The Missouri Court of Appeals reversed the trial court's ruling that the insured's policy did not cover claims based upon negligent misrepresentation. Am. Family Mut. Ins. Co. v. Sharon, 2020 Mo. App. LEXIS 123 (Mo. Ct. App. Feb. 4, 2020).
Robert Sharon sued Gregory and Kristine Schwenzer for, among other things, negligent misrepresentation and unlawful merchandising practices in connection with Sharon's purchase of the Schwenzers' home. Sharon's complaint alleged that after the sale, he found significant water leaks and water damage in the basement. The disclosure statement represented that there was no water leakage or dampness in the house or basement.
The Schwenzers were insured by American Family. After the Sharon suit was tendered, American Family filed suit for declaratory judgment that it had no duty to defend and that the underlying claims were not covered because they did not allege an occurrence. The trial court agreed coverage was barred by the owned-property exclusion, the expected-or-intended exclusion, and other exclusions.
On appeal, it was unclear whether the trial court resolved whether an occurrence was alleged in the underlying complaint. The trial court found that Sharon's claims were not covered based upon the exclusions. The appellate court noted that an alleged negligent misrepresentation could be an accident for purposes of determining whether there was coverage under an "occurrence" provision of a policy. The same conclusion applied to Sharon's unlawful merchandising claim where he alleged that the Schwenzers engaged in misrepresentations before and during the sale, causing him to incur significant costs to repair portions of the basement.
The court determined that Sharon could not recover costs to repair defects that existed at the time of the sale because there were no damages to tangible property caused by the misrepresentation. The court found that alleged water damages following the sale could meet the definition of property damage, however.
Turning to the exclusions, the owned-property exclusion stated, "We will not cover property damage to . . . property owned by any insured." The policy covered resulting property damage that occurred during the policy period. To negate coverage under the exclusion, the damage must have occurred when the damaged property was owned by the insured. Here, the trial court erred in granting American Family's petition for declaratory judgment based on the owned-property exclusion to the extent that Sharon's underlying complaint alleged that an accident (a negligent misrepresentation) resulted in property damage (water damage) when the property was no longer owned by the insured. Because the property was not owned by the insureds when the post-sale water damage allegedly occurred, the trial court erred in concluding that the owned-property exclusion barred coverage as to any such claim in the underlying complaint.
The expected-or-intended exclusion stated there was no coverage for property damaged arising out of an expected or intended act or omissions. A claim for negligent misrepresentation, unlike one for fraud, did not involve a question of intent. Here, the court was unable to say that the Schwenzers' acts or omissions were recklessly injurious because it was conceivable that they believed their repairs were sufficient to prevent future water damage. Thus, the expected-or-intended exclusion did not apply.
Therefore, American Family had a duty to defend the Schwenzers. The trial court was reversed and the case was remanded.
