Opinion ID: 888211
Heading Depth: 1
Heading Rank: 6

Heading: Count ThreeConstructive Fraud

Text: ¶ 26 The constructive fraud count in AK's Complaint is only two sentences long. The first sentence incorporates the prior paragraphs of the Complaint by reference, and the second sentence alleges that the misleading behavior described above constitutes constructive fraud. ¶ 27 On appeal, the Town maintains that Count Three alleges misleading behavior by the Mayor and that this claim sounds in tort, not contract. However, misleading behavior is merely a conclusory phrase. AK simply realleges in Count Three the facts previously pled in its first two counts. Moreover, AK does not set forth any facts in Count Three illustrating what the misleading behavior is or how those facts could be considered constructive fraud. ¶ 28 In Montana, constructive fraud is defined in § 28-2-406, MCA, as: (1) any breach of duty which, without an actually fraudulent intent, gains an advantage to the person in fault or anyone claiming under him by misleading another to his prejudice or to the prejudice of anyone claiming under him; or (2) any such act or omission as the law especially declares to be fraudulent, without respect to actual fraud. A party asserting a claim of actual fraud must establish the following nine elements to establish a prima facie case of actual fraud: (1) a representation; (2) the falsity of that representation; (3) the materiality of the representation; (4) the speaker's knowledge of the representation's falsity or ignorance of its truth; (5) the speaker's intent that the representation should be acted upon by the person and in the manner reasonably contemplated; (6) the hearer's ignorance of the representation's falsity; (7) the hearer's reliance upon the truth of the representation; (8) the hearer's right to rely upon the representation; and (9) the hearer's consequent and proximate injury or damages caused by their reliance on the representation. In re Estate of Kindsfather, 2005 MT 51, ¶ 17, 326 Mont. 192, ¶ 17, 108 P.3d 487, ¶ 17 (citing State ex rel. Ins. Fund v. Berg, 279 Mont. 161, 175, 927 P.2d 975, 983 (1996); Davis v. Church of Jesus Christ, 258 Mont. 286, 293, 852 P.2d 640, 644 (1993); Lee v. Armstrong, 244 Mont. 289, 293, 798 P.2d 84, 87 (1990)). While a claim of constructive fraud requires similar proof, a plaintiff need not prove the fifth element relating to intent to deceive or dishonesty of purpose. Berg, 279 Mont. at 175-76, 927 P.2d at 983 (citing Davis, 258 Mont. at 293, 852 P.2d at 644; Lee, 244 Mont. at 294, 798 P.2d at 88). ¶ 29 In addition, M.R. Civ. P. 9(b) requires that [i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Here, AK did not state with particularity the circumstances constituting constructive fraud. As previously noted, the constructive fraud count in AK's Complaint is only two sentences long with the first sentence simply incorporating the prior paragraphs of the Complaint by reference, and the second sentence simply alleging that the misleading behavior described above constitutes constructive fraud. ¶ 30 As noted previously in this Opinion, an insurer must look to the allegations in the complaint to determine if coverage exists under the policy, thus giving rise to a duty to defend. See Opinion, ¶ 11 (citing Rumph, ¶ 14). Here, AK's inadequately pled claim of constructive fraud does not give rise to a duty to defend. ¶ 31 Furthermore, we also stated in this Opinion that constructive fraud requires a breach of duty. See Opinion, ¶ 28 (citing § 28-2-406, MCA). In this case, the Mayor modified the contract by requesting that additional work be done, thus any duty the Mayor owed to AK arose from the contract. ¶ 32 Once again, the factual basis for Count Three is the Town's contract with AK and defense of this claim is excluded under the Town's policy with MMIA.