Interpreting Missouri law, the federal district court found that the insurer must defend the negligent misrepresentation claim filed against the insured seller of a home. Am. Family Mut. Ins. Co. v. Spencer, 2018 U.S. Dist. LEIS 44272 (E.D. Miss. March 19, 2018).
The insurer issued a homeowners policy to Nancy Spencer with liability coverage in the amount of $300,000. Spencer sold her home to Jane Volz, who sued Spencer after the sale. Volz alleged that the disclosure statement stated that Spencer was not aware of any dampness, water accumulation or leakage in the basement. Subsequent to the closing, water leaked and seeped into the basement of the home every time it rained. Volz sued for fraudulent misrepresentation and negligent misrepresentation among other claims.
The insurer agreed to defend under a reservation of rights, but also sued Spencer for a declaratory judgment seeking a determination that there was no coverage under the policy. The insurer filed a motion for summary judgment and Spencer filed a cross motion.
The insurer maintained that the alleged misrepresentation did not result in "property damage" as required to trigger the policy. Rather, the insurer argued that the damage to the property all existed prior to the sale of the home and was concealed by the acts of Spencer. The court disagreed. In the underlying petition, Volz alleged that misrepresentations made by Spencer while Spencer owned the property resulted in damage to Volz subsequent to the sale of the property.
Consequently, the insurer's motion for summary judgment was denied and it was obligated to continue defending Spencer.
