Liability For Accidental Lies — The Law Of Negligent Misrepresentation In Iowa

Everyone is probably familiar with the concept of intentional fraud, which is in the category of business wrongs.  That’s basically when one party to a transaction knowingly lies about some important fact in an effort to induce the other party to complete the transaction.  Fraud occurs if that other party relies on the lie in making decisions about the transaction.  The person who was lied to and induced to enter into the transaction under false pretenses can sue for fraud.

But what happens when someone negligently (accidentally) provides false information to someone else as part of a business transaction?  Can the injured party still sue for any harm that comes from relying on that accidental lie?  The answer is yes, but only in rare circumstances.

The general rule for negligent misrepresentation is that someone who, in the course of that person’s business, profession, or employment, or in any other transaction in which that person has a financial interest, supplies false information for the guidance of others in their business transactions, is subject to liability for monetary loss caused to them by their justifiable reliance upon the information, if the communicating person fails to exercise reasonable care or competence in obtaining or communicating the information.  Liability for negligent misrepresentation is limited to loss suffered by the person or one of a limited group of persons for whose benefit and guidance the communicating person intends to supply the information or knows that the recipient intends to supply it or through reliance upon it in a transaction that he intends the information to influence or knows that the recipient so intends or in a substantially similar transaction.

Iowa law holds that only those who are “in the business of supplying information to others” can be liable for negligent misrepresentation.
When determining whether a person is in the business of supplying information to others, courts consider several factors.  They distinguish between relationships that are arm’s-length and adversarial and those that are advisory.  Courts also analyze whether the person providing the information “is manifestly aware of the use that the information will be put, and intends to supply it for that purpose.”  Another factor is whether the defendant gave the information to the plaintiff “gratuitously or incidental to a different service.”  Courts further consider the role the defendant was playing when the alleged misrepresentation occurred.

To date, Iowa’s courts have found life insurance agents, accountants, appraisers, school guidance counselors, and investment brokers to be within the class of occupations that may be exposed to liability for negligent misrepresentation.  In other cases, the Iowa Supreme Court has refused to allow suit for negligent misrepresentation when the defendant was a retailer in the business of selling and servicing merchandise, a seller who made misrepresentations pursuant to the sale of a business, a bank officer negotiating a loan guarantee with a bank customer, or an employer negotiating with an employee for employment.

Iowa’s law of negligent misrepresentation is constantly evolving.  Any of these types of cases require careful analysis of whether Iowa’s narrow standards for negligent misrepresentation liability can be met.  Pleaseel free to contact me if you believe that you’ve been the victim of a negligent misrepresentation.