Opinion ID: 1443756
Heading Depth: 1
Heading Rank: 3

Heading: there was damage for the purpose of the fraud claim by the purchase of an insurance policy based upon a misrepresentation of its coverage.

Text: The party alleging fraud has the burden of proving the elements of fraud by clear and convincing evidence, as opposed to a less stringent preponderance standard used in ordinary negligence cases. G & M Farms v. Funk Irrigation Co., 119 Idaho 514, 808 P.2d 851 (1991). To establish actionable fraud, also referred to as intentional misrepresentation, a plaintiff must prove the following elements: (1) a representation; (2) its falsity; (3) its materiality; (4) the speaker's knowledge of its falsity or ignorance of its truth; (5) his intent that it should be acted on by the person and in the manner reasonably contemplated; (6) the hearer's ignorance of its falsity; (7) his reliance on the truth; (8) his right to rely thereon; and (9) his consequent and proximate injury. Id. at 518, 808 P.2d at 855. The jury found Monumental's actions to be fraudulent, concluding that the advertising materials contained intentional fraudulent misrepresentations. Monumental argues that recovery for fraud requires proof of actual pecuniary damages caused by the fraud, relying upon Nab v. Hills, 92 Idaho 877, 883, 452 P.2d 981, 987 (1969); Cooke v. Iverson, 94 Idaho 929, 931, 500 P.2d 830, 831 (1972); and Bryant Motors, Inc. v. American States Ins. Cos., 118 Idaho 796, 800, 800 P.2d 683, 687 (Ct. App.1990). Monumental maintains that Idaho applies the `out-of-pocket' rule which limits the recovery of damages to the difference between the real value of the property purchased and the price paid or contracted for. Shrives v. Talbot, 91 Idaho 338, 345, 421 P.2d 133, 140-41 (1966). Monumental argues that Walston failed to prove the element of damages to support a fraud claim for the reason that the policy was worth what Walston paid. Monumental also asserts that since recovery cannot be had for mental anguish in fraud cases, there is no damage amount that can be attributed to the fraud claim. Umphrey v. Sprinkel, 106 Idaho 700, 682 P.2d 1247 (1983). [R]ecovery cannot be had in an action for deceit for injury to plaintiff's feelings and public disgrace incurred through being deceived through false representations, or for anxiety, worry, and harassment arising from fraud, or from annoyance or inconvenience. Id. at 711, 682 P.2d at 1258 (quoting 37 C.J.S. Fraud § 141(f) (1943)). In Shrives, this Court did state that where the purchaser seeks damages for alleged fraud it appears Idaho is committed to the `out-of-pocket' rule which limits the recovery of damages to the difference between the real value of the property purchased and the price paid or contracted for. 91 Idaho at 345, 421 P.2d at 140. However, Shrives recognized the existence of a different measure of damagesthe benefit-of-bargain ruleunder which the damages allowed are the difference between the real value of the property purchased and the value which it would have had the representations been true: This court has often recognized the existence of a different measure of damages referred to as the benefit-of-bargain rule, under which the damages allowed are the difference between the real value of the property purchased and the value which it would have had had the representations been true. Id. The Shrives Court recognized that the out-of-pocket rule and the benefit-of-bargain rule are not exclusive and should only be used when appropriate under the facts, noting the following: The underlying principle is that the victim of fraud is entitled to compensation for every wrong which is the natural and proximate result of the fraud. The measure of damages which should be adopted under the facts of a case is the one which will effect such results. Id. at 346, 421 P.2d at 141 (quoting Weitzel v. Jukich, 73 Idaho 301, 251 P.2d 542 (1952)). In Nelson v. Armstrong, 99 Idaho 422, 582 P.2d 1100 (1978), the Court noted that the out-of-pocket measure of damages has been adopted by Idaho Courts, citing Shrives. The Court noted, however, that under some circumstances the Court has applied the `benefit of the bargain' test, measuring damages by the difference between the value of the thing actually received and the value it would have had if it were as it was fraudulently represented to be. Id. at 427 n. 1, 582 P.2d at 1105 n. 1; see also Layh v. Jonas, 96 Idaho 688, 535 P.2d 661 (1975). In Layh v. Jonas , an insured was fraudulently induced to purchase medical insurance based on an assertion that a heart condition would not be considered a pre-existing condition. 96 Idaho at 688, 535 P.2d at 661. The insured sought reformation of the contract, which would result in coverage of her medical expenses. This Court distinguished Shrives and held the following: [I]n the case at bar the court is required to resolve the question of the measure of damages or injury where as here a written contract is sought to be reformed on the basis of alleged fraudulent misrepresentation in the inducement. We hold that the benefit of the bargain rule should be applied in such cases rather than the out-of-pocket rule.... Particularly in cases involving insurance policies we note that the out-of-pocket rule would permit a seller to make any representation however fraudulent, extravagant, or untrue and the policy holder would be without remedy insolong as benefits in excess of premium amounts were received by the policy holder. Layh, 96 Idaho at 691, 535 P.2d at 664. Walston is seeking damages for Monumental's fraudulent representation rather than reformation of the insurance policy as was sought in Layh. However, the reasoning of Layh is applicable. Idaho is among a minority of states which follow the out-of-pocket damages rule for damages in fraud cases, Umphrey, 106 Idaho at 710, 682 P.2d at 1257, but this is not exclusive. The rationale of Layh indicates that the damages in this case would be the difference between the real value of the insurance policy purchased and the value which it would have had the representation been truethe benefit-of-bargain rule. Walston was led to believe that he was purchasing a high-value policy when he actually purchased a low-value policy. Walston has made an adequate showing of damage to support the jury's finding of fraud.