Florenzano v. Olson
387 N.W.2d 168, 1986 Minn. LEXIS 783 (1986)
Rule of Law:
Comparative negligence principles apply to actions for negligent misrepresentation, but not to intentional fraudulent misrepresentation, thereby requiring a clear distinction between the two based on the misrepresenter's state of mind regarding the truthfulness of the statement.
Facts:
- Judie Florenzano became totally disabled in 1977 due to multiple sclerosis, preventing her and her children from receiving social security disability benefits.
- In 1973, Judie and Joe Florenzano bought their first home and were contacted by Frederick Olson, an insurance agent for Bankers Life Company, to discuss mortgage insurance.
- During their meetings, Olson provided a comprehensive financial and insurance analysis, and the Florenzanos purchased a life insurance policy from him, believing he was knowledgeable and successful, despite Olson misrepresenting his experience as an agent.
- As an employee of merging hospitals, Judie Florenzano had to choose by September 10, 1973, whether to continue social security participation (Choice A), obtain a refund and withdraw entirely (Choice B), or obtain a refund but continue future participation (Choice C).
- The hospital provided written materials warning of potential benefit loss for choices B or C, and offered informational meetings, which Judie attended and read the materials for.
- At their third meeting, Joe Florenzano asked Olson for advice on Judie's social security decision. Olson recommended that Judie select Choice B (total withdrawal), stating it was a "once-in-a-lifetime" opportunity and that she would be covered by her husband's social security contributions.
- Olson admitted he made the recommendation based on informal sales training and did not research or verify his advice; expert testimony confirmed his advice was only accurate for retirement benefits under specific assumptions.
- Relying on Olson's advice, the Florenzanos changed their tentative decision and selected Choice B, leading Judie to cease social security contributions after September 10, 1973.
Procedural Posture:
- Judie Florenzano sued Frederick Olson and Bankers Life Company in Hennepin County District Court.
- A jury in the District Court found Olson and Bankers Life liable for misrepresentations, determined Florenzano’s damages, and also found Florenzano to be 62.5% negligent.
- The trial court applied comparative fault principles (because Florenzano's negligence exceeded 50%) and entered judgment in favor of Olson and Bankers Life, meaning Florenzano recovered nothing.
- Florenzano appealed as the appellant to the Court of Appeals, arguing that she had proven fraudulent misrepresentation, an intentional tort to which comparative fault should not apply.
- The Court of Appeals reversed the trial court's decision, holding that comparative fault does not apply to an action for negligent misrepresentation (which it accepted as the basis for the jury's findings), and remanded the case for a new trial.
- Florenzano then appealed as the appellant the remand for a new trial on the issue of liability for fraud to the Supreme Court of Minnesota.
- Olson and Bankers Life Company also appealed as cross-appellants to the Supreme Court of Minnesota, challenging the Court of Appeals' decision that comparative fault does not apply.
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Issue:
1. Does the principle of comparative negligence apply to actions for negligent misrepresentation? 2. Was the defendant insurance agent's conduct, in advising on social security withdrawal without verifying the information, properly characterized as fraudulent misrepresentation or negligent misrepresentation under Minnesota law?
Opinions:
Majority - Wahl, Justice
Yes, the principles of comparative responsibility apply to negligent misrepresentation. And, the evidence, as a matter of law, established negligent misrepresentation, not fraudulent misrepresentation. The court clarified the distinction between fraudulent and negligent misrepresentation. Fraudulent misrepresentation is an intentional tort requiring "scienter," meaning dishonesty or bad faith on the part of the misrepresenter, such as knowing the statement is false or asserting it without confidence in its truth or basis. Negligent misrepresentation, conversely, occurs when a person, in the course of business or a transaction with a pecuniary interest, supplies false information for the guidance of others and fails to exercise reasonable care or competence in obtaining or communicating that information, judged by an objective standard. While the jury's special verdict form included language that could, under prior precedent, be interpreted as finding fraudulent intent (asserting a fact as one's own knowledge without knowing its truth or falsity), the court determined that the specific facts of this case did not, as a matter of law, support a finding that Olson knew his statement was false or acted with conscious ignorance rising to the level of fraudulent intent. Instead, Olson's actions — providing unverified, false information in his professional capacity upon which the Florenzanos reasonably relied to their detriment — fit the definition of negligent misrepresentation. The court affirmed that comparative negligence principles apply to negligent misrepresentation, aligning with the majority of other states, the Restatement (Second) of Torts § 552A, and Minnesota's precedent of broadly applying comparative negligence. The court explicitly noted that comparative negligence does not apply to intentional torts because they are distinct in kind from negligence, but negligent misrepresentation is not an intentional tort. Given the jury's finding that Florenzano was 62.5% negligent, the trial court appropriately applied comparative negligence, barring her recovery.
Concurring - Simonett, Justice
Yes, comparative negligence applies to negligent and reckless misrepresentation. The plaintiffs failed to prove intentional fraud as a matter of law; negligent misrepresentation was proven. Justice Simonett concurred with the majority's result and essential holdings, emphasizing the importance of clearly distinguishing types of misrepresentation. He agreed that comparative negligence does not apply to intentional torts, but should apply to both reckless and negligent misrepresentation. He pointed out that Minnesota's prior definition of "fraudulent intent" in cases like Davis v. Re-Trac Manufacturing Corp. ambiguously combined intentional deceit (knowing a statement is false, or lying) with asserting a fact as one's own knowledge without knowing its truth or falsity (what he termed "reckless misrepresentation"). He argued that due to the enactment of comparative responsibility laws, these categories must be separated. He proposed that only true "deceit" (where the representer knows the representation is false and intends to deceive) should be considered an intentional tort to which comparative responsibility does not apply. Reckless and negligent misrepresentations, which are judged by an objective standard of care, should allow for comparative fault. He further suggested that the historical rule excusing a fraud victim from a duty to investigate should be confined strictly to cases of intentional deceit. To clarify for future cases, he recommended that jury instructions on "fraudulent intent" be separated into two questions: first, whether the defendant knew the representation was false, and second, if not, whether they asserted it as of their own knowledge without knowing its truth or falsity, with comparative negligence only applying in the latter scenario.
Analysis:
This case is highly significant for clarifying the application of comparative negligence in Minnesota, specifically distinguishing it for intentional versus unintentional misrepresentation. It forces a more precise legal characterization of misrepresentation claims, emphasizing that actual 'scienter' (dishonesty or bad faith) is crucial for proving intentional fraud, which then exempts the plaintiff from comparative fault. This ruling impacts how misrepresentation claims are pleaded, proven, and how juries are instructed, promoting greater scrutiny of both the defendant's intent and the plaintiff's reliance. It encourages both representors to be diligent and recipients to exercise reasonable care, while preserving a strong deterrent against deliberate deceit.
