This is an insurance fraud case. The plaintiff, Alice Thomas-Burge (Burge), was insured with the defendant, the New Jersey Insurance Underwriting Association (NJIUA)*fn1 under a home owners 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-7(a), 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.*fn2 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*fn3 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. C. 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, 34 Ala. App. 363, 40 So. 2d 719, cert. den., 252 Ala. 275, 40 So. 2d 724 (Ala. 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 (Conn. Sup. Ct. 1991); Tarzian v. West Bend Mut. Fire Ins. Co., 74 Ill. App. 2d 314, 221 N.E.2d 293 (Ill. App. 1966); Dodson Aviation, Inc., v. Rollins, Burdick, Hunter of Kansas, Inc., 15 Kan. App. 2d 314, 807 P.2d 1319 (Kan. Ct. of App. 1991); Home Ins. Co. v. Cohen, 357 S.W.2d 6784 (Ky. Ct. of App. 1962); Ocean-Clear Inc. v. Continental Casualty Co., 94 A.D.2d 717, 462 N.Y.S.2d 251 (App. Div. 1983); Halbreich v. Urbaine Fire Ins. Co., 262 N.Y.S.2d 742 (App. Div. 1933). Authorities cite American Paint as the prevailing rule. Annotation, Applicability of false swearing clause of fire insurance policy to testimony given at trial, 64 A.L.R.2d 962 (1959); 13ACouch 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 (N.H. Sup. Ct. 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 nonadversary 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 ...