INSUREDS HAVE A DUTY OF CANDOR IN POST-LOSS INVESTIGATION AND CANNOT MISREPRESENT MATERIAL FACTS (New Jersey Appellate Division)

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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)

 

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