OCTOBER 2017 BAD FAITH CASES: NO MERITORIUS DEFENSE TO DEFAULT JUDGMENT WHERE POLICY OBTAINED BY FRAUD; INNOCENT THIRD-PARTY NOT ENTITLED TO MINIMUM COVERAGE BECAUSE VEHICLE USED COMMERCIALLY (District of New Jersey)

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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.)

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