Tuesday, June 19, 2007

Ghost in the machine: "fraud on a computer" claim survives

NetQuote, Inc. v. Byrd, 2007 WL 1725587 (D. Colo.)

Plaintiff NetQuote operates a web site that allows individuals to submit information about themselves and their insurance needs. NetQuote sells that information to insurance brokers and agents, who then contact the individuals with an insurance quote.

NetQuote sued MostChoice, a competitor, and Brandon Byrd, its employee. NetQuote alleged that MostChoice employed Byrd to pretend to be individuals interested in insurance quotes. He thus submitted hundreds of false inquiries to NetQuote’s web site, knowing that NetQuote’s clients would receive bad information that could not lead to a sale. NetQuote’s clients complained about the bad information, and some ended their relationships with NetQuote. To add false advertising to injury, MostChoice advertised itself as having superior accuracy and reliability in insurance referrals compared to NetQuote. NetQuote thus alleged fraud, tortious interference with business relations, common law unfair competition, false advertising under the Lanham Act, and deceptive trade practices under state law.

Defendants argued that NetQuote’s computer system “forwards information submitted on its web site directly to insurance brokers without any person at NetQuote actually reviewing or acting on the information.” Thus, defendants argued that NetQuote couldn’t have relied on any false information.

Assuming that NetQuote needed to plead reliance under Colorado law, the court found its complaint sufficient. It alleged that it had developed filtering and monitoring systems to improve the accuracy of its information. Those systems reviewed every submission, and could only be evaded by the intentional effort of a person with industry experience. The court thus refused to hold that “a corporate party can rely on representations only if human eyes first review the information.” In fact, a corporation may be entitled to rely on information provided by computer systems; at least one California court has found that a computer system can act as an agent and rely on information it receives. Thrifty-Tel, Inc. v. Bezenek, 54 Cal.Rptr.2d 468, 474 (Cal.Ct.App.1996). Thus, NetQuote’s fraud claim survived.

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