In the law of civil fraud, even blatant misrepresentations are insufficient to sustain a cause of action for fraud where the party asserting fraud has not done its part to protect itself from fraudulent conduct. That concept is embodied in the essential element of justifiable or reasonable reliance.  Thus, a party seeking to allege and prove a cause of action for fraud must allege and establish all of the elements of the claim for fraud:

“The required elements of a common law fraud claim are ‘a misrepresentation or a material omission of fact which was false and known to be false by the defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury’ (Pasternack v Laboratory Corp. of Am. Holdings, 27 NY3d 817, 827 [2016] [internal citations and quotation marks omitted]).”

Ambac Assur. Corp. v Countrywide Home Loans, Inc. 2018 NY Slip Op 04686 [31 NY3d 569] (2018).

In Ambac, the Court of Appeals emphasized how important it is to satisfy the element of justifiable reliance, noting that it is engrained in strong principles of public policy.

This means that even in circumstances where the alleged perpetrator of fraudulent conduct itself acts in an entirely fraudulent manner, lying or falsifying information, courts will not afford a remedy for that wrong if the party to whom the fraudulent conduct was directed does not act reasonably or prudently to protect itself.  What constitutes such prudence or care is subject to court interpretation.  Where the care or prudence is lacking on its face or is apparent from the facts and circumstances, fraud claims can be dismissed summarily, see, e.g., my recent post.

Failure to Read

While it may seem obvious that there is a duty to read documents about which misrepresentations are made, many parties try to assert fraud claims based upon false descriptions of the documents without actually reading the documents.  In the absence of special circumstances, such as fiduciary obligations for full and accurate disclosures and affording particular protections, courts do not lend much credence to claims of fraud if the party claiming the misrepresentation does not actually read the documents about which the misrepresentation was made.

I have reviewed in this blog a Third Department decision that graphically shows the effect of failing to read a life insurance policy in connection with a claim of fraud against the broker who sold the policy.  The Second Department has followed the same sound logic in Roumi v Guardian Life Ins. Co. of Am., 2021 NY Slip Op 01079 (2d Dep’t Decided on Feb. 17, 2021).

In Roumi, plaintiffs purchased two life insurance policies through the same insurance broker.  Plaintiffs claimed that the broker induced them to purchase the policies by misrepresenting that the policies would not incur annual premiums.  Plaintiffs asserted claims against the broker and the insurance company under New York Insurance Law Section 2123 (barring misrepresentations by brokers regarding insurance) and Section 4226 (barring misrepresentations by insurers), respectively, as well as common law claims of fraud and breach of fiduciary duty against the broker.  The lower court dismissed the Insurance Law and breach of fiduciary duty claims as time-barred under the three-year statute of limitations.  The court also dismissed the fraud claim under CPLR 3211(a)(7) for failure to state a claim.

On appeal, the Second Department affirmed in all respects.  On the fraud claims, the Court ruled that plaintiffs had not alleged reasonable reliance, thereby rendering the fraud claims defective as a matter of law, because plaintiffs had not asked for or read the life insurance policies or the applications they signed, which would have revealed that premiums were required:

We further agree with the Supreme Court’s determination that the causes of action alleging fraud with respect to Zelcer, and aiding and abetting Zelcer’s alleged fraud with respect to Guardian, failed to state a cause of action. “A cause of action alleging fraud requires the plaintiff to plead: (1) a material misrepresentation of a fact, (2) knowledge of its falsity, (3) an intent to induce reliance, (4) justifiable reliance, and (5) damages” (Benjamin v Yeroushalmi, 178 AD3d 650, 654). “A plaintiff is expected to exercise ordinary diligence and may not claim to have reasonably relied on a defendant’s representations or silence where he [or she] has means available to him [or her] of knowing, by the exercise of ordinary intelligence, the truth or the real quality of the subject of the representation” (Benjamin v Yeroushalmi, 178 AD3d at 654 [internal quotation marks omitted]). Here, the plaintiffs alleged that they relied solely on Zelcer’s alleged misrepresentations without seeing or requesting to see copies of the subject insurance policies, and despite signing applications for the policies that contradicted Zelcer’s alleged assurances that the policies would not have annual premiums associated with them. Since “the plaintiffs failed to adequately allege justifiable reliance, the cause[s] of action alleging fraud [and aiding and abetting fraud] . . . [were] subject to dismissal” (id. at 654).


The Second Department’s decision in Roumi follows consistent patterns of the courts.  Obviously, the element of reasonable reliance continues to play a critical role in when to recognize a cause of action for fraud.  Roumi follows a long line of decisions that recognize that claims of fraud can and should be dismissed as a matter of law at the pleadings stage if reasonable reliance is not alleged or supported by the complaint.  Moreover, Roumi is consistent with the courts’ insistence that parties exercise that degree of prudence to avoid being duped by false statements by taking action to test or ferret out the fraud, by, for example, reading documents about which false statements are made.