SEPTEMBER 2014 BAD FAITH CASES: INSUREDS LIABLE FOR OVER $800,000 UNDER NEW JERSEY’S INSURANCE FRAUD PROTECTION ACT; INSURER NOT REQUIRED TO RETURN PREMIUMS AS PREDICATE FOR RECOVERY IN CASE WHERE FRAUD IS ALLEGED IN MAKING A CLAIM ON THE POLICY, NOT IN PROCURING THE POLICY (New Jersey Appellate Division)
In Masaitis v. Allstate New Jersey Insurance Company, the jury not only ruled that the insureds were not entitled to compensation from the insurer for a fire loss to their home, but there was a judgment awarding more than $800,000 against them under N.J.S.A. 17:33A-7(a), a provision of the Insurance Fraud Protection Act (IFPA), N.J.S.A. 17:33A-1 to -30.
The county prosecutor did not find arson, but the carrier continued to investigate the claim after it was originally made, ultimately denying it on the basis of “misrepresentation, fraud or concealment,” including specific reasons with the denial. The carrier eventually paid mortgagees $675,000. The insured filed suit against the insurers and the mortgagees, and the insurer filed a counterclaim under the IFPA.
A jury found “that plaintiffs had knowingly misrepresented material facts concerning their claim for payments under their insurance policy, but it also found that [the insurer] had not proven that plaintiffs committed arson.” The final judgment was for over $800,000, which also included interest, attorney’s fees, and costs per the IFPA.
On appeal, the court rejected the arguments that the trial court erred in permitting the insurer to argue arson, and that the insurer was estopped from denying the claim because it did not refund the premium. The court found no error in the trial court’s ruling that the carrier had “produced sufficient circumstantial evidence of plaintiffs’ involvement in the cause of the fire to present a jury question.”
The court did instruct the jury that the insurer bore the burden of proving arson as an affirmative defense, along with the burden to prove its counterclaims. Moreover, “the jury found insufficient proof that plaintiffs were guilty of arson. Its verdict in favor of [the insurer] was based on its finding that plaintiffs had misrepresented their losses in making their claims on personal property damaged by the fire.” The jury answered special interrogatories on this point, in finding an IFPA violation.
As to the estoppel argument, the requirement to return premiums is found in cases where the policy was obtained by fraud at its inception; whereas, in this case the insurer was alleging that a fraudulent claim was being made on the policy itself, not that the policy was procured through fraud.