The New Jersey Supreme Court has ruled that even when an insurance policy is obtained by fraudulent means, the insurer must still compensate any innocent third parties according to the provisions of the policy.
In the case before the New Jersey Supreme Court, Citizens United Reciprocal Exchange v. Perez, Citizens United had issued an insurance policy to a New Jersey resident with a rider that provided $10,000 in coverage for any third-party bodily injury. The policyholder, however, did not disclose on the application that there was another resident in the home who might drive the insured vehicle, even though that question was specifically asked on the application for insurance. The undisclosed resident subsequently caused an accident and personal injury while driving the insured automobile.
When the injured party sought recovery from Citizens United, the company denied the claims, contending that the policy was never valid, based on the policyholder’s fraudulent failure to accurately disclose that someone else in the home would drive the vehicle. In a subsequent lawsuit, the trial court agreed that the policy was void from its inception, but nonetheless required the insurer to pay the minimum amount required by New Jersey law ($15,000) to the innocent third party. Citizens United appealed, arguing that because the policy was never legally in effect, there could be no liability.
On appeal, the court concurred that Citizens United could void the policy, but held that it would be “unjust and contrary to public policy” to prevent an innocent third party from recovering under the policy because of the fraud of the policyholder. Because the policy had a specific rider that provided for $10,000 in coverage for bodily injury, the appellate court concluded that Citizens United must pay that amount. The Supreme Court agreed with the court of appeals.
Contact the New Jersey Personal Injury Lawyers at the Law Offices of Harold J. Gerr
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