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Rutgers Casualty Insurance Co. v. LaCroix

May 14, 2008

RUTGERS CASUALTY INSURANCE COMPANY, PLAINTIFF-APPELLANT,
v.
ROBERT LACROIX AND CHRISSY LACROIX, DEFENDANTS-RESPONDENTS.



On certification to the Superior Court, Appellate Division, whose opinion is reported at 390 N.J. Super. 277 (2007).

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 is asked whether an eighteen-year-old girl, injured while driving her father's automobile, should be barred from personal-injury-protection (PIP) benefits under her father's automobile insurance policy because, unbeknownst to her, her father had not identified her as a household resident in his insurance application.

In an admitted attempt to secure lower premium payments, Robert LaCroix intentionally failed to disclose that Chrissy, the youngest of his three daughters, resided in his household. LaCroix only listed his two older daughters, each of whom had her own car and insurance policy. Thus, LaCroix withheld information only about the sole uninsured motorist in his household, Chrissy. Based on that information, Rutgers Casualty Insurance Company (Rutgers Casualty) issued a policy effective August 16, 2002.

On July 10, 2003, Chrissy was injured while driving one of her father's cars with his permission. Chrissy sustained a fracture of her right femur, which required surgery, and suffered additional injuries to her neck, lower back, knee, and forehead. A PIP claim was filed on Chrissy's behalf, but Rutgers Casualty filed a complaint seeking a declaration that LaCroix's policy was void ab initio and that, therefore, Rutgers Casualty was not required to pay benefits to Chrissy for PIP benefits and underinsured motorist (UIM) coverage.

During the trial, Chrissy testified to her limited knowledge concerning automobile insurance, that all she knew was that a vehicle "was supposed to be insured" and that "there was supposed to be a [proof-of-insurance card] in the glove box." The trial court held that LaCroix's material misrepresentation in his insurance application rendered the Rutgers Casualty automobile policy void ab initio and void as to all potential first-party claimants, including Chrissy. On March 1, 2006, the trial court entered an Order denying Chrissy PIP benefits and UIM coverage.

An appeal to the Appellate Division resulted in the reversal of that portion of the trial court's Order that denied PIP benefits to Chrissy under LaCroix's policy. The Appellate Division concluded that, under the circumstances, Chrissy was an innocent party entitled to PIP coverage.

The Supreme Court granted Rutgers Casualty's petition for certification. In addition, the Court agreed to determine the maximum amount of PIP benefits that must be paid if it were to conclude that Rutgers Casualty must provide PIP benefits to Chrissy under her father's void policy.

HELD: The Appellate Division correctly found error in the trial court's determination that it lacked discretion to fashion a rescission remedy to provide minimal PIP benefits to an injured young driver, who was unaware that the automobile her father was allowing her to drive was insured as to every resident family member except her.

1. The prompt distribution of PIP benefits to accident victims has remained a staple of the no-fault system since that system was first developed. The current no-fault scheme contained in the New Jersey Automobile Insurance Cost Reduction Act (AICRA), N.J. S.A. 39:6A-1.1 to -35, likewise imposes a requirement that insurers promptly pay PIP benefits to reimburse persons injured in automobile accidents regardless of fault. Two main coverage classes for PIP benefits exist under the statute: the named insured and family members residing in the household; and other persons who sustain bodily injury while occupying, entering into, alighting from or using the vehicle of the named insured with that person's permission. With respect to the latter category, courts have striven to provide protection to third-party victims in fulfillment of the policy intentions animating the no-fault system. Even when a policy is rescinded, for such reason as an insured's material misrepresentation in respect of the policy at its inception, PIP benefits may nevertheless remain payable to innocent third parties. When a named insured has engaged in conduct that has resulted in the voiding of an automobile insurance policy, courts have employed the rescission remedy to deny that insured the right to claim PIP benefits under the void policy. The Court must determine whether there is room for some consideration of innocence in respect of an additional insured seeking first-party compulsory PIP benefits under a policy that has been subject to the judicial remedy of rescission when the fraud is due to the action of the parent of a young driver. (Pp. 7-13)

2. The judicial remedy of rescission is rooted in considerations of equity. Where a party has gained an unfair advantage by virtue of a fraudulent misrepresentation, and monetary damages alone will not satisfy the injury sustained by the aggrieved party, courts have looked to the equitable remedy of rescission to eliminate the damage. In the field of insurance, rescission has long been recognized as an available and necessary remedy to combat fraudulent behavior by an insured. Indeed, the Court has recognized the need to declare an insurance contract void from its inception because of a variety of behaviors by an insured, when the materiality of a misrepresentation strikes at the core of the agreement to insure. The power to mold the rescission remedy to do justice under the circumstances is perforce available when rescission is employed in the insurance context. Although this Court has not addressed the rescission remedy often in the context of automobile insurance, case law has never suggested that that remedy should stray from its equitable roots. This state's firm anti-fraud policy is an animating concern when applying the equitable remedy of rescission to an insurance policy's coverage of resident family members of the named insured, including adult-children drivers. As drivers themselves, family members are charged with knowledge of the law that requires automobiles to be insured and, further, have an obligation to see that basic insurance requirements are met. The Court has never, however, turned a deaf ear to the equities when plainly innocent parties cry out for relief. Chrissy was unaware that she was unidentified to the family's insurer and thus innocent of the deceit perpetrated by her father. Chrissy appears to be the youngest person who would be denied compulsory PIP coverage, in a published decision, because of a parent's action or inaction that caused the voiding of the insurance policy. In these compelling circumstances, the Court concludes that the Appellate Division correctly found error in the trial court's determination that it lacked discretion to fashion a rescission remedy to provide minimal PIP benefits to this injured young driver. The Court finds no abuse in the Appellate Division's molding of the rescission remedy. (Pp. 13-21)

3. The Court has, in addition, been asked to determine the amount of PIP benefits to which Chrissy is entitled under the void policy. The minimum compulsory PIP benefits coverage mandated by statute is $15,000 per person per accident unless a claimant sustains one of the injuries set forth in N.J.S.A. 39:6A-4.3(e) and receives treatment at a trauma center or acute care hospital immediately following the accident, in which case the minimum compulsory coverage required by statute is the cost of the claimant's medical expenses up to $250,000 for treatment rendered, but only until such time as the plaintiff is deemed to be in stable condition. On the record presented, the Court cannot ascertain the precise dollar amount of PIP benefits to which Chrissy is entitled. The matter is therefore remanded to the Law Division for that determination. (Pp. 21-23)

The judgment of the Appellate Division is AFFIRMED as modified. The matter is REMANDED to the Law Division for further consideration consistent with this opinion.

CHIEF JUSTICE RABNER and JUSTICES LONG, ALBIN, RIVERA-SOTO, and HOENS join in JUSTICE LaVECCHIA's opinion. JUSTICE WALLACE did not participate.

The opinion of the court was delivered by: Justice LaVECCHIA

Argued November 28, 2007

In this appeal we have been asked whether an eighteen-year-old girl, injured while driving her father's automobile, should be barred from personal-injury-protection (PIP) benefits under her father's automobile insurance policy because, unbeknownst to her, her father had not identified her as a household resident in his insurance application. The insurer takes the position that the father's material misrepresentation rendered the policy void ab initio, and that, therefore, no PIP benefits are payable to the injured daughter. We hold that the father's material misrepresentation entitled the insurer to rescission of the insurance contract, but that, under these compelling ...


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