Fraudulent Misrepresentation of Policy Limits

August 29, 2004

8/30/2004 – In Roth v. La Societe Anonvme Turbomeca France, et al., 2003 WL 22231597 (Mo. App. W.D.), the issue was whether the court should permit a plaintiff to enforce a settlement, and sue for damages based on fraud, when the lawsuits defendants lied about insurance coverage to induce the plaintiff to settle. Overruling three other Missouri court cases, the Court of Appeals for the Western District of Missouri held that a settlement agreement induced by fraud affords the victimized party the choice to rescind the settlement agreement or to enforce it and sue independently for the damages resulting from the fraud.

The Roths originally sued for injuries sustained by Sheila Roth in a 1993 helicopter crash; other injured individuals joined in the lawsuit. In interrogatories, the Roths asked Turbomeca whether or not the company had insurance to cover any judgment arising from the crash. Turbomeca responded that the maximum insurance coverage was approximately $50 million.

The Roths feared that $50 million would be insufficient to satisfy all of the plaintiffs judgments, so they settled for $50 million prior to trial. A month after the settlement, the Roths learned that Turbomeca had $1 billion in coverage. Because the settlement funds had already been dispersed, the Roths decided against requesting the circuit court to set aside the settlement agreement. They voluntarily dismissed their lawsuit, later filing an action for fraud, negligent misrepresentation, fraudulent concealment and civil conspiracy against Turbomeca, its insurers, and attorneys.

In arguing the Roths lawsuit should be dismissed, the defendants relied on the holding of three Missouri court opinions stating that the only remedy for a plaintiff fraudulently induced to settle a lawsuit is to have the settlement set aside and sue on the original tort claim. Bockover v. Stemmerman, 708 S.W.2d 179 (Mo. App. 1986); Macklev v. Allstate Insurance Company, 564 S.W.2d 634 (Mo. App. 1978); and Lomax v. Southwest Missouri Electric Railway Company, 81 S.W.225 (1904). These courts reasoned that if the settlement was induced by fraud, the release was void and the plaintiff was returned to where he was before the release, relieved from his restraint from suing on the underlying claim.

The Roth court disagreed with these prior rulings, stating that releases induced by fraud by the defendant are voidable at the election of the plaintiff. As such, the Roths could enforce their settlement agreement with Turbomeca and still maintain an independent tort claim for fraud.

The Roth holding potentially authorizes several types of damage awards not previously available to plaintiffs. It appears that a plaintiff induced to settle a tort claim by a misrepresentation regarding the policy limits may enforce the settlement and seek damages for fraud in the amount the claim was worth above the settlement, in addition to attorneys fees and possibly punitive damages. In total, these damages would likely greatly exceed the amount of damages the plaintiff may have been awarded in the underlying tort claim.

When disclosing policy limits, it is more important than ever to ensure that the information provided is completely accurate and considers all potential insurance coverages for the plaintiffs claims, including all applicable excess and reinsurance policies.