All automobile owners in New Jersey must carry insurance. Under New Jersey Statute 39:6A-3 the insurance must include a minimum of $15,000.00 per person, $30,000.00 per accident and $5,000.00 for property damage. But what happens if an automobile owner fraudulently applies for and receives insurance? If that car owner has an accident, is the insurance company still liable to cover the mandatory minimums? According its recent decision in Citizens United Reciprocal Exchange v. Perez, A-3100-11T1 (App. Div. Sept. 13, 2013) The Superior Court of New Jersey Appellate Division finds that the insurance company is liable to cover the mandatory minimums.
Facts of a Case Involving Voided Insurance
Luis Machuca (“Machuca”) was driving a car owned by Sabrina Perez (“Perez”). Jonathan Quevedo (“Quevedo”) was a passenger in the car. While Machuca was driving, he was involved in a car accident with Dexter Green (“Green”). (Id. 2 – 3). As a result of the accident Green claimed that he was injured, and filed a personal injury claim against Perez’s insurance. (Id. 3).
Perez insured her car with Citizens United Reciprocal Exchange (“CURE”) “under a basic policy with the optional $10,000.00 liability coverage.” (Id. 3). An issue arose when it was discovered that Machuca lived with Perez but she failed to disclose that fact in her insurance application. This led to an investigation by the Bureau of Fraud Deterrence, with the ultimate result being that Perez “entered into a consent order admitting that she ‘knowingly present false and misleading information to [ ] CURE by failing to disclose her boyfriend, Luis Machuca, on her application. . . .” (Id. at 3).
The reason that this was such an issue, apart from the fraudulent application, was that if it was disclosed that Machuca lived with Perez on the application, CURE would have denied her coverage due to Machuca’s poor driving record. Because of this failure to disclose this material fact, CURE retroactively voided the entire policy from inception and denied Green’s personal injury claims.
Procedural History
Not only did CURE send Green a letter informing him that they would not be covering his personal injury claims, but CURE also
filed a declaratory action seeking an order that the policy was void ab initio due to a material representation, that Perez and Machuca were liable to CURE for compensatory damages due to fraudulent application, and that the reformed voided policy provided no liability coverage to innocent third parties. Green and his insurer, . . . Progressive Garden State Insurance Company, filed an answer. (Id. at 3 – 4).
The trial court agreed with CURE, and granted its first two requests for relief, the policy was cancelled ab initio and that Perez and Machuca were liable to CURE for compensatory damages. However, on the last request, the one asking the court to void any liability CURE had to Green, the trial court denied the request.
In relying on N.J.S.A. 39:6A-3, 39:6A-3.2, and 39:6B-1 the court found that “‘the amount of CURE’s policy limits available to Dexter Green with regard to his personal injury claim is a compulsory minimum.” (Id. at 4).