Trenwick America Reinsurance Corp. v. IRC, Inc.

Issue Discussed: Rescission and Reformation

Submitted by Michele Jacobson, Julie Goldman

Date Promulgated: February 16, 2011

Trenwick America Reinsurance Corp. v. IRC, Inc., 764 F.Supp.2d 274 (D. Mass. 2011)

Court:  United States District Court for the District of Massachusetts

Issue Decided:  What are the elements of the claims of fraud and negligent misrepresentation? (Note: issues other than fraud/rescission were decided in this case as well)

Key Holdings
To prove fraud, a plaintiff must show “(1) the defendant falsely represented or omitted a material fact, (2) with knowledge of the falsity, (3) with the purpose of inducing the plaintiffs to act, and (4) that the plaintiffs relied upon this representation to their detriment” (internal citations omitted). Plaintiffs must also show that “defendants had an actual intent to deceive” (internal citations omitted). There was insufficient evidence that the defendant intended to breach the agreement at the time he created it. Moreover, “knowledge of falsity” cannot be satisfied by a showing of “reckless disregard for truth” (internal citations omitted). The “key difference” between a claim for fraud and a claim for negligent misrepresentation is that negligent misrepresentation does not require an intent to deceive or actual notice that a statement is false. However, the plaintiff must show that the statement was false when made, and that the defendant could have learned of the falsity with reasonable care. Since the defendant did not intend for the company to breach the agreement at the outset or anticipate its insolvency, the plaintiff could not make out a claim for negligent misrepresentation.

Key Takeaways
To prove fraud, a party must not only meet the four elements set forth above, but must also show that the perpetrator of the alleged fraud intended to breach the agreement at the time it was entered into.