Court Opinion

ID: 7323945
Source: CourtListenerOpinion
Date Created: 2022-07-25 21:29:13.831827+00
Date Added: 2024-06-11T09:07:35.854479
License: Public Domain

ASHRAFI, J.A.D.,
dissenting.
Defendant Sabrina A. Perez fraudulently obtained a basic automobile insurance policy with $10,000 of liability coverage, pursuant to N.J.S.A. 39:6A-3.1. The majority holds that plaintiff CURE, the insurance carrier, must provide up to $15,000 liability coverage to reimburse an innocent third-party, Dexter Green, for his injuries resulting from an accident caused by the driver of Perez’s vehicle. The fraud against CURE had nothing to do with the amount of coverage. It should not increase the amount of coverage. For his injuries, Green should be entitled to claim up to $10,000 in reimbursement from CURE.
*536The majority confirms our holding in New Jersey Manufacturers Insurance Co. v. Varjabedian, 391 N.J.Super. 253, 258, 917 A.2d 839 (App.Div.), certif. denied, 192 N.J. 295, 927 A.2d 1294 (2007) , that a standard auto insurance policy that was voided because it was fraudulently obtained should be reformed to provide the minimum $15,000/$30,000 liability coverage required by N.J.S.A. 39:6A-3 and 39:6B-1. Plaintiff CURE and amicus curiae, The Insurance Council of New Jersey, argue that Varjabedian was wrongly decided because New Jersey automobile insurance law does not mandate a minimum of $15,000/$30,000 liability coverage for all vehicles insured in this State. Since Varjabedian was decided more than six years ago, the Legislature has not acted to supersede or revise its holding in accordance with arguments made on this appeal by plaintiff and amicus curiae. Consequently, I would not depart from the holding of Varjabedian as it applies to a standard auto policy pursuant to N.J.S.A. 39:6A-3 and 39:6B-1.
But this case does not involve a standard auto policy. The policy at issue here is a basic policy authorized by N.J.S.A. 39:6A-3.1. It was issued with $10,000 maximum liability coverage. As I see it, the majority’s decision is contrary to the Supreme Court’s discussion of related issues in Palisades Safety & Insurance Ass’n v. Bastien, 175 N.J. 144, 814 A.2d 619 (2003), and Rutgers Casualty Insurance Co. v. LaCroix, 194 N.J. 515, 946 A.2d 1027 (2008), namely, that an innocent injured party is not entitled to more coverage than provided by the policy that was issued.
In the two Supreme Court eases, the disputes involved personal injury protection (PIP) coverage for household members where the insured had made material misrepresentations in obtaining an auto policy. The Court confirmed the holding of Marotta v. NJAFIUA 280 N.J.Super. 525, 656 A.2d 20 (App.Div.1995), aff'd o.b., 144 N.J. 325, 676 A.2d 1064 (1996), and stated that innocent, injured parties remain protected by an auto policy despite fraud in its procurement, although at reduced, statutorily-mandated amounts of coverage. LaCroix, supra, 194 N.J. at 530-33, 946 *537A.2d 1027; Bastien, supra, 175 N.J. at 147, 814 A.2d 619; see also Fisher v. N.J. Auto. Full Ins. Underwriting Ass’n, 224 N.J.Super. 552, 554-59, 540 A.2d 1344 (App.Div.1988) (innocent injured passenger was entitled to PIP coverage despite fraud in the procurement of an auto policy). However, the Court also stated that the insured’s fraud does not enhance coverage provided by the policy. LaCroix, 194 N.J. at 526, 946 A.2d 1027; Bastien, 175 N.J. at 151, 814 A.2d 619. Here, the majority has done just that; it has enhanced the amount of coverage provided by the CURE policy.
In Bastien, supra, 175 N.J. at 146, 814 A.2d 619, the insured had fraudulently obtained a policy at a lower premium by purposely omitting his spouse from the application for insurance as a household member and an insured driver under the policy. The issue before the Court was whether a presumably innocent, injured spouse was nevertheless entitled to PIP coverage. Id. at 145, 150, 814 A.2d 619. The Court held she was not. Id. at 152, 814 A.2d 619. It reasoned that she was “an incidental beneficiary” of her husband’s fraud, and that the fraud “should not result in [the wife] achieving a better position than she otherwise would have held” if no fraud had been committed. Id. at 151-52, 814 A.2d 619.
In LaCroix, supra, 194 N.J. at 518, 946 A.2d 1027, an innocent teenage daughter in the household had been purposely omitted from her father’s auto insurance application and was later injured in an accident. The Court relied upon equitable considerations in holding that the daughter was nevertheless entitled to PIP coverage, although at the minimum amounts required by statute. Id. at 532-33, 946 A.2d 1027. The Court stated:
Our opinion [in Bastien ] stressed that a claimant must be evaluated as if he or she held the status to which he or she would have been entitled had the named insured completed the application honestly. We noted that parties seeking to recover should not be permitted to improve their likelihood of recovery solely on the strength of a misrepresentation.
[Id. at 526, 946 A.2d 1027 (citing Bastien, supra, 175 N.J. at 150, 814 A.2d 619).]
The incongruous result in this case may be caused by the reference in Varjabedian, supra, 391 N.J.Super. at 260, 917 A.2d *538839, to “reformation” of a fraudulently obtained policy. The majority concludes that reformation of the CURE policy requires that it provide the $15,000/$30,000 minimum mandatory coverage of N.J.S.A. 39:6A-3 and 39:6B-1. Actually, the court’s function is not to reform the insurance policy, but instead, to “mold[ ]” an appropriate “rescission remedy,” LaCroix, supra, 194 N.J. at 532, 946 A.2d 1027, for the defrauded insurance carrier so that it is provided relief but innocent third parties are also protected.
In LaCroix, the Court explained the equitable basis by which the law requires coverage for innocent injured parties where an auto policy is otherwise voided because of fraud in its procurement. Id. at 528-29, 946 A.2d 1027. The Court stated:
Rescission remains a form of equitable relief in whatever setting its need arises, and courts wielding that remedy retain the discretion and judgment required to ensure that equity is done. In furtherance of that objective, a court may shape the rescission remedy in order to serve substantial justice.

[Ibid.]

Here, the rescission remedy afforded to CURE should be molded and shaped to void the CURE policy with respect to those persons who benefitted from the fraud but not with respect to an innocent injured third party such as Green. Although Perez’s misrepresentation in obtaining the policy permits CURE to void the policy as it applies to her and other incidental beneficiaries of her fraud, CURE may not void the policy as to Green. At the same time, Green is entitled to no more than the policy provided. As to Green, the policy should be enforced as it was issued, with a $10,000 limit of coverage.