Iowa Supreme Court exposes more businesses to liability with its new interpretation of negligent misrepresentation

On December 23, the Iowa Supreme Court reversed decisions of the Iowa Court of Appeals and district court in a construction case, finding that “mixed businesses” may now be liable for negligently supplying information.

In Dinsdale Construction, LLC v. Lumber Specialties, LTD., Moeller & Walter, LTC, a lumberyard, subcontracted with Lumber Specialties to provide certain building materials and engineering services on a construction project. Dinsdale Construction had also been hired to supply labor and building materials for the project. During construction, a Lumber Specialties salesman with significant construction and design experience visited the site at the lumberyard owner’s request to “advise if there is any bracing that is missing.” The salesman visited the site and stated that “everything looks great.” Nine days later, the structure collapsed and Dinsdale Construction sued Lumber Specialties on a negligent misrepresentation theory. Dinsdale prevailed after a jury trial and the Iowa Court of Appeals affirmed.

On further review to the Iowa Supreme Court, the issue was whether Lumber Specialties was in the “business of supplying information” when it made the misrepresentation; if it was not, it historically could not be liable for negligent misrepresentation. The court noted that many businesses supply both products and services and thus fall on a spectrum of liability. Lumber Specialties was no exception, and so the court pronounced a new rule for “mixed businesses:” It held that a person need not be in the business of supplying information to others to be liable for negligent misrepresentation so long as a pecuniary interest exists. The salesman was not liable, however, as he did not receive a financial benefit for supplying the information; rather, it was supplied as a courtesy to a customer in furtherance of the overall business interests of his principal, without expectation that a future pecuniary interest would incur.

Following Dinsdale, businesses who engage in “mixed services” that benefit financially, directly or indirectly, from a transaction can be liable for negligently supplying information. Liability now turns on whether speaking will redound to the defendant’s economic benefit in some reasonably clear way. Liability will not attach, however, where the only pecuniary interest in a transaction comes from the general goodwill derived by a business in supplying courtesy advice following a sale. For further information, contact Laura Wasson.

The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.

- Laura Wasson