Restatement of Torts Rule
A principle that underlies the "failure to deliver the agreed-upon coverage" cases is that a disparity in knowledge may impose an affirmative duty of disclosure on the insurer or its agent. (See Westrick v. State Farm Insurance, supra, 137 Cal. App. 3d at p. 691, and authorities cited.)
This principle applies, not just to insurance, but to all business transactions, and it is recognized in section 551 of the Restatement Second of Torts, which provides:
(1) One who fails to disclose to another a fact that he knows may justifiably induce the other to act or refrain from acting in a business transaction is subject to the same liability to the other as though he had represented the nonexistence of the matter that he has failed to disclose, if, but only if, he is under a duty to the other to exercise reasonable care to disclose the matter in question.
(2) One party to a business transaction is under a duty to exercise reasonable care to disclose to the other before the transaction is consummated, . . . (e) facts basic to the transaction, if he knows that the other is about to enter into it under a mistake as to them, and that the other, because of the relationship between them, the customs of the trade or other objective circumstances, would reasonably expect a disclosure of those facts."
This Restatement rule is applicable to insurers. (See Eddy v. Sharp, supra, 199 Cal. App. 3d at p. 864; Westrick v. State Farm Insurance, supra, 137 Cal. App. 3d at p. 691, fn. 3; Wells v. John Hancock Mut. Life Ins. Co. (1978) 85 Cal. App. 3d 66, 72, fn. 8 [149 Cal. Rptr. 171].)