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Connecticut Appellate Court Finds Coverage Based on Possibility that Negligent Misrepresentation Claim Might Not Have Arisen Out of Alleged Breach of Contract

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In-Town of Monroe v. Discover Prop. & Cas. Ins. Co., No. AC 38332, 169 Conn.App. 644, 2016 Conn. App. LEXIS 443 (Conn. App. Ct. Dec. 1, 2016), an intermediate appellate court held that a Public Entity Errors and Omissions Liability policy provided coverage for the defense and indemnity of an action involving both an alleged breach of contract and negligent misrepresentations arising from the same circumstances as the alleged contract. The underlying action arose from an alleged contract between the town of Monroe and Bellsite Development, LLC (Bell site) for the development and implementation of a wireless telecommunications tower, which Monroe allegedly abandoned. The complaint alleged three counts: breach of contract; promissory estoppel; and negligent misrepresentation. The trial court found in favor of the Bell site on the first and third counts, and the appellate court reversed to the extent of directing judgment in favor of Bell site on all three counts. Bell site then brought a declaratory judgment action seeking coverage. The policy excluded claims for “construction, architectural or engineering contracts or any other procurement contract,” with the customary exception for “liability for damages that the insured would have had in the absence of the contract or agreement.” In finding coverage, the court reasoned that depending on the evidence, a finder of fact could have concluded either that (1) a contract existed and any negligent misrepresentation arose out of it, or (2) whether or not there was a contract, Monroe had made negligent misrepresentations. The complaint as drafted “left open the possibility that the alleged misrepresentation did not arise out of a contract.” As a result, the contract exclusion did not preclude coverage. The court also summarily rejected arguments that the personal profit exclusion barred coverage and that the underlying action did not seek “covered damages” under the policy.