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Rutgers Casualty Insurance Co. v. Torres-Ruiz


May 29, 2009


On appeal from the Superior Court of New Jersey, Law Division, Camden County, Docket No. L-118-04.

Per curiam.


Argued February 3, 2009

Before Judges Winkelstein, Gilroy and Chambers.

Defendant Torres-Ruiz appeals from a judgment against her in the amount of $214,080.52 for violating the New Jersey Insurance Fraud Prevention Act, N.J.S.A. 17:33A-1 to -30 (the Act), in connection with her application for automobile liability insurance. Plaintiff Rutgers Casualty Insurance Company (RCIC) has filed a cross-appeal maintaining that it is also entitled to the judgment under the common law doctrine of equitable fraud.

After conducting a trial, the trial court initially found for defendant, applying the clear and convincing standard of proof. We reversed and remanded in light of new case law, Liberty Mut. Ins. Co. v. Land, 186 N.J. 163 (2006), imposing the preponderance of the evidence standard in this type of case. Rutgers Cas. Ins. Co. v. Torres-Ruiz, No. A-2483-05 (App. Div. Feb. 22, 2007). On remand, the trial court found for RCIC. For the reasons set forth below, we reverse and remand for a new trial.


This declaratory judgment action was brought by RCIC due to various misrepresentations defendant made on her application for automobile liability insurance. On February 15, 2001, defendant went to the office of her broker, William Bernhardt, to apply for automobile liability insurance. He completed the RCIC application in her presence, and she signed it. The application indicated that she was divorced. It also asked for information about all individuals, licensed or unlicensed, temporary or permanent, living in her household. No one, other than defendant, was listed in response to this question. In conjunction with this question, defendant also signed a separate document entitled "CONFIRMATION OF ALL PERMANENT AND TEMPORARY RESIDENTS OF MY HOUSEHOLD" stating that she understood that she must list all of these residents and their accidents or motor vehicle violations and suspensions, whether they are licensed or unlicensed. In addition, the application requested information about summonses and convictions issued within the last thirty-six months to anyone in the household or anyone who drives the applicant's vehicles. Defendant provided no information in this section. The application asked whether the license or registration of "anyone who usually drives the applicant's motor vehicle [has] EVER been suspended or revoked." No one was listed in response to this question. Based on this application, RCIC issued the insurance to defendant. Later that year, on December 24, 2001, defendant was involved in a motor vehicle accident,*fn1 and she received personal injury protection (PIP) benefits under the policy for injuries sustained in that accident.

Thereafter, RCIC learned that at the time defendant made the application, she was married, having married Joed Ruiz in August 2000, six months before she signed the application. Further, his license had been suspended, and his motor vehicle driving record showed infractions. At the time of RCIC's investigation, defendant was living with Ruiz, and he was part owner of the premises where they lived. In addition, defendant had not disclosed on the application that her three children were living with her.

RCIC brought this declaratory judgment action against defendant alleging fraud and violations of the Act and seeking monetary damages and a declaration that the policy was void ab initio. Defendant denied making these misrepresentations, contending that she was separated from Ruiz at the time of the application and that she had so advised Bernhardt.

At trial, Bernhardt testified that when filling out the application, defendant told him she was divorced and that Ruiz was living in Puerto Rico. He also said that defendant did not disclose that she had children living with her.

Lynn Lannon, a senior underwriter for RCIC, testified that when an applicant indicates on an application that she is separated, the separation is considered an underwriting factor and the insurance company will conduct a further investigation, requesting information about the other spouse. This is not done when the applicant is divorced. She indicated that if spouses are separated and not living together, and the separated spouse is not using any of the insured vehicles, then the premiums would be the same as though the parties were divorced. Lannon further testified that because defendant's children were minors and unlicensed drivers, defendant's failure to list them on the application did not effect the premiums. The children are required to be listed for tracking purposes only.

In her testimony, defendant denied telling Bernhardt that she was divorced, although she also testified that she could not remember Bernhardt asking her questions. She said that at the time the application was made, Ruiz was no longer living with her, noting that they had an "off and on" relationship over a period of many years preceding their marriage and thereafter. She could not provide dates or timeframes in which they lived together nor could she say exactly when Ruiz had stopped living with her before she made the application. She testified that she had forced Ruiz to leave her home after the marriage because he began using drugs and that he moved back in with her after the accident. The testimony of defendant's brother, Ramon Torres, confirmed that she was not living with Ruiz at the time of the application.

During the timeframe between the marriage and the accident, when defendant maintained Ruiz was not living with her, he had no other known residence. At trial, defendant testified that Ruiz would on occasion live in the basement of the building where she lived. In a statement recorded by RCIC's investigator prior to trial, defendant stated that Ruiz would stay with her mother, on the streets, or wherever he could find a place to sleep.

In an oral decision placed on the record on November 17, 2005, the trial court determined that Ruiz was not a resident of defendant's household at the time she applied for the insurance, finding defendant's testimony and that of her brother credible on this point. The trial court further stated that RCIC had not proven by clear and convincing evidence that defendant was aware of Ruiz's driving record or that his license had been suspended. The trial court concluded that RCIC had not proven its claim by clear and convincing evidence, and dismissed the complaint.

RCIC appealed.

We remanded the case to the trial court for reevaluation of the evidence in light of the preponderance of the evidence as required by Liberty Mut. Ins. Co. v. Land, supra, 186 N.J. 163, decided after the trial court had made its ruling. Rutgers Cas. Ins. Co. v. Torres-Ruiz, supra, slip op. at 6-8. We also directed that the trial court make further findings. Id. at 8-9. Specifically, findings were needed on whether the broker accurately recorded the information provided by defendant, whether defendant made material misrepresentations of fact about her marriage, the residence of her mother and children, a traffic ticket she received for allowing an unauthorized driver to operate one of her vehicles, and her husband's multiple traffic tickets, and whether the insurance company relied on her representations on these issues. Id. at 4, 8-9. We retained jurisdiction. Id. at 9.

On remand, the trial court placed its findings on the record and held for RCIC, concluding that defendant had made material misrepresentations that were relied upon by RCIC. It determined that the contract of insurance was void ab initio. Since we had retained jurisdiction, RCIC then obtained from us a further remand for a final determination in order that the trial court could calculate the monetary damages to plaintiff and enter a final judgment.

A number of motions were then made. Defendant moved for a new trial; RCIC moved for entry of a judgment in the amount of $229,444.45; and RCIC later moved for clarification of the trial court's ruling and for summary judgment in its favor on the equitable fraud issue. The trial court denied these motions. However, RCIC was instructed to submit certifications on damages which it did. By order dated February 5, 2008, the trial court entered judgment in favor of RCIC and against defendant in the sum of $214,080.52, representing compensatory damages and prejudgment interest through January 1, 2008.

Defendant appeals, contending that the record does not support the trial court's findings; rescission of the contract is not a remedy under the Act; application of the preponderance of the evidence standard is in error; and the complaint should have been dismissed based on the entire controversy doctrine. In its cross-appeal, RCIC contends that the trial court should have rescinded the insurance policy under a common law fraud theory.


An insured violates the Act when applying for an insurance policy, if the insured submits to the insurer a statement "knowing that the statement contains any false or misleading information concerning any fact or thing material to an insurance application." N.J.S.A. 17:33A-4(a)(4)(b). Where an insured has violated the Act, the insurer may recover "compensatory damages, which shall include reasonable investigation expenses, costs of suit and attorneys fees." N.J.S.A. 17:33A-7(a).*fn2

Further, under long-standing New Jersey law, an insurer is entitled to rescind an insurance policy, including an automobile liability policy, if the insured made material misrepresentations on the application for insurance. See Rutgers Cas. Ins. Co. v. LaCroix, 194 N.J. 515, 528 (2008) (stating that the insurer may void the policy ab initio where the insured's misrepresentations "strike at the heart of the insurer's ability to acquire the information necessary to determine its obligations and to protect itself from false claims" (quoting Longobardi v. Chubb Ins. Co. of N.J., 121 N.J. 530, 539 (1990))); Remsden v. Dependable Ins. Co., 71 N.J. 587, 589 (1976) (noting that "[i]t is settled that a material factual misrepresentation made in an application for insurance may justify rescission if the insurer relied upon it to determine whether or not to issue the policy"). Specifically, PIP benefits may be denied and an automobile policy rescinded for a material misrepresentation in the insurance application.

Palisades Safety & Ins. Ass'n v. Bastien, 175 N.J. 144, 148 (2003).

A misrepresentation by an insured is considered "material if, when made, 'a reasonable insurer would have considered the misrepresented fact relevant to its concerns and important in determining its course of action. In effect, materiality [is] judged according to a test of prospective reasonable relevancy.'" Ibid. (quoting Longobardi v. Chubb Ins. Co. of N.J., supra, 121 N.J. at 542) (alteration in original). One venerable formulation of materiality states that a misrepresentation is "material to the insurer's risk if it 'naturally and reasonably influence[d] the judgment of the underwriter in making the contract at all, or in estimating the degree or character of the risk, or in fixing the rate of premium.'" Mass. Mut. Life Ins. Co. v. Manzo, 122 N.J. 104, 115 (1991) (quoting Kerpchak v. John Hancock Mut. Life Ins. Co., 97 N.J.L. 196, 198 (E. & A. 1922)) (alteration in original). However, "[a] mere oversight or honest mistake will not cost an insured his or her coverage; the lie must be willful." Longobardi v. Chubb Ins. Co. of N.J., supra, 121 N.J. at 540 (discussing post-loss misrepresentations).

On remand, the trial court found by a preponderance of the evidence that defendant made the following material misrepresentations on her insurance application: (1) she failed to disclose that Ruiz was a temporary resident in her household; (2) she stated that she was divorced when in fact she was married to Ruiz; (3) she did not disclose that her children were living with her; (4) she failed to disclose that her vehicle was used by her brother; (5) she failed to disclose that she was the owner of a 1996 Dodge Intrepid; and (6) she did not disclose that Ruiz, who resided with her, had a suspended license.

The trial court's findings will not be overturned provided they are "supported by adequate, substantial and credible evidence," Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974), and we will defer to the trial court's findings on the credibility of witnesses. Cesare v. Cesare, 154 N.J. 394, 412 (1998). However, we must overturn the trial court's decision where the factual findings are "so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice." Rova Farms Resort, Inc., supra, 65 N.J. at 484 (quoting Fagliarone v. Twp. of N. Bergen, 78 N.J. Super. 154, 155 (App. Div.), certif. denied, 40 N.J. 221 (1963)).

After a careful review of the record, we do not find a sufficient factual basis to support the trial court's findings that defendant failed to disclose her ownership of the 1996 Dodge Intrepid since the vehicle is mentioned in the application. The record also does not support a finding that she made a misrepresentation regarding her brother. While defendant did make a misrepresentation when she failed to list her children as residents of her household, the evidence does not support a finding that the misrepresentation was material.

If Ruiz were residing with defendant, even on a temporary basis, at the time of the application, defendant would have made a material misrepresentation by failing to reveal that information and Ruiz's driving offenses and suspended license. RCIC presented strong circumstantial evidence that Ruiz was living with defendant, namely that he had married defendant only six months earlier, they never were divorced, he was the father of her three children, he was part owner of her residences, and he had no other known residences at the time. To counter this evidence, defendant testified, that at the time of the application, Ruiz did not live with her, and her brother corroborated this testimony.

The trial court's finding in the first opinion, that Ruiz was not living in her household at the time of the application, conflicts with its finding in the second opinion, that Ruiz was a temporary member of her household at the time. Despite the difference in the burden of proof governing the two decisions, the different holdings cannot be reconciled because the issue turns on the credibility of defendant's testimony. Accordingly, we reverse and remand for a new trial on RCIC's claim under the Act and its common law fraud claims. R. 4:49-1 (allowing a new trial to prevent a miscarriage of justice); Giantonnio v. Taccard, 291 N.J. Super. 31, 44-45 (App. Div. 1996) (providing for a new trial where jury verdict was inconsistent). In order that fresh credibility findings may be made, the case should be heard by a different judge.


We will now address one issue raised in this appeal that must be resolved before a new trial, namely the burden of proof on RCIC's claim under the Act. Defendant maintains that RCIC should be required to prove this claim by clear and convincing evidence.

The Court in Liberty Mut. Ins. Co. v. Land, supra, 186 N.J. at 180, held "that the standard of proof under the New Jersey Insurance Fraud Prevention Act is a preponderance of the evidence." Relying on footnote four in the Liberty Mutual decision, defendant seeks to impose a higher standard for violations of the Act when an automobile policy is involved. In that footnote, the Court noted "in the context of automobile insurance fraud, the loss of driving privileges under N.J.S.A. 39:6A-15 might implicate [important individual] interests" so that a higher burden of proof may be warranted. Liberty Mut. Ins. Co. v. Land, supra, 186 N.J. at 180 n.4. The court did not reach that question in Liberty Mutual because the defendants were not faced with license suspensions. Ibid. Similarly, we need not address this issue, because defendant's conduct does not implicate N.J.S.A. 39:6A-15. That statute addresses fraudulent claims for benefits. N.J.S.A. 39:6A-15. Here RCIC does not contend that defendant's PIP claim was fraudulent; rather, it is the veracity of her insurance application that is in dispute. Accordingly, the burden of proof in this case for violations of the Act is governed by the preponderance of the evidence standard.

We need not address the remaining issues since they are either moot due to the remand or are not of sufficient merit to warrant discussion in a written opinion under Rule 2:11-3(e)(1)(E).

Reversed and remanded for a new trial.

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