Archive for the 'NJ- Reverse Bad Faith' Category

NOVEMBER 2017 BAD FAITH CASES: FEDERAL DISTRICT COURT WOULD NOT ABSTAIN IN DECLARATORY JUDGMENT MATTER BASED ON ALLEGED FRAUD IN INSURANCE APPLICATION (New Jersey Federal)

Published on November 8, 2017 in NJ- Reverse Bad Faith. Closed
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An insurer brought a declaratory judgment action seeking policy rescission based upon alleged misstatements concerning the insured’s business in the application process. The insured was subject to a liability suit in state court, and asked the federal court to abstain from hearing this federal action. The federal court refused. It cited recent Third Circuit case law making clear that there is no policy favoring blanket abstention of insurance declaratory judgment actions; and focused on the fact that the two cases were not parallel proceedings and were not substantially similar.

Date of Decision: October 20, 2017

Scottsdale Indemnity Co. v. Collazos, Civil No. 16-8239 (RBK/KMW), 2017 U.S. Dist. LEXIS 173990 (D.N.J. Oct. 20, 2017) (Kugler, J.)

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)

Published on October 17, 2017 in NJ - Coverage Issues and NJ- Reverse Bad Faith. Closed
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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.)

SEPTMEBER 2017 BAD FAITH CASES: COURT ANALYZES ATTORNEY-CLIENT PRIVILEGE AND WORK PRODUCT AS TO BOTH INSURER’S AND INSURED’S COUNSEL; DISCOVERY OF REGULATORY COMPLAINT DEPENDENT ON WHETHER THERE IS A PENDING INVESTIGATION (New Jersey Federal)

Published on September 13, 2017 in NJ - Discovery and Evidence and NJ- Reverse Bad Faith. Closed
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Following in today’s discovery theme, this opinion addresses application of the attorney-client privilege and the work product doctrine in the context of making or investigating an insurance claim. It has the unusual aspect that it includes not only an analysis of the insurer’s attorney, but the conduct and communications of the insured’s attorney.

The court found that the insurer’s communications with its counsel were in the nature of legal advice. Thus, virtually all communications were subject to the attorney client privilege. However, as to the insured’s counsel, the court concluded that some of the attorney’s functions did not include rendering legal advice. Thus, some communications between the insured’s counsel and the insured were not protected by attorney client privilege.

As to the work-product doctrine, the key issue is when litigation was reasonably anticipated. As to the insurer’s counsel, litigation was not reasonably anticipated until approximately one month from retention, so the doctrine did not apply to counsel’s work prior to that time. Certain investigative reports had to be produced.

Similarly, the court found that the insureds could not have reasonably anticipated litigation until over one year after they hired counsel. The court found that there were documents “prepared in the ordinary course of [counsel’s] claims investigation … and cannot now be protected as work product because they are useful in this case. While they may contain [counsel’s] mental impressions and opinions, they were not created in anticipation of litigation, and the work product doctrine does not apply.”

Finally, the insureds sought “production of a letter and claim fraud referral forms [the insurer] submitted to New Jersey’s Office of Insurance Fraud Prosecutor (‘OIFP’).” The insurer was withholding these documents “pursuant to statutory authority, N.J.S.A. 17:33A-11; regulatory authority, N.J.A.C. 11:16-6.11, and the State Deputy Attorney Gener[al]’s non-disclosure request applicable to insurance companies.” Whether production could be required depended upon the existence of a pending investigation. If OIFP “is conducting an investigation … ordering disclosure via [the insurer] would ‘circumvent and nullify the statute’ and could further taint or prejudice the investigation.” Thus, the court ordered the insurer to “submit an affidavit from the OFIP as to whether an investigation is open or not….”

Subsequent to the Court’s original August 22, 2017 opinion, there was a supplemental decision issued on September 22, 2017. This opinion does not materially alter the points discussed above.

Subsequent to the September 22, 2017 opinion, the Court issued two additional opinions. The first (issued on September 26, 2017) severed and stayed the bad faith claim. Next, on October 13, 2017, the Court issued another opinion on discovery, which did not address the bad faith discovery because that had been stayed, but went on to address more definitively issues concerning the attorney-client privilege and work product doctrine.

Of additional note is the Court’s October 13th ruling that the insurer did not have to produce its attorney invoices at this time during litigation on its insurance fraud claim against the insured. The Court concluded that such documentation would only have to be produced if and after the insurer prevailed on this claim, as the invoices themselves are not necessary to resolve the issue of whether the insured caused any damages through insurance fraud.

Date of Decision: August 22, 2017, September 22, 2017, October 13, 2017.

Legends Management Co., LLC v. Affiliated Insurance Co., Civil Action No. 2:16-CV-01608-SDW-SCM, 2017 U.S. Dist. LEXIS 134020 (D.N.J. Aug. 22, 2017) (Mannion, M.J.)

Legends Management Co. v. Affiliated Insurance Co., Civil Action No. 2:16-CV-01608-SDW-SCM, 2017 U.S. Dist. LEXIS 154773 (D.N.J. Sept. 22, 2017) (Mannion, M.J.)

Legends Mgmt. Co., LLC v. Affiliated Ins. Co., Civil Action No. 2:16-CV-01608-SDW-SCM, 2017 U.S. Dist. LEXIS 170326 (D.N.J. Oct. 13, 2017) (Mannion, J.)

DECEMBER 2016 BAD FAITH CASES: REVERSE BAD FAITH RELIEF AND STATUTORY INSURANCE FRAUD GRANTED ON SUMMARY JUDGMENT (Philadelphia Federal)

Published on December 21, 2016 in NJ- Reverse Bad Faith. Closed
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In this case, the record was uncontroverted that the insured stated in the application to his homeowner’s carrier that he did not use alternative heat sources. However, he later admitted to using kerosene heaters. The house burned down, and he made claims for coverage, which were denied. He brought suit for breach of contract.

The carrier counterclaims for breach of the duty of good faith and fair dealing, and insurance fraud under 18 Pa.C.S. § 4117. The Court granted summary judgment to the insurer on both the breach of the contractual duty of good faith and statutory insurance fraud based upon the uncontroverted evidence. It rejected an 11th hour argument that the insured was illiterate, based upon the record showing he was capable of reading.

Date of Decision: November 22, 2016

Payne v. Allstate Ins. Co., No. 11-2546, 2016 U.S. Dist. LEXIS 162376 (E.D. Pa. Nov. 22, 2016) (Schiller, J.)

NOVEMBER 2016 BAD FAITH CASES: COURT FINDS THAT (1) LOSSES QUALIFIED AS ACCIDENTAL OCCURRENCES AND WERE SUBJECT TO COVERAGE; AND (2) INSURED DID NOT ACT IN BAD FAITH IN SETTLING CLAIMS WITH CUSTOMERS WITHOUT INSURER’S CONSENT (New Jersey Superior Court Appellate Division)

Published on November 1, 2016 in NJ - Coverage Issues and NJ- Reverse Bad Faith. Closed
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The insured made animal health products, and filed a complaint seeking a declaratory judgment that its insurer was required to provide coverage for economic losses suffered by three of the insured’s customers. The customers raised chickens for human consumption, and alleged that the growth of the chickens were stunted due to the chickens ingesting a drug made by the insured intended to control a common intestinal disease. The insured also alleged that the insurer had breached the implied covenant of good faith and fair dealing. Both parties moved for summary judgment.

In granting summary judgment in favor of the insurer, the trial court found that there was no coverage and that the insured waived its right to indemnification by settling customer claims without the insurer’s consent. The insured appealed.

On appeal, the Appellate Division reversed, and concluded that the losses associated with the growth-stunting effects of the insured’s product did constitute “occurrences” and “property damage” within the meaning of the provisions in the policy providing coverage. The Court reasoned that the pivotal question under the insuring clauses was whether the stunted growth of the chickens allegedly caused by the insured’s product was an “accident”, and therefore an “occurrence”. The Court found that the stunted growth was a covered occurrence, because it was not foreseeable that the additive consumed by the chickens would lead to harmful side effects.

The Appellate Division rejected the insurer’s contention that any coverage it may owe to the insured for the payments to the three customers was nullified because the insured settled with the customers without the insurer’s consent. The insurer argued that the insured did not act in good faith when it settled with one of its customers because “it did so before either the amount of damages or its liability to [the customer], if any, was even remotely clear.” However, the Court found that the insured did not act in bad faith when it settled with its customer, as two and a half months had passed after the insured submitted the claim to the insurer and had yet to receive a response. The Court reasoned that in this situation, the insured “made a reasonable business decision to settle, to ensure continued relations with an important customer and to avoid the risks and costs of litigation.”

Date of Decision: July 14, 2016

Phibro Animal Health Corp. v. Nat’l Union Fire Ins. Co., No. A-5589-13T3, 2016 N.J. Super. Unpub. LEXIS 1632 (Super. Ct. App. Div. July 14, 2016) (Accurso, O’Connor, and Sabatino, JJ.)

 

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Photograph by M. M. Ginsberg

AUGUST 2015 BAD FAITH CASES: POLICY RESCISSION NOT A BASIS TO AVOID PAYMENT TO INNOCENT THIRD PARTY UNDER AUTOMOBILE INSURANCE LAW WHERE INSURED SELECTS MINIMUM BODILY INJURY COVERAGE (New Jersey Supreme Court)

Published on August 27, 2015 in NJ- Reverse Bad Faith. Closed
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In Citizens United Reciprocal Exchange v. Perez, New Jersey’s Supreme Court found that even where an insurer could void an auto policy for fraud, if the insured had selected the $10,000 minimum coverage for bodily injury, an innocent third party could still recover that sum from the insurer.

Under New Jersey law, “a material factual misrepresentation made in an application for insurance may justify rescission if the insurer relied upon it to determine whether or not to issue the policy.” “The right rule of law . . . is one that provides insureds with an incentive to tell the truth. It would dilute that incentive to allow an insured to gamble that a lie will turn out to be unimportant.”

In that case, the insurer’s application required listing all household residents of driving age. The insured failed to list a resident who later caused an auto accident. The court was clear that had the insured identified this person as a household member of driving age, the insurer would not have issued the policy due to his poor driving record.

Still, the court did not hesitate in finding that under New Jersey’s statutory scheme governing automobile insurance and the public policy behind those statutes, the insurer could still be liable to innocent third parties. It did limit that liability to the amount of coverage selected by the insured (the $10,000 minimum here), and further stated that it “would likewise be improper to hold the insurance carrier liable for an amount in excess of that for which it had previously contracted….”

Thus, the court held that “where an insured elects to add the basic policy’s optional $10,000 coverage for third-party bodily injury in their original contract, the insurer shall be liable to innocent third parties for the contracted $10,000 amount as the minimal amount available under our compulsory system of automobile insurance coverage, even when that basic policy is later voided. …. [However, we] further hold that when an insured elects not to add the basic policy’s optional $10,000 coverage in their original contract, the insurer shall not be held liable to any injured, innocent third-party claimants under that contract.”

Date of Decision: August 13, 2015

Citizens United Reciprocal Exchange v. Perez, A-67 September Term 2013, 073384, 2015 N.J. LEXIS 871 (N.J. Aug. 13, 2015)

JULY 2015 BAD FAITH CASES: INSURED SUED IN PRIVATE ACTION BY CARRIER UNDER NEW JERSEY’S INSURANCE FRAUD PROTECTION ACT MAY DEMAND A JURY TRIAL (New Jersey Supreme Court)

Published on July 31, 2015 in NJ- Reverse Bad Faith. Closed
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In Allstate New Jersey Insurance Co. v. Lajara, New Jersey’s Supreme Court ruled that an insured-defendant, subject to private claims for compensatory and punitive damages under the Insurance Fraud Prevention Act, is entitled to a jury trial.

Date of Decision:

Allstate New Jersey Insurance Co. v. Lajara, September Term 2013, 073511, 2015 N.J. LEXIS 797 (July 16, 2015)

JUNE 2015 BAD FAITH CASES: NO VIOLATION OF NEW JERSEY’S INSURANCE FRAUD PREVENTION ACT WHERE INSURER COULD NOT PROVE INDIVIDUALS’ FRAUDULENT INTENT (New Jersey Appellate Division)

Published on June 2, 2015 in NJ- Reverse Bad Faith. Closed
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In Allstate Insurance Company v. Northfield Medical Center, P.C., the court found that a business partnership between a chiropractor and a doctor, that submitted claims to the insurer, was not intentionally structured to violate the Insurance Fraud Prevention Act. Thus, it overturned a nearly $4 million judgment for the insurer.

The case arose out of a partnership that a chiropractor set up in the mid-1990’s that was meant to be a multi-disciplinary practice. An entity called “Practice Perfect,” gave lectures and sold corporate kits and documents to assist in the structuring of multi-disciplinary practices. Defendant chiropractor attended a Practice Perfect lecture given by a healthcare lawyer, in which the attorney reviewed legal issues, such as state-law prohibitions against medical doctor/chiropractor combinations, medical professional company/management company relationships, ownership and organization of the management company, and company practice prohibitions. The attorney also reviewed laws banning self-referrals and fee-splitting between a physician and limited license holder, and advised him to seek the advice of an attorney regarding the differences between state laws.

The business model would give a nonphysician investor more control of profits in a multidisciplinary practice in which only a physician could have majority stake. The investor would form a management company that would fund the medical corporation for payment of rent, equipment leases and staff salaries, and a medical practice, which would be owned by a medical doctor and repay the management company from patient fees. The Court found that attorney and creator of this model “believed that the scheme was a legitimate tool for accomplishing the goal of allowing limited license holders to increase their earnings by creating multi-disciplinary practices.”

The defendant chiropractor incorporated a multi-disciplinary medical practice, and a management company. The insurer sued after a fraud analyst investigated the medical practice “as part of a general inquiry into illegally structured chiropractic offices which were issuing unlawful billing,” and concluded that the medical practice “should not have been billing [the insurer] under the personal injury protection statute because [the chiropractor] tried to make it appear as though a medical doctor owned [the practice] when in fact it was he who owned and controlled it.”

The appeals court reversed the trial court’s ruling and held that “[a]part from any legal definition of knowledge, the point is that [the insurer] has failed to establish, by a preponderance of the evidence, that [the appellants] showed an awareness or understanding that their aid or advice to [the chiropractor] would assist him in violating the law.” Thus, because the individuals did not have fraudulent intent, they could not be held liable under New Jersey’s Insurance Fraud Protection Act.

Date of Decision: May 4, 2015

Allstate Ins. Co. v. Northfield Medical Ctr., P.C., DOCKET NOS. A-0636-12T4, A-0964-12T4, 2015 N.J. Super. Unpub. LEXIS 1018 (App. Div. May 4, 2015) (Alvarez, Waugh, and Maven, JJ.)

DECEMBER 2014 BAD FAITH CASES: COURT AFFIRMS TRIAL COURT’S DECISION TO VOID THE POLICY, BUT REMANDS FOR TRIAL ON STATE OF MIND ISSUE FOR INSURER’S CAUSE OF ACTION UNDER NEW JERSEY’S INSURANCE FRAUD PREVENTION ACT (New Jersey Appellate Division)

Published on December 26, 2014 in NJ- Reverse Bad Faith. Closed
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In Continental Casualty Co. v. Hochschild, an insured sought coverage for damage to his boat, and the insurer claimed that no coverage was due because of misrepresentations in the insurance application. The Appellate Division found that the policy was to be voided on the basis of equitable fraud, and affirmed the trial court’s decision to void the policy solely on that basis.

It vacated the trial court’s finding that the insured violated New Jersey’s Insurance Fraud Prevention Act (IFPA), because a trial was required to address the factual issues concerning that claim. The appellate court was specifically concerned about the “stringent state-of-mind requirements that an insurer must prove to obtain affirmative relief under the IFPA”, and directed that the trial “shall focus on whether the insured ‘knowingly’ made false or misleading statements to the insurer, as required by” the IFPA.

Date of Decision: November 20, 2014

Cont’l Cas. Co. v. Hochschild, DOCKET NO. A-2267-13T1, SUPERIOR COURT OF NEW JERSEY, 2014 N.J. Super. Unpub. LEXIS 2753 (App. Div. September 22, 2014) (Sabatino and Guadagno, JJ.)

 

DECEMBER 2014 BAD FAITH CASES: INSURED LIABLE UNDER NEW JERSEY’S INSURANCE FRAUD PREVENTION ACT (IFPA) (New Jersey Federal)

Published on December 26, 2014 in NJ - Lawyer's-Attorney's Fees and NJ- Reverse Bad Faith. Closed
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In Federal Insurance company v. Von Windherburg-Cordeiro, the insurer had denied a disability claim. The insured pursued the matter in a AAA arbitration, where the insurer counterclaimed for fraud. The insurer successfully defeated the insured’s affirmative claims, and prevailed on its counterclaim, and was awarded attorney’s fees. The arbitrator had concluded that the insured’s injuries were largely or entirely feigned.

The insurer then brought a claim in federal court for violation of the IFPA. The court rendered judgment on the pleadings in the insurer’s favor.

Date of Decision: November 24, 2014

Fed. Ins. Co. v. Von Windherburg-Cordeiro, Civil Action No. 12-2491 (JAP), 2014 U.S. Dist. LEXIS 163828 (D.N.J. November 24, 2014) (Pisano, J.)