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Liberty Mutual Insurance Co. v. Land

March 14, 2006

LIBERTY MUTUAL INSURANCE COMPANY, PLAINTIFF-APPELLANT,
v.
ROSE LAND AND FRANK LAND, DEFENDANTS, AND STEVEN BUDGE, DEFENDANT-RESPONDENT.



SYLLABUS BY THE COURT

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

In this appeal, the Court must determine the appropriate standard of proof under the Insurance Fraud Prevention Act (IFPA), N.J.S.A. 17:33A-1 to -30.

Rose Land owns a small cabin in Highland Lakes that she and her husband Frank use as a vacation home. At the time the dispute arose, Liberty Mutual insured the cabin for property damage. On December 12, 2000, a tree located on the property of Joseph Rizzo, the Lands' next-door neighbor, fell onto the roof of the Lands' cabin. Land telephoned his nephew, Steven Budge, a licensed public adjuster in the State of New Jersey, to assess the damage and secure the structure.

After Rizzo's wife reported that there were men on Land's roof doing "additional damage," Rizzo videotaped Budge and his associates working on the cabin's roof. The videotape depicts the three men taking a portion of the fallen tree and slamming it against the roof, creating further damage and shattering a skylight. The videotape also shows Frank Land on the ground gesturing to Budge and his associates and climbing a ladder to provide a jacket to one of the workers.

Budge assisted the Lands in preparing and filing an insurance claim on their behalf with Liberty Mutual for $69,338. Joseph Balinski, a builder employed by Liberty Mutual, inspected the cabin ten days after the incident. Balinski prepared a damage estimate concluding it would cost only $9,921 to make the necessary repairs. At trial, Balinski also testified that he had previously inspected the property in connection with a prior damage claim by the Lands, and found that some of the prior damage was included in the estimate submitted in support of the December 2000 claim. Balinski also stated that many of the repairs in Budge's estimate were unnecessary.

Liberty Mutual denied coverage and filed suit against the Lands and Budge, alleging IFPA violations. The Lands and Budge counterclaimed against Liberty Mutual alleging, among other claims, bad faith in denying the claim. After a six-day trial, the jury returned a verdict in favor of Liberty Mutual, finding that it had proven by clear and convincing evidence that all three defendants "knowingly misrepresented, concealed, or failed to disclose any material fact concerning the property loss." The jury further concluded that Budge "intentionally cause[d] or contribute[d] to the loss." The trial court awarded Liberty Mutual treble damages, counsel fees, and investigative costs totaling $82,413 and denied Budge's motion for reconsideration.

The Lands and Budge appealed, asserting that the trial court committed prejudicial errors during the trial. Liberty Mutual cross-appealed, claiming that the trial court erred in charging the jury that an IFPA violation must be proven by clear and convincing evidence. In an unpublished opinion, the Appellate Division reversed and remanded for a new trial for various reasons, including prejudicial statements made by Liberty Mutual's counsel during summation. The panel also concluded, without analysis, that the proper burden of proof under IFPA is clear and convincing evidence."

The Supreme Court granted certification limited solely to determining the appropriate standard of proof. The Court also allowed the Attorney General and the New Jersey State Bar Association to participate as amici curiae. HELD: The standard of proof required under the New Jersey Insurance Fraud Prevention Act is a preponderance of the evidence.

1. The New Jersey Rules of Evidence set forth three standards of proof: preponderance of the evidence, clear and convincing evidence, and proof beyond a reasonable doubt. As a general rule, the preponderance of the evidence standard applies in civil actions. Under the preponderance standard, a litigant must establish that a desired inference is more probable than not. If the evidence is in equipoise, the burden has not been met. The clear and convincing standard is a higher standard that "should produce in the mind of the trier of fact a firm belief or conviction as to the truth of the allegations sought to be established." Courts have called for clear and convincing evidence in civil cases when more is at stake than the loss of money. Such cases would involve a loss of liberty or deprivation of interests that are fundamental or significant to personal welfare. The highest standard, proof beyond a reasonable doubt, is applied primarily in criminal cases. (pp. 6-9)

2. Because the language of the IFPA and its legislative history are silent concerning the applicable standard of proof, the Court must attempt to discern the Legislature's intent from its purpose in promulgating the Act and its context. The IFPA is a comprehensive statute designed to help remedy high insurance premiums, which the Legislature deemed to be a significant problem. A person or practitioner violates the Act by making a knowingly false statement in support of or in opposition to a claim for payment under an insurance policy. Other violations include presenting any knowingly false or misleading information in an insurance application, and knowingly assisting or conspiring with another to violate the Act. There are a broad range of enforcement mechanisms and penalties available under the Act. The Commissioner of the Department of Banking and Insurance can bring a civil action, as can an insurance company that has been damaged by a violation. Damages can be trebled if the defendant engaged in a pattern of violations. The penalties authorized by IFPA are remedial in nature, and the Court is required to construe the Act's provisions liberally to accomplish the Legislature's broad remedial goals. (pp. 9-14)

3. In the only published opinion addressing the standard of proof under the IFPA, a Law Division court held that a party seeking relief must prove a violation by clear and convincing evidence. Harleysville Insurance Co. v. Diamond, The opinion of the court was delivered by: Justice Zazzali

Argued October 24, 2005

On certification to the Superior Court, Appellate Division.

In this appeal, we must determine the appropriate standard of proof under the Insurance Fraud Prevention Act (IFPA), N.J.S.A. 17:33A-1 to -30. In December 2000, a tree fell onto the cabin of defendants Rose and Frank Land. Following the accident, the Lands and co-defendant Steven Budge, who is the Lands' nephew and a licensed public adjuster, submitted a claim of loss to plaintiff Liberty Mutual Insurance Company (Liberty Mutual). Based on evidence suggesting fraudulent activity on the part of defendants, including a videotape depicting Budge and two other men repeatedly slamming a 600-pound portion of the fallen tree against the cabin's roof, Liberty Mutual filed suit against defendants asserting IFPA violations. At the conclusion of trial, a jury ruled in favor of Liberty Mutual, concluding that it had proven its claims by clear and convincing evidence. Defendants appealed, and Liberty Mutual cross-appealed, asserting that the trial court should have applied a preponderance of the evidence standard. The Appellate Division reversed and remanded for a new trial, finding that Liberty Mutual's counsel committed prejudicial errors. The panel, however, agreed with the trial court that IFPA violations must be proven by clear and convincing evidence.

We granted Liberty Mutual's petition for certification, limiting our review solely to the proper standard of proof. For the reasons set forth below, we hold that the standard of proof under the Insurance Fraud Prevention Act is a preponderance of the evidence.

I.

Rose Land owns a small cabin at 32 Cohocton Road in Highland Lakes that she and her husband Frank use as a vacation home. At the time that the dispute arose, Liberty Mutual insured the cabin for property damage. On the morning of December 12, 2000, a tree located on the property of Joseph Rizzo, the Lands' next-door neighbor at 30 Cohocton Road, fell onto the roof of the Lands' cabin. After Rizzo personally informed Frank Land of the accident, Land telephoned his nephew, Steven Budge, a licensed public adjuster in the State of New Jersey, to assess the damage and secure the structure. In addition to informing Land, Rizzo also called his insurance company, which sent an agent to inspect the damage later that day. During the inspection, Rizzo and the insurance representative observed that the tree "significant[ly] damage[d]" a portion of the Lands' roof.

Shortly thereafter, Rizzo's wife informed him that she saw Budge and two other men on the top of the cabin "doing some additional damage." "To protect [him]self" against increased damage claims, Rizzo then videotaped Budge and his associates working on the cabin's roof. The videotape depicts the three men taking a portion of the fallen tree, estimated to be about 600 pounds, and slamming it at least ten times against the roof, creating further damage to the roof and shattering a skylight. The videotape also shows Frank Land on the ground gesturing to Budge and his associates and climbing a ladder to provide a jacket to one of the workers. At trial, Budge explained his conduct on the videotape as "perform[ing] emergency service on the home."

Budge subsequently assisted the Lands in preparing and filing an insurance claim on their behalf with Liberty Mutual for $69,338. In connection with that claim, the Lands and Budge agreed that, if there was a recovery, Budge would receive fifteen percent of the insurance settlement proceeds. At Liberty Mutual's request, the Lands submitted four separate proofs of loss. Each proof of loss was submitted on Budge's letterhead, bore his signature, and included a provision in which the insured swore that there was no attempt to deceive Liberty Mutual. Rose Land and her husband also appeared for an examination under oath as part of the claims process.

Anne Hamtil, Liberty Mutual's insurance adjuster, and Joseph Balinski, a builder employed by the company, inspected the cabin ten days after the incident. Based on that inspection, Balinski prepared a damage estimate for the December 2000 loss, concluding that it would cost only $9,291.23 to make the necessary repairs. At trial, Balinski testified that he had previously prepared a damage estimate in connection with a 1999 insurance claim filed by Rose Land that also involved a tree falling on the cabin. In comparing the two estimates, Balinski found that some of the damage documented in the 1999 claim had not been repaired and was included in the estimate submitted in support of the December 2000 claim. Balinski also stated that, in his opinion, many of the repairs in the 2000 estimate were unnecessary.

Because of the suspect nature of the Lands' claim, Liberty Mutual denied coverage and filed suit against the Lands and Budge, alleging IFPA violations. The Lands counterclaimed against Liberty Mutual seeking to enforce their homeowners' insurance policy claim and asserting that Liberty Mutual acted in bad faith in denying that claim. Budge also counterclaimed, alleging bad faith on the part of Liberty Mutual. After a sixday trial, the jury returned a verdict in favor of Liberty Mutual, finding that it had proven by clear and convincing evidence that all three defendants "knowingly misrepresented, concealed, or failed to disclose any material fact concerning the property loss." The jury further concluded that Budge "intentionally cause[d] or contribute[d] to the loss." The trial court awarded Liberty Mutual treble damages, counsel fees, and investigative costs totaling $82,412.64 and denied Budge's motion for reconsideration.

Defendants appealed, asserting that the trial court committed prejudicial errors during trial. Liberty Mutual cross-appealed, claiming that the trial court erred in charging the jury that an IFPA violation must be proven by clear and convincing evidence. In an unpublished opinion, the Appellate Division reversed and remanded for a new trial for various reasons, including prejudicial statements made by Liberty Mutual's counsel during summation. The panel also concluded, without analysis, that it was "satisfied that the proper burden of proof [under IFPA] is clear and convincing evidence." We granted certification, limited solely to determining the appropriate standard of proof. 183 N.J. 587 (2005). We also allowed the Attorney General and the New Jersey State Bar Association to participate as amici curiae.

II.

We commence our analysis with a review of the standards of proof at issue in this appeal. We then look to IFPA's plain language, statutory purpose, and penalties to determine whether the Legislature addressed the question. ...


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