14.4 Misrepresentation

• Jurisdiction: Arizona

14.4 Misrepresentation. Arizona recognizes the tort of negligent misrepresentation⁷⁹ as stated in Restatement (Second) of Torts § 552.⁸⁰Darner 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...