1033, 784 P.2d 531 (1989).

[17] Richland School Dist. v. Mabton School Dist., 111 Wash. App. 377, 45 P.3d 580 (2002); Colonial Imports, Inc. v. Carlton Northwest, Inc., 121 Wash. 2d 726, 853 P.2d 913 (1993).

[18] Miller v. U.S. Bank of Washington, N.A., 72 Wash. App. 416, 865 P.2d 536 (1994).

[19] Pope v. University of Washington, 121 Wash. 2d 479, 852 P.2d 1055 (1993), cert. denied 510 U.S. 1115, 114 S.Ct. 1061, 127 L.Ed.2d 381 (1994).

[20] Bolser v. Clark, 110 Wash. App. 895, 43 P.3d 62 (2002) (despite lack of privity between appraiser and business partnership, appraiser owed business partnership duty of care based upon their reliance upon his appraisal); Schaaf v. Highfield, 127 Wash. 2d 17, 896 P.2d 665 (1995).

[21] Bolser v. Clark, 110 Wash. App. 895, 43 P.3d 62 (2002); ESCA Corp. v. KPMG Peat Marwick, 135 Wash. 2d 820, 959 P.2d 651 (1998) (evidence at trial failed to support bank's claims against auditor for negligent misrepresentation, since no justifiable reliance was shown); Schaaf v. Highfield, 127 Wash. 2d 17, 896 P.2d 665 (1995).

[22] Flower v. T.R.A. Industries, Inc., 127 Wash. App. 13, 111 P.3d 1192 (Div. 3 2005) (trial court erred in dismissing negligent misrepresentation claim where employee presented evidence that defendant employer misrepresented his intent with respect to whether he would terminate him only for cause).

[23] Lawyers Title Ins. Corp. v. Baik, 147 Wash. 2d 536, 55 P.3d 619 (2002); ESCA Corp. v. KPMG Peat Marwick, 135 Wash. 2d 820, 959 P.2d 651 (1998) (finding that company was 60% contributorily negligent would serve to reduce damages rather than bar claim).