Insurance Agent May Be Liable for Oral Misrepresentation of Insurance Coverage

The Massachusetts Supreme Judicial Court recently issued a decision in the matter of Passatempo v. McMeninimen affirming the potential liability of an insurance agent and insurance company for oral misrepresentations made by the agent. In that case, the plaintiff alleged, and the trial court found, that the insurance agent had misstated the benefits provided by a life insurance policy; assuring the plaintiff that the policy provided a $500,000 death benefit when, in fact, it provided only $200,000.

Despite the existence of policy statements setting forth the correct coverage amount, the Supreme Judicial Court affirmed the trial court’s finding that the plaintiff had relied on the oral misrepresentation. Further, it found that it was not unreasonable as a matter of law for the plaintiff to have done so. Based on these misrepresentations, the Court affirmed a judgment against the agent for misrepresentation and for violations of Chapter 93A, the Massachusetts Consumer Protection Act, including an award of punitive damages and attorney’s fees, and reinstated Chapter 93A claims against the insurer.

The decision is of obvious importance to insurance agencies and insurance companies, who must use the utmost care to fully and accurately describe the programs and policies they sell. However, the Court’s rationale is equally applicable to a wide category of business-to-consumer transactions. Banks, lenders and mortgage brokers, for example, may be liable for misrepresenting loan terms, such as prepayment penalties, no matter what the signed documents say. A contractor bidding on a project who orally promises to do certain work could be liable to a homeowner for failing to do that work even if the written contract and specifications they eventually sign do not include it. In short, businesses of all types must use the utmost care to ensure that their words and deeds match.

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