NOVEMBER 2018 BAD FAITH CASES: JUDGMENT FOR RESCISSION AND RESTITUTION UPHELD ON APPEAL FOR MATERIAL MISREPRESENTATIONS IN OBTAINING POLICY (New Jersey Superior Court)
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The carrier refused to pay, and rescinded the policy based on fraudulent representations.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.)