14.4 Misrepresentation

JurisdictionArizona

14.4 Misrepresentation. Arizona recognizes the tort of negligent misrepresentation79 as stated in Restatement (Second) of Torts § 552.80 Darner also recognized a cause of action for negligent misrepresentation against insurance producers, holding that “[w]here an insurer or its agent misrepresents, even though innocently . . . to an insured . . . and the insured reasonably relies thereupon to his ultimate detriment, the insurer is estopped to deny coverage” to the insured.81 The court rationalized this result stating that, “[b]y justifiably relying on the insurer’s superior knowledge, the insured has been prevented from procuring the desired coverage elsewhere.”82

When a producer is deemed to be the agent of an insurer, producers may bind an insurance company to coverage by their representations to insureds.83 The producer may then have to indemnify the insurer for any amounts paid to the insured based on the producer’s misrepresentations.84 However, an insurance producer who tells an insured he would have coverage for a hypothetical claim is not guilty of misrepresenting the policy’s terms merely because the insurer subsequently denies coverage for a claim.85

Arizona insurance producers are also subject to a statutory prohibition on misrepresentation.86 A.R.S. § 20-443 provides that insurance producers may not make misrepresentations or false or misleading statements concerning insurance policy terms, policy benefits, dividends, or financial conditions.87 Further, “[m]aking any misrepresentation to any policyholder for the purpose of inducing or tending to induce the policyholder to lapse, forfeit, surrender, retain or convert any insurance policy” is a statutory violation.88 A private right of action exists for damages caused by a violation of A.R.S. § 20-443, such as misrepresenting the terms, advantages or benefits of any insurance policy.89 Insurance producers also may be subject to...

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