Archive for the 'NJ – Reverse Bad Faith' Category
This case focuses on procedural issues and burdens of proof at trial, concerning whether the insured’s alleged fraud during an investigation was grounds to void a policy. At trial, the insured put on her case, and the carrier moved for involuntary dismissal (directed verdict) at the end of plaintiff’s case. The trial court granted judgment to the insurer, and the Appellate Division reversed.
The insured’s claim revolved around a fire loss. In the years before that loss, the insured had a relatively small roof claim, and a large water damage claim. During her testimony at trial, the insured described a meeting with the carrier’s investigator during the fire loss claim. The investigator was not merely a claim adjuster, but was actually a fraud unit investigator – unknown to the insured.
The insured admitted she denied there was any prior damage claim on the water loss, knowing this was not true. She felt it was not the investigator’s business and had nothing to do with the fire loss. The investigator had the insured’s application, which did not include either prior loss. This was part of the investigation, again unknown to the insured. The application itself, however, was never introduced into evidence at trial.
This interview during the claim process was not taken under oath. At her subsequent examination under oath, the insured did admit the two prior loss claims.
Both courts’ focus was on the misleading statement to the investigator about the water damage claim, rather than on the application’s not including the two losses. The two key elements were misrepresentation and materiality. The trial court found a material misrepresentation and voided the policy after plaintiff put on her case.
The Appellate Division disagreed, looking closely at the procedural setting and burdens of proof, in finding that the materiality element was not proved. The court especially noted the different burdens placed on defendant when dismissal is sought at the end of plaintiff’s case, rather than at the end of all parties’ cases.
Plaintiff’s case-in-chief did not include the original application, and the Appellate Division found there was insufficient evidence within plaintiff’s case itself to demonstrate how the water loss was relevant to the fire loss claim, or important in determining the insurer’s course of action. Moreover, the misrepresentation claim was an affirmative defense, with the insurer bearing the burden of proof. As the court stated:
“Accordingly, regardless of whether the information in an application not introduced at trial came from plaintiff or someone else, there was no factual basis for the [trial] judge to find that [the insured] ‘clearly tried to mislead [the investigator] as to something that seemed to justify what looked like misstatements in the application.’ Without the original insurance application or testimony from anyone at [the insurer] as to the nature of the investigation, the trial court clearly erred when it involuntary dismissed [the] suit based on her willful misrepresentation of material facts following her fire loss.”
Finally, the court observed that even though its ruling was based on a fundamental failure to prove materiality in the procedural circumstances at trial below, the insured would not be precluded from arguing at re-trial “a fact-finder could also consider whether [she] corrected her misstatements promptly in her examination under oath in considering their materiality.” July 30, 2019
Pokhan v. State Farm Fire & Cas. Co., New Jersey Superior Court Appellate Division DOCKET NO. A-3336-17T3, 2019 N.J. Super. Unpub. LEXIS 1699, 2019 WL 3425917 (App. Div. July 30, 2019) (Accurso, Fuentes, JJ.)
In this case, the New Jersey Appellate Division provides a detailed analysis of the notice requirements due from insured to insurer in UIM cases, where the underlying tortfeasor is seeking to settle the claim. The key is that notice must be given before the underlying claim has been settled and released, to protect the insurer’s subrogation options and rights. The court also cites generally principles governing an insured’s duty of candor.
The court was particularly concerned with the situation where the insured informs the insurer that a potential settlement is on the table, when the case is already settled and the insurer’s subrogation rights are actually compromised.
In this case, the insureds’ counsel had informed the UIM insurer that a settlement offer was pending, when in fact the case had already settled and potential claims against the tortfeasor were released. The UIM insurer refused to pay benefits in these circumstances, and the insureds sued for UIM benefits.
The court found the New Jersey Supreme Court’s 2018 decision in Ferrante v. New Jersey Manufacturers Insurance Company controlling. In Ferrante, the Supreme Court held that if “the insured, regardless of his state of mind, fails to give the UIM carrier any notice of the UIM claim until after the final resolution of the underlying tort action, thereby causing the irretrievable loss of the carrier’s rights to subrogation and intervention before the carrier has ever learned of the existence of the claim, coverage is forfeited.”
The Ferrante court made general observations about an insured’s duties and obligations. “Our case law has routinely emphasized the importance of candor by insureds and the obligation to act in a forthright, open, and honest manner with their carriers throughout the entire process of their claim.” The insured has a commitment “not to misrepresent material facts [that] extends beyond the inception of the policy to a post-loss investigation.” Insureds have been given incentive to tell the truth, and it “would dilute that incentive to allow an insured to gamble that a lie will turn out to be unimportant.” In the UIM context, these general rules mean that courts should “seek to avoid rewarding insureds for omitting key details in a UIM claim.”
Date of Decision: December 21, 2018
Iellimo v. Amica Mut. Ins. Co., Superior Court of New Jersey Appellate Division DOCKET NO. A-4975-16T1, 2018 N.J. Super. Unpub. LEXIS 2795, 2018 WL 6712251 (App. Div. Dec. 21, 2018) (DeAlmeida and O’Connor, JJ.) (Not Precedential)
In this case, the court granted the insurer a judgment notwithstanding the verdict. The case involved misrepresentations in applying for insurance, specifically involving whether the insureds actually lived in the home they were seeking to insure.
The court recited a litany of evidence from the trial showing the homeowner wife knew that home for which she and her husband were seeking coverage had never actually been owner occupied, despite many representations to the contrary. Once the insurer discovered the misrepresentations, it issued a notice of cancellation. The home was destroyed by fire after the notice of cancellation, but before the cancellation effective date and the insureds sought coverage.
The carrier refused to pay, and rescinded the policy based on fraudulent representations. It did, however, pay $1.4 Million to the innocent mortgage company named on the policy. It took an assignment of the mortgage after payment.
The insured brought various claims, including bad faith, and the insurer counterclaimed for equitable fraud/rescission, unjust enrichment, and restitution as well as claims under the Insurance Fraud Prevention Act (IFPA). Prior to trial, the court granted the insurer summary judgment on the bad faith, consumer protection law, and attorney’s fee claims. At trial, the jury ruled for the insured on the breach of contract claim and against the insurer on all of its claims.
On the JNOV motion, the trial court concluded that the evidence, even taken in a light most favorable to the insureds, showed misrepresentations in obtaining the policy and during the fire investigation. It thus allowed for rescission and restitution.
On appeal, the Appellate Division observed that equitable rescission can be based on even innocent misrepresentations, as long as they are material misrepresentations. The appellate court agreed the representations made in obtaining the policy were both false and material. Though unnecessary to make the equitable fraud case, the court also found the record showed the misrepresentations were intentional. In sum, it upheld the judgment in favor of rescission and restitution.
Date of Decision: November 14, 2018
Sesztak v. Great N. Ins. Co., New Jersey Superior Court Appellate Division DOCKET NO. A-2846-15T4, 2018 N.J. Super. Unpub. LEXIS 2491 (N.J. Super. App. Div. Nov. 14, 2018) (DeAlmeida, Mawla, Yannotti, JJ.)
This case involved New Jersey’s Commissioner of the Department of Banking and Insurance’s pursuit of a claim under the Insurance Fraud Prevention Act (IFPA). The trial court found that the insured falsely claimed she was injured while driving, and it imposed civil penalties, including counsel fees.
Before the commissioner’s action, the insured actually won $25,000 in arbitration against her carrier, but at the trial de novo the jury concluded that the accident never occurred and found for the insurer. After the jury verdict, the commissioner brought this IFPA action. The insured appealed on various procedural grounds, most of which were rejected. The appellate court did remand, however, as the special civil part judge did not provide the reasoning behind the civil penalties imposed.
Date of Decision: October 19, 2018
Badolato v. McMillan, Superior Court Appellate Division DOCKET NO. A-5474-16T1, 2018 N.J. Super. Unpub. LEXIS 2311, 2018 WL 5091799 (New Jersey Appellate Division Oct. 19, 2018) (Koblitz, Ostrer, JJ.)
The insurer sought damages and rescission under Pennsylvania common law and New Jersey’s Insurance Fraud Prevention Act. There was a fire at the insured’s New Jersey shore home, and allegedly subsequent theft of personal property from the home. The insured made a claim for lost personal property and submitted photographs of the lost items.
After investigation, the insurer concluded that the photographs were taken after the fire loss at issue, at a different home owned by the insured in Philadelphia. Thus, contrary to the insured’s sworn statement, these items were not lost or stolen from her shore home.
The policy provided there was no coverage “if, whether before or after a loss, an ‘insured’ has: 1. intentionally concealed or misrepresented any material fact or circumstance; 2. engaged in fraudulent conduct; or 3. made false statements relating to this insurance.”
The insurer denied the claims for the personal property in the photos on the basis that the insured “intentionally concealed and/or misrepresented material facts concerning [her] claim for personal property, and made false statements regarding the items that were allegedly lost due to the fire or theft.”
The insured brought breach of contract and bad faith claims, which were dismissed for lack of prosecution. The insurer’s fraud claims were raised as counterclaims. The insured did not file any opposition, and by the time the insurer moved for summary judgment, the insured was pro se.
On the Pennsylvania common law fraud claims, the court observed: “It follows, as the night follows the day, that [the insured] has suffered no personal property loss for the items photographed since she still had possession of those undamaged items after the fire and alleged theft.”
The court not only granted relief on the personal property damage claims for the allegedly lost items, but as to the entire loss, including the sum paid for the value of the home. The court stated:
“The record is clear that [the insurer] made payments … in reliance on what it believed at the time to be her truthful representations about her losses as a result of the fire and alleged theft. [The insurer paid] $351,767.17 in dwelling coverage and $10,000 in personal property coverage. As it turned out, there is no genuine dispute about the fact that [the insured] made materially false representations … in an effort to mislead it into paying her for personal property which she did not lose. … Under the terms of the insurance policy, no coverage is provided if the insured either before or after the loss intentionally concealed or misrepresented any material fact, engaged in fraudulent conduct, or made a false statement relating to their insurance. Clearly, [the insured] breached these provisions of the policy.”
Accordingly, we will enter summary judgment … against [the insured] on the counterclaim of common law fraud for $361,767.16, the amount …paid to her.”
The court also granted equitable rescission under Pennsylvania common law fraud principles, and granted relief under New Jersey’s Insurance Fraud Prevention Act. The court noted that the New Jersey statute includes recovery of reasonable investigation expenses, costs of suit and attorney’s fees. However, the court did not appear to award damages for investigation, costs or legal fees.
The Act itself provides for relief against an insured who “(1) Presents or causes to be presented any written or oral statement as part of, or in support of or opposition to, a claim for payment or other benefit pursuant to an insurance policy . . . knowing that the statement contains any false or misleading information concerning any fact or thing material to the claim; or . . . (3) Conceals or knowingly fails to disclose the occurrence of an event which affects any person’s initial or continued right or entitlement to (a) any insurance benefit or payment or (b) the amount of any benefit or payment to which the person is entitled[.] N.J.S.A. § 17:33A-4(a).(1, 3).”
The same facts supporting the common law fraud finding supported this statutory relief.
Finally, the court also awarded over $45,000 in prejudgment interest on the Pennsylvania claims.
Date of Decision: August 21, 2018
Pallante v. Certain Underwriters at Lloyd’s, London, U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 17-1142, 2018 U.S. Dist. LEXIS 141427 (E.D. Pa. Aug. 21, 2018) (Bartle, J.)
The carrier brought action against its insured alleging violations of the New Jersey Insurance Fraud Prevention Act, breach of contract, breach of good faith and fair dealing, and unjust enrichment. The trial court dismissed the claims and the appellate division affirmed. Both courts found the evidence did not support a fraud claim, and that any such claim was subject to a general release.
Date of Decision: August 16, 2018
The insured law firm submitted a renewal application for a professional liability policy. Asked whether he knew of any potential legal malpractice claims pending against him, the insured answered “no.” The insurer renewed the policy, and the insured later faced a malpractice claim based upon circumstances that preexisted the renewal application.
The insurer denied coverage alleging a material misrepresentation, and argued that the policy was void ab initio. The trial court granted summary judgment to the insurer. The insured appealed, and argued that the trial court erred in determining the insured made a material misrepresentation.
The Appellate Division stated that “a subjective standard applies when considering a challenge to an insured’s prior knowledge representation[,]” however, “subjective intent may not be controlling when the undisputed facts . . . reveal otherwise.” The Court found “overwhelming credible evidence showing” that the insured knew about a potential malpractice claim at the time he filled out the renewal application. This evidence came in the form of the insured’s own deposition testimony. As a result, the Court stated that the insured made a material misrepresentation on the renewal application, and this misrepresentation justified the insurer’s denial of coverage.
Date of Decision: May 1, 2018
Ironshore Indemnity v. Pappas & Wolf, Superior Court of New Jersey, Appellate Division, Docket No. A-0959-16T1 (Per Curiam), 2018 N.J. Super. Unpub. LEXIS 1010 (N.J. App. Div. May 1, 2018) (Per Curiam).
This case involved the duty of an insured to keep his UIM carrier informed in connection with the underlying tort litigation. By failing to give timely notice, the insured lost coverage.
In its opinion, the New Jersey Supreme Court stated:
“Our case law has routinely emphasized the importance of candor by insureds and the obligation to act in a forthright, open, and honest manner with their carriers throughout the entire process of their claim. See Longobardi v. Chubb Ins. Co. of N.J., 121 N.J. 530, 539, 582 A.2d 1257 (1990) (“[A]n insured’s commitment not to misrepresent material facts extends beyond the inception of the policy to a post-loss investigation.”) We have provided insureds “an incentive to tell the truth. It would dilute that incentive to allow an insured to gamble that a lie will turn out to be unimportant.” Id. at 541-42, 582 A.2d 1257, 582 A.2d 1257. Although this case arises in a different context, we seek to avoid rewarding insureds for omitting key details in a UIM claim.”
The insured lost coverage for his failure to notify the UIM insurer of the underlying claim and its progress. The court’s decision was “not rooted in [the insured’s] state of mind, but rather in his actions.” The Supreme Court adopted the Appellate Division dissenter’s approach on the issue: “If . . . the insured, regardless of his state of mind, fails to give the UIM carrier any notice of the UIM claim until after the final resolution of the underlying tort action, thereby causing the irretrievable loss of the carrier’s rights to subrogation and intervention before the carrier has ever learned of the existence of the claim, coverage is forfeited.” (Emphasis in original).
Thus, an insured breaches the insurance policy terms by a delay in giving notice until after an arbitration, high-low agreement or jury trial.
Date of Decision: April 11, 2018
An insurer brought a declaratory judgment action seeking policy rescission based upon alleged misstatements concerning the insured’s business in the application process. The insured was subject to a liability suit in state court, and asked the federal court to abstain from hearing this federal action.
The federal court refused. It cited recent Third Circuit case law making clear that there is no policy favoring blanket abstention of insurance declaratory judgment actions; and focused on the fact that the two cases were not parallel proceedings and were not substantially similar.
Date of Decision: October 20, 2017
Scottsdale Indemnity Co. v. Collazos, Civil No. 16-8239 (RBK/KMW), 2017 U.S. Dist. LEXIS 173990 (D.N.J. Oct. 20, 2017) (Kugler, J.)
Defendants owned a transportation company and used their van to transport passengers between states, for a fee. The insured alleged that a defendant/insured fraudulently used his ex-wife’s personal information to obtain insurance on the van. The van collided with another vehicle on the New Jersey Turnpike. One passenger was injured.
It is undisputed that the van operated as a livery vehicle or taxi at the time of the accident. The policy contains a liability coverage and medical expense exclusion precluding coverage for commercial conveyance.
The insurer asserted a claim for statutory insurance fraud under N.J.S.A. 17:33A-1 (Count I), declaratory relief stating that it has no liability or obligation to pay or indemnify anyone injured in the accident (Count II), and common law fraud (Count III). The insurer moved for default judgment against the defendants/insureds and for summary judgment as to the claims of its alleged coverage obligations. The passengers cross-moved for declaratory judgment, and alleged that they were entitled to minimum coverage pursuant to New Jersey state law.
“[I]n order to establish liability for insurance fraud, [the insurer] must demonstrate that the defendant ‘presented any knowingly false or misleading statement in an insurance application.” The defendant “admitted wrongdoing in procuring a personal policy in the name of [his ex-wife], despite knowing that the Policy would be used for commercial purposes . . . .” As such, the Court granted the insurer a default judgment on the insurance fraud claim, stating “no facts suggest that the . . . Defendants would have a meritorious defense against the common law fraud claim. “The Court further held the policy void ab initio.
Lastly, the Court addressed whether New Jersey’s public policy of compensating innocent third-party accident victims compelled the insurer to provide minimum coverage to the passengers. The Court observed that the New Jersey No Fault Act “is designed to ‘ensure that automobile accident victims are not left without the means to recover financially for their injuries from a judgment-proof tortfeasor[,]’” However, the Court ultimately held that because the van operated as a commercial vehicle at the time of the accident, it did not qualify as an “automobile” under the act. Therefore, the insurer is not required to remit minimum coverage to the third-party passengers.
Date of Decision: September 22, 2017
21st Century Insurance Co. v. Santana, No. 15-7075, 2017 U.S. Dist. LEXIS 155083 (D.N.J. Sept. 22, 2017) (Wolfson, J.)
