When is it reasonable to rely on a fraudulent statement? Courts applying Pennsylvania law have answered this question in different and conflicting ways, as two recent decisions from the U.S. District Court for the Eastern District of Pennsylvania illustrate. According to the court in Zenith Insurance v. Wells Fargo Insurance Services (E.D. Pa., Jan. 7, 2014), you are entitled to rely on a fraudulent statement no matter what, unless the statement’s falsity is obvious on its face or you have actual knowledge of its falsity. Just a few months before, however, a different judge of the same court had expressed the opposite view in Fulton Financial Advisors v. NatCity Investments (E.D. Pa., Oct. 15, 2013): A victim of fraud cannot accept a fraudster at his or her word, but must exercise some degree of diligence in attempting to verify the statement.
The Zenith Insurance decision—the more victim-friendly of the two recent decisions—embodies a principle that Pennsylvania courts have long embraced: It is better to excuse a victim’s gullibility than to condone a fraudster’s malice. That principle supports the view that the recipient of a fraudulent statement should be entitled to rely on it.
