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Consumer First Insurance Co. v. Lee

February 24, 2009

CONSUMER FIRST INSURANCE COMPANY, PLAINTIFF-APPELLANT,
v.
ROBERT T. LEE, ESTATE OF ROBERT T. LEE AND RENEE SMYTHE, ADMINISTRATRIX OF THE ESTATE OF ROBERT T. LEE, DEFENDANTS-RESPONDENTS, AND NEW JERSEY MANUFACTURERS INSURANCE COMPANY, AND LIBERTY MUTUAL INSURANCE COMPANY, PLAINTIFFS/INTERVENORS-RESPONDENTS,
v.
CONSUMER FIRST INSURANCE COMPANY, ROBERT T. LEE, THE ESTATE OF ROBERT T. LEE, RENE SMYTHE, AS ADMINISTRA-TRIX OF THE ESTATE OF ROBERT T. LEE, AND KANSOBI KARDAN, DEFENDANTS.



On appeal from Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-13386-04.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued December 1, 2008

Before Judges Lisa, Sapp-Peterson and Alvarez.

Plaintiff Consumer First Insurance Company (Consumer First) appeals the dismissal with prejudice, after a bench trial, of its declaratory judgment action against its insured Robert T. Lee (Lee), his estate and administratrix. New Jersey Manufacturers Insurance Company (NJM) and Liberty Mutual Insurance Company (Liberty) intervened in the proceeding, seeking to compel coverage by Consumer First for their insureds. The claims against the estate arise from the automobile accident that resulted in Lee's death and injuries to several other persons.*fn1 We reverse and remand.

We conclude that Lee made a material misrepresentation on his automobile insurance application regarding his lifelong epilepsy. We also conclude that as a result, Consumer First is required to extend only minimum mandatory statutory amounts of coverage to all claimants as required by the Automobile Insurance Cost Reduction Act (AICRA), N.J.S.A. 39:6A-3. Lastly, we vacate the award of counsel fees in the amount of $15,471.50, payable by Consumer First to NJM.

I.

Consumer First filed its complaint in November 2004, alleging that when it extended automobile insurance to Lee, it relied on Lee's material misrepresentations. On his April 2003 application, Lee indicated that he had no physical or mental impairments, despite a history of epileptic seizures. The automobile accident occurred on September 19, 2003. Lee's estate submitted claims to Consumer First for his medical expenses and other benefits, as did others who suffered personal injuries and property losses as a result of the accident. Consumer First sought rescission of the policy, a declaration that Lee was not entitled to any coverage, and a declaration that it had no duty to defend or indemnify Lee for claims arising out of the accident. NJM filed a complaint to intervene because it had paid uninsured motorists (UM) benefits to its insured, Kansobi Kardan, when plaintiff failed to provide liability coverage under the policy it issued to Lee.*fn2 Other than the representation made at oral argument, it is not clear from the record which interests Liberty sought to assert in its complaint to intervene.

On March 17, 2006, the declaratory judgment proceeding was consolidated with three other lawsuits, including one brought by Kardan against Lee; his estate, and his administratrix, arising out of the automobile accident. The parties agreed, however, that the declaratory judgment action would be decided in a separate bench trial. Motions for summary judgment made by Consumer First were denied on September 22, 2006, and May 11, 2007.

After the bench trial, the written decision issued on June 5, 2007. The subsequent order, dated June 18, 2007, dismissed the complaint and compelled coverage "under [Lee's] Consumer First automobile insurance policy which was in effect on September 19, 2003, including but not limited to bodily injury liability coverage of $100,000 per person and $300,000 per accident."

NJM filed a motion for counsel fees shortly before Consumer First filed its notice of appeal. Initially, counsel fees were denied in the trial court because the matter was on appeal. On October 2, 2007, however, Judge Payne ordered a temporary remand on the issue of counsel fees only. On the remand, the trial judge awarded NJM $15,471.50 in counsel fees payable by Consumer First.

II. LEE'S DRIVER'S LICENSE AND INSURANCE

Lee applied for a driver's license renewal on April 30, 2001. The application poses the following question: "Do you suffer from any mental, physical or convulsive disorder?" Lee responded "no" to the inquiry.

On April 28, 2003, Lee completed an application for insurance for his automobile. Question number eleven in the "General Information" section of the application reads: "[Does] [a]ny driver have physical/mental impairment?" Lee's response was "no." Lee certified that his statements were true and signed a separate "Fraud Warning" acknowledging that he was subject to criminal, civil, and other penalties if he supplied false or misleading information on the application. That portion of the policy also clearly explains that false or misleading responses may result in the nullification of policy coverage. Lee purchased bodily injury limits of $100,000 per person and $300,000 per accident. Consumer First issued the personal automobile insurance policy effective May 2, 2003.

PLAINTIFF'S RELIANCE ON LEE'S REPRESENTATION

As explained by Consumer First's vice president of underwriting, Michael Bonner, the insurer relied upon Lee's responses in calculating premiums and extending coverage "consistent with Consumer First filed underwriting guidelines and New Jersey law." Consumer First does insure drivers who suffer from epilepsy, but only when the seizures are controlled by medication, and the applicant produces a doctor's note to that effect. According to Bonner, the term ...


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