Thomas v. New Jersey Ins. Underwriting Ass'n (NJIUA)
| Decision Date | 25 July 1994 |
| Citation | 277 N.J.Super. 630,649 A.2d 1383 |
| Parties | Alice THOMAS a/k/a Alice Thomas-Burge, Plaintiff, v. NEW JERSEY INSURANCE UNDERWRITING ASSOCIATION (NJIUA), Defendant. |
| Court | New Jersey Superior Court |
William S. Greenberg, Princeton, for plaintiff (Jeffrey G. Paster, West Orange, attorney).
Richard Nichols, Parsippany, for defendant (Gennet, Kallmann, Antin & Robinson, attorneys).
This is an insurance fraud case. The plaintiff, Alice Thomas-Burge (Burge), was insured with the defendant, the New Jersey Insurance Underwriting Association (NJIUA) 1 under a homeowners policy issued on October 11, 1991. On or about January 2, 1992, Burge reported to NJIUA and to the police that her property had been vandalized. NJIUA initially denied Burge's claim because it believed the vandalism occurred over time and no single act of vandalism brought the claim over the $250.00 deductible per incident. Burge sued NJIUA under the policy. A jury verdict was rendered in favor of NJIUA.
Burge now moves for a new trial on the ground that the verdict was against the weight of the evidence. R.4:49-1(a). NJIUA moves for the assessment of counsel fees and investigative costs pursuant to N.J.S.A. 17:33A-7a, the New Jersey Insurance Fraud Prevention Act.
Burge's answers to interrogatories included an $11,000 damage estimate dated November 24, 1992, from Albert Wright, who admitted at depositions that he originally gave Burge a $7,000 estimate. Burge then asked Wright to inflate it to $12,000. Wright responded that $12,000 was too high, but $11,000 was alright. Burge claimed that she did not submit the estimate until after NJIUA had denied the claim, and that the difference between the $7,000 estimate and the $11,000 estimate arose because roof repairs were included in the higher estimate and excluded in the lower one.
This "padded" estimate became a new basis for NJIUA's defense. NJIUA now asserted that submitting a false estimate entitled it to disclaim. 2 On December 17, 1993, NJIUA amended its answer alleging, for the first time, violation of the policy's fraud and concealment clause as a defense. Burge contended that her alleged misrepresentation could not have been material because NJIUA had rejected her claim for a different reason.
The jury found by a six to two 3 vote that the vandalism had occurred on or about January 2, 1992. The jury unanimously found that Burge made a misrepresentation and that it was knowing. The jury found the misrepresentation to be material by a six to two vote. This resulted in a verdict for NJIUA.
Burge's motion under R.4:49-1(a) lacks merit. If the misrepresentation were properly before the jury, its findings were warranted because evidence of Burge's intentional "padding" was substantial. One issue, not raised until after the trial, requires extensive discussion. Burge argues her misrepresentation could not have been material as a matter of law because NJIUA had already denied her claim. The misrepresentation occurred during the ensuing litigation.
I hold that neither the majority rule that misrepresentations made during litigation can never be a basis for rejection of a claim nor the minority rule that misrepresentations made as late as the actual trial are a basis for rejection is sound law in New Jersey. Instead Longobardi v. Chubb Ins. Co., 121 N.J. 530, 582 A.2d 1257 (1990), teaches that when a misrepresentation is made is critical to determining materiality and materiality is a jury question.
The overwhelming majority rule is that misrepresentations made during litigation never void coverage. American Paint Serv. Inc. v. Home Ins. Co., 246 F.2d 91 (3rd Cir.1957) (American Paint ); Mercantile Trust Co. v. New York Underwriters Ins. Co., 376 F.2d 502 (7th Cir.1967); Royal Ins. Co. v. Story, 40 So.2d 719, cert. den., 252 Ala. 275, 40 So.2d 724 (1949); Ichthys, Inc. v. Guarantee Ins. Co., 249 Cal.App.2d 555, 57 Cal.Rptr. 734 (Ct. of App.1967); Rego v. Connecticut Ins. Placement Facility, 219 Conn. 339, 593 A.2d 491 (1991); Tarzian v. West Bend Mut. Fire Ins. Co., 74 Ill.App.2d 314, 221 N.E.2d 293 (1966); Dodson Aviation, Inc., v. Rollins, Burdick, Hunter of Kansas, Inc., 15 Kan.App.2d 314, 807 P.2d 1319 (1991); Home Ins. Co. v. Cohen, 357 S.W.2d 674 (Ky.Ct. of App.1962); Ocean-Clear Inc. v. Continental Casualty Co., 94 A.D.2d 717, 462 N.Y.S.2d 251 (1983); Halbreich v. Urbaine Fire Ins. Co., 238 A.D. 842, 262 N.Y.S. 742 (1933). Authorities cite American Paint as the prevailing rule. Annotation, Applicability of fraud and false swearing clause of fire insurance policy to testimony given at trial, 64 A.L.R.2d 962 (1959); 13A Couch on Insurance 2d § 49A:1855A (Rev. ed. 1982); 5A Appleman on Insurance § 3587 (Rev. vol. 1970). Contra Lomartira v. American Auto. Ins. Co., 371 F.2d 550 (2d Cir.1967) (Lomartira ); Follett v. Standard Fire Ins. Co., 77 N.H. 457, 92 A. 956 (1915).
There are three reasons for the majority rule. First, once litigation begins, the policy language no longer governs, and the insured has no duty to avoid misrepresentations. "When settlement fails and suit is filed, the parties no longer deal on the non-adversary level required by the fraud and false swearing clause." American Paint, supra, 246 F.2d at 94.
Second, it would be both unfair and unmanageable if insurers could first claim at trial that trial testimony itself could form the basis for a misrepresentation claim.
To permit the insurer to await the testimony at trial to create a further ground for escape from its contractual obligation is inconsistent with the function the trial normally serves. It is at the trial that the insurer must display, not manufacture, its case.
[American Paint, supra, 246 F.2d at 94].
Third, if trial testimony could itself form the basis for a misrepresentation claim, the policy of promoting settlements with pretrial discovery and a mutual knowledge of the case would be destroyed because the insurer, even if its defense were weak would hope for a mistake at trial that, suddenly, could ripen into a defense.
Lomartira disagreed and held that a misrepresentation at trial does void a policy when the policy's fraud provision was clear on its face. The provision in that case referred to a misrepresentation at "any" time, and Lomartira took the meaning of "any" literally.
Lomartira also noted that "many cases are settled after pretrial discovery, during trial, or pending appeal for a new trial." Therefore, fraudulent statements at this juncture could clearly influence settlements. Insureds should not deceive insurers during litigation with impunity. Finally, Lomartira found no basis for the assertion that allowing such defenses would encourage insurers to litigate claims in the hope that their insureds would eventually blurt out fraudulent testimony. Lomartira, supra, 371 F.2d at 554.
The practical problem of claims arising at trial will be governed by R.4:9-1. Discovery can also limit late claims. If an amendment were prejudicial or if evidence were not disclosed in discovery, it could be barred and the late claim of misrepresentation would fail. Here, NJIUA had time to amend its answer. Burge had ample notice of NJIUA's defense.
American Paint predicted New Jersey law but there was no New Jersey precedent. Lomartira predicted Connecticut law but the Connecticut Supreme Court later held that it was wrong. Rego v. Connecticut Ins. Placement Facility, supra.
New Jersey case law prior to American Paint was sparse. It cited an old United States Supreme Court case, Republic Fire Ins. Co. v. Weides, 81 U.S. (14 Wall.) 375, 20 L.Ed. 894 (1871):
It is true the policies stipulated that fraud or false swearing on the part of the assured should work a forfeiture of all claim under them. The false swearing referred to is such as may be in the submission of preliminary proofs of loss, or in the examination to which the assured agreed to submit. But it does not inevitably follow from the fact that there was a material discrepancy between the statements made by the plaintiffs under oath in their proofs of loss, and their statements when testifying at the trial that the former were false, so as to justify the court in assuming it, and directing verdict for the defendants. It may have been that the testimony last given was not true, or the statements made in the proofs of loss may have been honestly made, though subsequently discovered to be mistaken. It is only fraudulently false swearing in furnishing the preliminary proofs, or in the examinations which the insurers have a right to require, that avoids the policies, and it was for the jury to determine whether that swearing was false and fraudulent.
Republic Fire was cited by Carson v. Jersey City Ins. Co., 43 N.J.L. 300 (Sup.Ct.), aff'd, 44 N.J.L. 210 (E. & A. 1881), but not relating to false statements during litigation. Weil v. Pennsylvania Fire Ins. Co., 58 N.J.Super. 145, 155 A.2d 781 (App.Div.1959) said in dicta, in a case in which the statement was neither described nor explained [T]he alleged false swearing prior to the trial was not pleaded by appellant's answer and therefore it was properly rejected as a defense by the trial court. The false swearing which it is alleged took place at the trial would not avoid the policy.
On the other hand, Knight v. Boston Ins. Co., 113 N.J.L. 132, 172 A. 594 (E. & A. 1934) had said:
The condition in an insurance policy which provides that all fraud, or attempt at fraud by false swearing or otherwise, shall cause a forfeiture of all claim under the policy, is available as a defense only when it appears that the assured knowingly and intentionally swore falsely. Mere mistake in stating facts is not sufficient to sustain the defense. [citing Carson v. Jersey City Ins. Co., supra ].
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The question of whether or not the plaintiff swore falsely either at the trial or at his examination...
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