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Nationwide Mutual Fire Insurance Co. v. Fiouris

July 27, 2007


On appeal from Superior Court of New Jersey, Law Division, Morris County, Docket No. L-2952-05.

The opinion of the court was delivered by: Skillman, P.J.A.D.



Argued June 27, 2007

Before Judges Skillman, Grall*fn1 and King.

The question presented by this appeal is whether an insurer that rejects a claim for personal injury protection (PIP) benefits on the ground that the insured procured the policy by a fraudulent representation must submit the issue of such fraud to PIP arbitration. We conclude that N.J.S.A. 39:6A-5.1, which provides for arbitration of disputes regarding PIP benefits, does not apply to a dispute regarding alleged fraud in the procurement of the policy.

On January 1, 2005, defendant Nicholas Fiouris was involved in a motor vehicle accident in Hillside, New Jersey. At the time of the accident, Fiouris was insured under an automobile liability policy issued by plaintiff Nationwide Mutual Fire Insurance Company. This policy provided for the PIP benefits required under the laws of Pennsylvania, where Fiouris claimed to reside when he applied for the policy.

Fiouris received medical treatment for the injuries he suffered in the accident from defendants Cliffside Park Imaging and Diagnostic Center and Neurology and Pain Management Associates, and subsequently assigned his right to PIP benefits under the Nationwide policy to them. These medical providers subsequently submitted claims for PIP benefits to Nationwide. In investigating those claims, Nationwide allegedly discovered that Fiouris did not reside in Pennsylvania, as he had represented in his application for the policy, but instead in Newark, New Jersey. Based on this discovery, Nationwide refused to pay the PIP claims submitted by the medical providers, who then submitted demands for PIP arbitration to the National Arbitration Forum.

Nationwide responded by filing this action in the Law Division to void the policy on the ground that it had been issued in reliance upon a material misrepresentation by Fiouris that he was a Pennsylvania resident. Nationwide claims that this misrepresentation constituted fraud, in violation of the Insurance Fraud Prevention Act, N.J.S.A. 17:33A-1 to -30. Nationwide asserts that if it had known Fiouris was a New Jersey resident, it would not have issued him a policy because it is not authorized to write private passenger automobile insurance in New Jersey.

Fiouris moved to dismiss the complaint on the ground that Nationwide's fraud claim should be decided by the arbitrator appointed to hear the medical providers' PIP claims. The trial court granted this motion by a written decision, which relied upon State Farm Insurance Co. v. Sabato, 337 N.J. Super. 393 (App. Div. 2001), and State Farm Mutual Automobile Insurance Co. v. Molino, 289 N.J. Super. 406 (App. Div. 1996).

The statute requiring the arbitration of PIP claims is N.J.S.A. 39:6A-5.1(a),*fn2 which provides:

Any dispute regarding the recovery of medical expense benefits or other benefits provided under personal injury protection coverage pursuant to [N.J.S.A. 39:6A-4, N.J.S.A. 39:6A-3.1 or N.J.S.A. 39:6A-3.3] arising out of the operation, ownership, maintenance or use of an automobile may be submitted to dispute resolution on the initiative of any party to the dispute, as hereinafter provided.

By the plain terms of this statute, it only requires arbitration of disputes "regarding the recovery [of PIP benefits]." It does not require arbitration of a claim of fraud in the inception of the policy or other claim involving the validity of the policy. A dispute regarding alleged fraud in the procurement of an insurance policy does not involve "interpretation of the [provisions of] the insurance contract" relating to PIP benefits, N.J.S.A. 39:6A-5.1(c)(1), but instead a dispute as to whether there is a valid insurance contract. N.J.S.A. 39:6A-5.1 only comes into play when there is a dispute regarding entitlement to or the amount of PIP benefits under a valid, operative automobile policy.

In Sabato, the decision primarily relied upon by the trial court, there was no dispute concerning the validity of the insurance policy under which PIP benefits were claimed. However, the insurer denied PIP benefits on the ground that one claimant lied regarding his social security number and another claimant provided information regarding his claim that was "confusing and evasive." 337 N.J. Super. at 394. We concluded that this defense to the claims for PIP benefits, which involved solely the claimants' entitlement to PIP benefits and not the validity of the ...

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