A diamond merchant kept his diamonds in a safe which was protected by an alarm system supplied by a security firm. Although the alarm system was as effective as any other system on the market, senior personnel at the security firm knew that it could be circumvented by a person who possessed the required technical knowledge. After a burglary at the premises of another diamond merchant who was protected by a similar alarm system supplied by the same security firm, the diamond merchant asked the security firm to send someone to inspect his alarm system. The security firm sent out a new employee who had been on the job just one week and did not know that the system could be circumvented. He made an inspection of the installation at the premises of the diamond merchant. The employee asserted to the diamond merchant “even our own engineers could not go through this system without setting an alarm.” The safe was broken into and a substantial quantity of diamonds was stolen by thieves who had circumvented the alarm.
The security firm was found liable and had to pay the diamond merchant for his losses. The reason: negligent misrepresentation. Why? The employee of the security firm had negligently made an erroneous statement. To the diamond merchant, the employee possessed special skill and knowledge of the alarm system. The employee knew or ought to have known that, when he made the statement, the diamond merchant was relying upon his skill and knowledge. He owed a duty of care to the diamond merchant in the circumstances but breached that duty when he negligently made the erroneous statement. No one ever found out whether the circumvention was due to the complicity of employees of the security firm or of the other diamond merchant, or other thieves.