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New Jersey Automobile Insurance Plan v. Sciarra

December 30, 1998


The opinion of the court was delivered by: Rodriguez, J.


This matter is before the court on a host of summary judgment motions. Oral argument on the motions was held on Wednesday, November 4, 1998.


The facts of this dispute are well-known to the Court. The original Complaint in the primary action, New Jersey Automobile Insurance Plan v. Sciarra, Civ. Action No. 92-1369, *fn1 was filed on March 31, 1992 and essentially alleges that Defendants - most of whom have settled with Plaintiffs and are no longer parties to this action -defrauded commercial automobile insurers by assisting trucker-insured in making false representations in their insurance applications within the involuntary insurance market. This involuntary insurance market was created under both Pennsylvania and New Jersey law to provide insurance Plans for those commercial trucking companies who were unable to obtain reasonably priced liability coverage through ordinary methods. The Commercial Auto Insurance Plans ("CAIPs") assign insurance carriers to supply coverage. The Automobile Insurance Plans Services Office ("AIPSO"), a private company, administers both the New Jersey and Pennsylvania CAIPs, as well as drafts the manuals containing the rules implementing the CAIPs.

The Plan rules permitted three methods of computing the premiums for truckers, all of which were intended to produce comparable premium amounts. Defendant/Third-Party Plaintiff Paul W. Hopkins apparently utilized a "loophole" in the rules for one of the methods that, when combined with other manipulations of the rules, resulted in substantial reductions in insurance premium costs to the truckers under both the New Jersey and Pennsylvania Plans. Marketing himself as an insurance consultant and operating through Defendant Justin Sciarra and his insurance agency, Hopkins charged clients based on the savings he could produce rather than the more common charge of a percentage of the premium.

Specifically, the method used by Defendants (collectively referred to as "Sciarra/Hopkins") is called the "cost of hire" method. This method, used for vehicles leased on a short-term basis (i.e., less than six months), basically employs a two-step formula: First, the "average specified car rate" must be calculated. This is determined by adding together all of the rates for the vehicles scheduled on the policy and dividing by the number of scheduled vehicles. This figure is then multiplied by .0033. Second, the average specified car rate (per 100) is multiplied by the "cost of hire" figure. This "cost of hire" is determined by adding a number of operating costs together. The Sciarra/Hopkins methodology produces a significantly lower premium primarily by manipulating the number of scheduled vehicles a trucking company reports and by narrowly construing what is included in the "cost of hire."

To take advantage of the "cost of hire" method, Sciarra/Hopkins would instruct the trucking company to create another company to serve as the owner of the fleet of trucks. The trucking company would then lease the trucks back from its newly created company under short-term leases, decreasing the number of vehicles it would have to report. Another unique feature of the Sciarra/Hopkins methodology is that it limits "total cost of hire" to include only driver wages and truck rent, rather than including such things as fuel, tolls, maintenance and other costs involved in leasing a truck on a short-term basis.

Contesting the validity of the Sciarra/Hopkins method of computing premium rates, Plaintiffs and Third-Party Defendants claim that Sciarra/Hopkins advised, counseled, encouraged and directed motor carriers to inaccurately report the number of vehicles owned by the motor carriers, manipulated the cost of hire and radius of operations, and obscured previous adverse lost histories. Plaintiffs base their claims on violations of the RICO Act and the New Jersey Racketeering Statute, as well as common law fraud, breach of contract, and unjust enrichment.

In defense to Plaintiff's claims and in support of their counterclaims and third-party claims against Third-Party Defendants, Sciarra/Hopkins maintain that the methodology they used to compute the application figures was entirely proper under the Plan rules. They further claim that Plaintiffs engaged in a conspiracy among themselves and others to monopolize the involuntary insurance market by manipulating the insurance rating procedures. Specifically, Sciarra/Hopkins' Third-Party Complaint alleges that Plaintiffs/Third-Party Defendants conspired, in restraint of trade and in violation of federal antitrust laws, to create a monopoly of the involuntary insurance market by retroactively altering the Plan rules to make Sciarra/Hopkins' methodology appear fraudulent and attempting to force them out of business. In furtherance of this goal, Sciarra/Hopkins argue that Third-Party Defendants also published numerous disparaging remarks about Sciarra/Hopkins and their services to Plan representatives and others in the insurance industry.

Sometime in 1992, New Hampshire Insurance Company ("New Hampshire"), one of the servicing carriers that was engaged to insure Sciarra/Hopkins' clients under the New Jersey Plan, filed suit in the Superior Court of New Jersey, Burlington County against Alert Motor Freight, Inc. ("Alert"). New Hampshire alleged that Alert, one of Sciarra/Hopkins' trucker clients, owed it $139,512.20 for liability insurance. This matter was ultimately removed to the District of New Jersey before Judge Stephen M. Orlofsky and was reassigned to this Court on December 19, 1996. New Hampshire Insurance Company, Inc. v. Alert Motor Freight, Inc., No. 96-5497.

On or about August 3, 1995, The Travelers Indemnity Company ("Travelers"), another one of the servicing carriers that insured Sciarra/Hopkins' clients under both the Pennsylvania and New Jersey Plans, *fn2 filed suit against E.F. Corporation ("E.F."), in the Common Pleas Court of Pennsylvania, Berks County. Similarly, Travelers sought to recoup money lost on the premiums it claims Sciarra/Hopkins inappropriately calculated for E.F., another one of Sciarra/Hopkins' trucker clients. After E.F. filed a timely notice of removal, this case was finally removed to the District Court for the Eastern District of Pennsylvania and was eventually transferred to the District of New Jersey before Judge Joseph E. Irenas. The Travelers Indemnity Company v. E.F. Corporation, Civ. A. No. 97-1900. This case was consolidated with New Jersey Automobile Insurance Plan v. Sciarra, Civ. A. No. 92-1369 and New Hampshire Insurance Company, Inc. v. Alert Motor Freight, Inc., No. 96-5497, by Magistrate Judge Robert B. Kugler in an order dated September 12, 1997.

After years of discovery and an ever increasing hostility among the parties, Judge Kugler ordered discovery closed on September 2, 1997. Also in this June 16, 1997 Amended Scheduling Order, the parties were given time lines for filing dispositive motions. Approximately fifteen of these motions for summary judgment are presently before the Court. *fn3


A. Summary Judgment Standard

The entry of summary judgment is appropriate only when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). An issue is "genuine" if it is supported by evidence such that a reasonable jury could return a verdict in the non-moving party's favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A fact is "material" if, under the governing substantive law, a dispute about it might affect the outcome of the suit. Id. In determining whether a genuine issue of material fact exists, the court must view the facts and all reasonable inferences drawn from those facts in the light most favorable to the non-moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).

The moving party has the initial burden of demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the moving party has met this burden, the non-moving party must identify, by affidavits or otherwise, specific facts showing that there is a genuine issue for trial. Id. at 324. The non-moving party may not rest upon mere allegations or denials of its pleadings. Id. "[T]he plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Id. at 322.

However, in deciding the motion, the court does not "weigh the evidence and determine the truth of the matter, but [instead] determine[s] whether there is a genuine issue for trial." Anderson, 477 U.S. at 248. If the non-movant has provided evidence exceeding the "mere scintilla" threshold in demonstrating a genuine issue of material fact, the court cannot weigh the evidence and credit the movant's interpretation of the evidence. This is so even if the movant's evidence far outweighs the non-movant's evidence. Credibility determinations are the province of the fact-finder. *fn4 Big Apple BMW, Inc. v. BMW of North America, 974 F.2d 1358, 1363 (3d Cir. 1992), cert. denied, 507 U.S. 912 (1993).

B. The Sciarra/Hopkins' Methodology

1. Propriety of Partial Summary Judgment

The Sciarra/Hopkins methodology is, in one way or another, at the heart of this dispute. Essentially seeking a declaratory judgment (although not including any claims for declaratory relief in their Third-Party Complaint), Defendants and Third-Party Plaintiffs moved for partial summary judgment, asking this Court to declare that their methodology was proper under the Plan rules. *fn5 Plaintiffs and Third-Party Defendants claim that it is improper for Defendants to seek summary judgment only on the limited issue of their interpretation of the Plans' rules.

Federal Rule of Civil Procedure 56 governs motions for summary judgment. Subsection (a) of this rule permits a claimant who seeks to recover "upon a claim, counterclaim or cross-claim or to obtain a declaratory judgment" to move for summary judgment and subsection (b) permits the motion to be filed by a defending party "against whom a claim, counterclaim or cross-claim has been asserted or a declaratory judgment is sought[.]" Subsection (c) gives the standard to be employed, also stating that "[a] summary judgment, interlocutory in character, may be rendered on the issue of liability alone although there is a genuine issue as to the amount of damages." Finally, subsection (d) allows the court, in its discretion, to enter an interlocutory order "specifying the facts that appear without substantial controversy, including the extent to which the amount of damages or other relief is not in controversy, and directing such further proceedings in the actions as are just."

Nothing in this rule can be read to allow partial summary judgment on only one portion of a claim. RePass v. Vreeland, 357 F.2d 801, 805 (3d Cir. 1966); Coffman v. Federal Lab., Inc., 171 F.2d 94, 98 (3d Cir. 1948), cert. denied, 336 U.S. 913 (1949); Kendall McGaw Lab., Inc. v. Community Mem'l Hosp., 125 F.R.D. 420, 421 (D.N.J. 1989); Westinghouse Elec. Corp. v. Fidelity & Deposit Co., 63 B.R. 18, 22 (W.D. Pa. 1986). Subsections (a) and (b) state what party may file this motion, and only speak in terms of "a claim, counterclaim or cross-claim[.]" Discussing these subsections, Judge Fisher observed that "[s]ummary judgment may be had as to one claim among many, but it is well settled that neither subsection allows such a judgment as to one portion of a claim." Kendall, 125 F.R.D. at 421 (citing RePass, 357 F.2d at 805). Likewise, subsection (d) allows the court to issue interlocutory orders to narrow the issues before trial, but only where the facts "appear without substantial controversy[.]" Thus, nothing in this rule permits summary judgment motions intended "to dispose of only part of a single claim." Westinghouse, 63 B.R. at 22.

It would therefore seem that Sciarra/Hopkins and their clients are precluded from compelling this Court to determine the propriety of their methodology through a summary judgment motion. They contend, however, that the issue of their methodology will in fact dispose of a single claim, because if it is determined that it was proper under the Plan rules, the court would be compelled to dismiss Plaintiffs' fraud claim. Defs.' Reply Mem. Supp. Partial Summ. J. at 2. Therefore, they argue that "the determination will dispose of an entire single claim." Id.

In Kendall, the court was presented with the cross-motions of both the plaintiff and the defendant that asked the court to decide "the appropriate measure of damages should a trial, or later motion practice, resolve the crucial issue." 125 F.R.D. at 421. The court held this type of relief to be improper for a summary judgment motion under Rule 56. Id. at 422 ("A Rule 56 movant may not 'play leapfrog' with his case by seeking a decision whose validity depends on one or more unresolved issues."). Thus, the court held that summary judgment was not an appropriate method to address a single issue from the rest of the case because it would not have disposed of an entire claim, counterclaim or cross-claim.

Similarly, in the present case, the validity of the Sciarra/Hopkins methodology is a single issue, not any type of claim. Although this is a very significant issue, its relative importance does not convert it into a "claim, counterclaim or cross-claim[.]" Sciarra/Hopkins and their clients do not seek declaratory relief in their Third-Party Complaint, and cannot now use Rule 56 as a vehicle to get a declaration on this narrow issue. More importantly, even if this issue was decided in their favor, it would not automatically dispose of any of Plaintiffs' claims. At best, it remains an issue involved in Plaintiffs' fraud claim. Thus, Defendants and Third-Party Plaintiffs' argument impermissibly stretches the concept that partial summary judgment on a portion of a claim is inappropriate and cannot be accepted. Partial summary judgment regarding the Sciarra/Hopkins methodology is inappropriate and is denied.

2. Collateral Estoppel

Sciarra/Hopkins and their clients also argue that Plaintiffs and Third-Party Defendants are barred from relitigating the issue of the interpretation of the Sciarra/Hopkins methodology because it was already decided in their favor in Aero Trucking v. Aetna Cas. & Sur. Co., C.A. No. 88C-FE-101 (Oct. 12, 1995), an unreported opinion of a Delaware state trial court.

Collateral estoppel requires that: "(1) the identical issue was previously adjudicated; (2) the issue was actually litigated; (3) the previous determination was necessary to the decision; and (4) the party being precluded from relitigating the issue was fully represented in the prior action." Raytech Corp. v. White, 54 F.3d 187, 190 (3d Cir. 1995) (citing United Indus. Workers v. Government of the Virgin Islands, 987 F.2d 162, 169 (3d Cir. 1993)). As the fourth factor shows, the party against whom collateral estoppel is asserted must have been involved in some way in the prior adjudication. Under New Jersey law, "[t]he scope of privity, while largely freed from the very constrictive common law mutuality anchor, remains small." Collins v. E.I. DuPont de Nemours & Co., 34 F.3d 172, 176 (3d Cir. 1994) (citing Romano v. Kimmelman, 190 N.J. Super. 554 (1983), aff'd, 96 N.J. 66 (1984)). "A relationship is usually considered "close enough" only when the party is a virtual representative of the non-party, or when the non-party actually controls the litigation." Id. Defendants and Third-Party Plaintiffs claim that "the parties in [Aero Trucking and the instant case] are so substantially similar as to be identical." Defs.' Reply Mem. Supp. Partial Summ. J. at 4. Aero Trucking involved a Delaware trucking company who sought insurance in the involuntary market through the Delaware Plan, which like the New Jersey and Pennsylvania Plans, was administered by AIPSO. One of the servicing carriers involved was The Aetna Casualty and Surety Company ("Aetna"), which was also used as a servicing carrier under the New Jersey Plan and captioned as a third-party defendant in the Sciarra case. Based on this, Sciarra/Hopkins and their clients concluded that "it would be absurd to argue that there was no privity between the parties to the two litigations." Defs.' Reply Mem. Supp. Partial Summ. J. at 5.

Contrary to Defendants and Third-Party Plaintiffs' strong assertions, Aero Trucking has absolutely no preclusive effect on the present case. None of the Defendants or Third-Party Plaintiffs were involved in the Delaware case, nor were any of the Plaintiffs or Third-Party Defendants other than Aetna. It has not been shown that Aetna had any express or implied legal relationship with Plaintiffs or Third-Party Defendants that would allow it to function as a "virtual representative" for purposes of collateral estoppel. Collins, 34 F.3d at 176.

Furthermore, and perhaps more significantly, the cases do not involve the "identical issue." Aero Trucking concerned the interpretation of the Delaware Plan rules. Admittedly, the Delaware Plan was also administered by AIPSO, but its rules are not identical to the New Jersey or Pennsylvania Plans. Additionally, each plan was enacted by its respective state legislature with a potentially different legislative history. The states do not merely ratify a single plan, as in the case of adopting a uniform agreement, but they create their own plan. Moreover, AIPSO contracts with the particular plans individually, not with any one insurance company like Aetna. Thus, collateral estoppel does not apply and Plaintiffs and Third-Party Defendants are not estopped from challenging the validity of the Sciarra/Hopkins methodology.

3. Waiver

Defendants and Third-Party Plaintiffs argue that Plaintiffs waived their right to enforce the Plan rules against Sciarra/Hopkins and their clients because Plaintiffs did not warn Sciarra/Hopkins or their clients that their method of computing the premiums was improper, thereby implicitly authorizing their interpretation. This alleged waiver occurred through a correspondence sent by Edward Fackenthal on behalf of his motor carrier client (not a party to this action) to John Verruso, manager of the Pennsylvania Plan, allegedly seeking the Plan's views on the Sciarra/Hopkins method. (Letter from Fackenthal to PA Plan dated 5/4/87). Verruso responded simply that it was beyond the Plan's responsibility to answer Fackenthal's questions, and suggested that he contact an insurance producer or consultant. (Letter from Verruso to Fackenthal dated 5/28/87).

The United States Court of Appeals for the Third Circuit discussed the concept of a legal waiver in Billman v. V.I. Equities Corp., 743 F.2d 1021 (3d Cir. 1984). There, the landlords brought an unlawful detainer action against the lessors of their property, claiming the lessors had not properly exercised their option to renew the lease. Id. at 1023. The landlords, however, had previously received the lessors' notice of intent to exercise the option and had in the interim conducted business dealings on the explicit assumption that the lease was renewed. Id. The court discussed the standard for waiver under these circumstances: "First, the landlords must have promised not to enforce the condition of the option. Second, the lessee must have relied to its detriment on the landlords' promise. And third, in view of the detrimental reliance, justice must require enforcement of a waiver." Id. (citing Restatement (Second) of Contracts § 89; 5 Williston on Contracts § 689 at 308-09). *fn6 Finding all factors present, the court held that the landlords waived their right to insist on strict compliance with the renewal term of the lease. Id. at 1025.

In the present case, however, there was no promise, explicit or implicit, not to enforce any provision of the Plan. In fact, the letter from Verruso to Fackenthal implies nothing about the interpretation of the Plan. Moreover, Sciarra/Hopkins and their clients point to no detrimental reliance; they do not even show that they were aware of this correspondence. It also follows that, since there was no detrimental reliance, it cannot be said that justice supports the finding of a waiver.

4. Ambiguity in Plan Rules

Defendants and Third-Party Plaintiffs contend that the definitions of "average specified car rate" and "cost of hire" are ambiguous, and as such, should be construed strictly against the insurance Plans.

"[I]n establishing ambiguity, the insured must do more than suggest a possible alternative reading of the contract; it must also offer an 'objectively reasonable reading of the disputed passage.'" Pittston Co. Ultramar Am. Ltd. v. Allianz Ins. Co., 124 F.3d 508, 520 (3d Cir. 1997) (quoting New Castle County v. Hartford Accident & Indem. Co., 933 F.2d 1162, 1182 (3d Cir. 1991)). The Third Circuit stated:

We look to the number of reasonable interpretations a contract, provision, or term may receive in determining ambiguity. If we find but one reasonable interpretation, then a fortiori there can be no ambiguity. However, if the language is susceptible to more than one reasonable interpretation, then it will be found to be ambiguous. Curcio v. John Hancock Mut. Life Ins. Co., 33 F.3d 226, 231 (3d Cir. 1994) (citations omitted) (citing Taylor v. Continental Group, 933 F.2d 1227, 1232 (3d Cir. 1991) and Stendardo v. Federal Nat'l Mortgage Ass'n, 991 F.2d 1089, 1094 (3d Cir. 1993)).

Generally, when determining whether an ambiguity exists, the court must look to the doctrine of contra proferentum, which holds that "ambiguities in an insurance policy are to be resolved in favor of the insured." Curcio, 33 F.3d at 231 (citing Heasley v. Belden & Blake Corp., 2 F.3d 1249, 1257 (3d Cir. 1993)). This doctrine embodies the policy that, since most insurance contracts are drafted by the insurers themselves and are generally not the result of arms-length negotiations, they are presumed to be contracts of adhesion. See Pittston, 124 F.3d at 520-21 ("[B]ecause insurance contracts are in most instances 'nonnegotiable,' it is not unfair that the insurer 'bear the burden of any resulting confusion.'") (citing Gaunt v. John Hancock Mut. Life Ins. Co., 160 F.2d 599, 602 (2d Cir.), cert. denied, 331 U.S. 849 (1947)).

Contra proferentum is inapplicable to the present case, however, because it does not involve contracts of adhesion or contracts otherwise drafted by parties with superior knowledge of the industry; rather, the rules challenged in this case were approved by the New Jersey and Pennsylvania Departments of Insurance. See Pittston, 124 F.3d at 521 (holding contra proferentum does not apply where insurance contract is negotiated, jointly drafted or drafted by insured). Therefore, even if ambiguities where found in either of the Plan rules, this does not mean that the Sciarra/Hopkins methodology is automatically correct. In fact, "once a contract provision is found to be ambiguous, extrinsic evidence must be considered to clarify its meaning." In re New Valley Corp., 89 F.3d 143, 150 (3d Cir. 1996) (citing Hullett v. Towers, Perrin, Forster & Crosby, Inc., 38 F.3d 107, 111 (3d Cir. 1994); Taylor v. Continental Group Change in Control Severance Pay Plan, 933 F.2d 1227, 1234 (3d Cir. 1991)); see also American Cyanamid Co. v. Fermenta Animal Health Co., 54 F.3d 177, 181 (3d Cir. 1995) ("Before making a finding concerning the existence or absence of ambiguity, we consider the contract language, the meanings suggested by counsel, and the extrinsic evidence offered in support of each interpretation."). There is enough relevant extrinsic evidence in this case to merit submitting the case to a jury. Accordingly, Sciarra/Hopkins and their clients' argument is rejected.

C. Defendants Justin M. Sciarra, Sciarra Insurance Agency, Inc. Paul W. Hopkins and Hopkins & Associates, Inc., Philadelphia Insurance Exchange, Inc., Reisch Enterprises, R.G. Trucking, Inc., and Ardan, Inc. Sciarra/Hopkins Motion for Summary Judgment Dismissing Plaintiff's Complaint [461]

Sciarra/Hopkins offer many reasons why each count of Plaintiffs' Complaint should be dismissed. They claim that Plaintiffs have not proved common law fraud; that Plaintiffs' RICO counts are insufficient as a matter of law; that Plaintiffs have not proved Defendants were unjustly enriched; and that the applicable statutes of limitation have expired. Specifically, Sciarra/Hopkins allege that Plaintiffs, through their actions, condoned the Sciarra/Hopkins methodology five years before they brought suit. Further, they claim that Plaintiffs failed to follow the procedures outlined in the CAIP manuals regarding broker fraud - i.e., Plaintiffs have failed to exhaust their administrative remedies. Finally, Sciarra/Hopkins claim that the civil RICO and fraud counts must be dismissed due to insufficient pleading.

1. Common Law Fraud

Under New Jersey law, common law fraud requires: "(1) a material representation of a past or present fact; (2) knowledge by the defendant of its falsity; (3) intention that it be relied upon; (4) reasonable reliance by the other person; and (5) resulting damages." Carroll v. Cellco Partnership, 313 N.J. Super. 488, 501 (App. Div. 1998) (citing Gross v. Johnson & Johnson-Merck Consumer Pharm. Co., 303 N. J. Super. 336, 344 (Law Div. 1997)); Jewish Center of Sussex County v. Whale, 86 N.J. 619, 624 (1981) ("A misrepresentation amounting to actual legal fraud consists of a material representation of a presently existing or past fact, made with knowledge of its falsity and with the intention that the other party rely thereon, resulting in reliance by that party to his detriment."). Pennsylvania law similarly requires a plaintiff to prove: "(1) the defendant made a misrepresentation that is material to the transaction at hand; (2) the misrepresentation was made with knowledge of the statement's falsity or with reckless disregard as to whether it was true or false; (3) the defendant made the misrepresentation with the intent of inducing reliance; (4) the plaintiff justifiably relied upon the misrepresentation; and (5) the resulting injury was proximately caused by the reliance." Shoemaker v. Commonwealth Bank, 700 A.2d 1003, (Pa. Super. Ct. 1997) (citing Gibbs v. Ernst, 538 Pa. 193, 207 (1994)).

First, Sciarra/Hopkins argue that Plaintiffs' fraud claims are invalid because Plaintiffs cannot prove reliance, materiality or damages. This is because Sciarra/Hopkins claims that they never "intended the Plaintiffs to rely solely upon the insurance applications in writing the policies." Sciarra/Hopkins' Br. Supp. Summ. J. at 8 (emphasis in original). Instead, they argue that:

It was common knowledge in both the insurance and trucking industries that the applications were a mere starting point of an extensive and unending series of standard information gathering by the insurers including the ability of the insurer to request further specific information from the broker and insured at any time. Id.

Thus, even if they did attempt to defraud Plaintiffs, it was only an attempt to defraud them partially, which they claim destroys any notion of reliance. This contention also weighs toward the reasonableness of Plaintiffs' reliance on the application.

In Jewish Center of Sussex County v. Whale, a religious congregation sought recission of the employment contract it had with its rabbi because it claimed that the rabbi had fraudulently misrepresented his background by failing to disclose that he had a prior criminal record and was disbarred from the practice of law. 86 N.J. at 619. Summary judgment was granted for the plaintiff congregation, and was affirmed by the Appellate Division. Similar to Sciarra/Hopkins' claim that the insurance application was not intended to be the only source relied upon, the rabbi argued that the employment application did not require him to disclose his past, therefore implying that it was the congregations fault for relying solely on the application and not investigating other sources. Id. at 625-26. Rejecting this argument, the supreme court responded: "Defendant apparently offers these assertions to show that plaintiff's reliance was unreasonable. One who engages in fraud, however, may not urge that one's victim should have been more circumspect or astute." Id. at 626 n.1 (citing Pioneer Nat'l Title Ins. Co. v. Lucas, 155 N.J. Super. 332, 342 (App. Div.), aff'd, 78 N.J. 320 (1978)).

Moreover, there is sufficient evidence in the record to show that the insurance applications were material and relied upon by Plaintiffs and other insurers within the industry. Sciarra/Hopkins themselves admit that they "do not deny that they submitted applications to the Plans with the intention that the Plaintiffs would provide them with insurance policies." Id. Their view that reliance or materiality can only be found where the application embodies the only source of necessary information is overly narrow and is rejected.

Regarding damages, Sciarra/Hopkins claim that recission is not a proper remedy to assigned risk providers like Plaintiffs. They further argue that even if material misrepresentations were found, the contract could be voided ab initio and Plaintiffs would just return all premiums and be absolved of liability for claims brought under the policy. Since Plaintiffs have not sought to void the contracts, Sciarra/Hopkins argue that no "reasonable" trier of fact could conclude that Plaintiffs "determined to remain on risk subsequent to their `discovery' of `misrepresentation' by the defendants." The court finds that this line of thinking does not serve to establish the absence of a genuine issue of material fact for Sciarra/Hopkins.

Sciarra/Hopkins next argue that Plaintiffs' claim of misrepresentation of information on the applications should be dismissed, basically because the Sciarra/Hopkins methodology is correct under Plan rules. The court sees this section of argument as nothing more than a rehash of the argument that this court can make a determination on the Sciarra/Hopkins methodology. As discussed above, therefore, this argument is improper.

Next, Sciarra/Hopkins argue that Plaintiffs' failure to cancel any of the Defendants' policies for misrepresentation, in accordance with Plan rules, constitutes a waiver of the claims of misrepresentation and fraud. Sciarra/Hopkins argue that by failing to follow Plan rules and by offering renewed terms based on additional risks not known to them, Plaintiffs "promised" not to enforce cancellation of the policy for misrepresentation at a later dated. Sciarra/Hopkins also argue that they relied to their detriment on Plaintiff's conduct because if there were a proper cancellation the truckers would have had a right of appeal. *fn7

Similarly, Sciarra/Hopkins argue that Plaintiffs are equitably estopped from claiming misrepresentation because Plaintiffs' conduct in failing to cancel the policies for misrepresentation caused Sciarra/Hopkins to believe that Plaintiffs did not believe there had been misrepresentations, but only additional claimed exposures. Further, Sciarra/Hopkins contend that Plaintiffs acquiesced that the information in the policies was proper within the meaning of the Plan rules, because Plaintiffs failed to follow proper cancellation procedures. Again, Defendants argue that they relied upon Plaintiffs' conduct to their detriment.

In response to the waiver/estoppel arguments, Plaintiffs cite Mellon Bank v. First Union Real Estate Equity & Mortgage Investments, 951 F.2d 1399, 1408 (3d Cir. 1991), and contend that the Plan rules and the doctrine of election of remedies permitted them to sue for damages without canceling the policies for misrepresentation. Plaintiffs cite to the Plan rules, which provide, "Nothing herein shall affect the [insureds'] right to rescind the policy for fraud and misrepresentation or to invoke other remedies as provided by law." (PA Plan, § 18(B)(9); NJ Plan, § 19(c)) They also cite to the portion of the Mellon case which reads, "When a contract is induced by fraud, ... the injured party has a choice of alternate remedies: he may either rescind the contract or affirm it and maintain an action in deceit for damages." 951 F.2d at 1408. Additionally, Plaintiffs argue that the applicability of the doctrines of estoppel and waiver requires resolution of facts that are in dispute, such as whether Plaintiffs knew of the misrepresentations within 120 days of policy inception, and whether Defendants would have appealed any notice of cancellation for misrepresentation since they had the right to appeal any cancellation regardless of reason but failed to do so for six of the seven truckers whose insurance was canceled. This failure to appeal, argue Plaintiffs, at the very least raises a factual question as to Defendants' reliance.

Again, the court does not believe that the Defendants have shown the presence of the Billman factors in order to support a finding of waiver in this case. Specifically, there was no promise, explicit or implicit, not to hold the Defendants liable for fraud or misrepresentation. Similarly, the court cannot find that Plaintiffs are estopped from bringing a claim for fraud or misrepresentation.

Defendants next argue that Plaintiffs do not have standing to bring this claim because neither the NJ Plan nor the PA Plan was ever authorized by the insurance commissioners to commence actions at law against Plan participants for premium collection. Defendants, however, have failed to explain how the only case that they cite, Chopper Express, Inc. v. Department of Ins. of the State of N.J., 293 N.J. Super. 536, 681 A.2d 1226 (1996), supports their argument. This court reads that case as deciding only whether the Appeals Subcommittee of the governing committee established under the NJ Plan is authorized to adjudicate a dispute regarding the amount of premiums owed by a party insured under the Plan. 293 N.J. Super. at 538, 681 A.2d at 1227. Therefore, Defendants have not proven their lack of standing argument.

Sciarra/Hopkins also argue that Plaintiffs' claims should be dismissed because they failed to follow the Plans' administrative remedies for addressing suspected insurance agent fraud. Defendants cite to Rule 19A of the NJ Plan, which states, "[t]he Committee will hear any appeal from an applicant, Insured, producer, or a Servicing Carrier on a matter pertaining to the proper administration of the Plan." Because the rule refers to servicing carriers, Defendants contend that it is mandatory that IINA pursue an appeal before it may institute a collection or fraud action. They state that they "are not arguing that every fraud or collection action requires the servicing carrier to pursue an administrative appeal. Rather, the language of the Rule itself indicates that an appeal was the proper remedy in the case at bar" because the case involves questions about the proper administration of the Plan.

Plaintiffs respond first that this defense is waived because Sciarra/Hopkins did not assert it as an affirmative defense. Plaintiffs also argue that they were not required to pursue these administrative remedies because: (1) the Plans did not have a procedure for recovery of unpaid premiums, making the administrative remedy inadequate; (2) a jury can determine whether the applications were fraudulently misrepresented, so the case does not require the expertise of the Plans; (3) a factual record has already been developed without the need for Plan intervention; and (4) discovery has been concluded and more than four years have passed without Sciarra/Hopkins asserting this defense, and therefore the defense is waived; resorting to an administrative process at this point would be unnecessary and inefficient.

The court does not see the Plan rules as establishing a mandatory avenue of administrative process that must be exhausted before resort to this court. Because Sciarra/Hopkins have not pointed to any authority mandating such exhaustion, Plaintiffs' claim will not be dismissed at this point in the litigation.

Sciarra/Hopkins argue that, as to Plaintiff's fraud claim, any damages sought against Brennan Transportation are void as a matter of law, because Plaintiffs failed to follow N.J. Admin. Code § 11:1-20 in changing Brennan's premium rates midterm without approval from the Department of Insurance. (This same argument is made against New Hampshire by Alert.) Plaintiffs rebut this argument by stating that the premium increase was a permissible adjustment based on exposures discovered during the policy period. The court finds Plaintiffs' point one well taken in light of the applicable law, as "the rule does not prohibit a premium increase where necessary to reflect coverage of an increased risk." In the Matter of N.J.A.C. 11:1-20, 208 N.J. Super. 182, 505 A.2d 177 (1986). Further, it should be noted that "[n]othing [within the statute] shall be deemed to create any right or cause of action on behalf of any insured to enforce the penalties set forth in this subsection." N.J.A.C. 11:1-20.11.

2. RICO Claim

Defendants argue that the Plaintiffs have not alleged the existence of a RICO enterprise, because they have not alleged that the Defendants make up an enterprise that is distinct from the Defendants as individuals. Moreover, the Defendants claim that the truckers were not related in any manner except for their using Sciarra or Hopkins as insurance agents (and being named as defendants in this action). Defendants also argue that Plaintiffs have failed to prove a pattern of racketeering activity. To support this argument, Defendants state that Plaintiffs have failed to state who caused what to be mailed when, and how that mailing furthered the fraudulent scheme. The Defendants also state, "Specific acts of fraud and misrepresentations are left entirely to the imagination. Although dates and transactions are alleged, the Complaint does not specify fraud or misrepresentation." They contend that Plaintiffs have failed to plead facts to meet the statutory requirement of two predicate acts or the threat of long term criminal activity. Finally, Defendants argue that Plaintiffs cannot demonstrate that they relied on the applications to their detriment.

Plaintiffs, on the other hand, have argued that they properly alleged RICO violations that are factually supported because the RICO enterprises of Sciarra Insurance Agency, Hopkins & Associates, and Philadelphia Insurance Exchange are distinct from the RICO persons, Justin Sciarra, Paul Hopkins, and the defendant truckers, and those persons were associated with the enterprises either as principals (Sciarra and Hopkins) or as clients in contractual relationships (the truckers). Plaintiffs argue that as principals of the enterprises, Sciarra/Hopkins directed the enterprises' affairs. Additionally, Plaintiffs allege a pattern of fraudulent activity in Defendants' submitting more than seven materially misrepresented applications to the Plans in an open-ended scheme. Plaintiffs state that they have alleged with particularity what was mailed, when it was mailed, and what misrepresentations were contained in each mailing as to each trucker. They note that they have submitted an affidavit which details mailings in support of the mail fraud alleged in their RICO claim. Plaintiffs also note that, contrary to Defendants' assertions, they need not show detrimental reliance to prevail on a RICO claim under § 1962(c).

The court finds that, in relation to Plaintiffs' RICO claim, Defendants have failed to show that there is no genuine issue of material fact or that they are entitled to judgment as a matter of law; Plaintiffs have ...

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