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Henriques v. New Jersey Manufacturers Insurance Co.


December 30, 2009


On appeal from the Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-2048-06.

Per curiam.


Submitted October 5, 2009

Before Judges Lisa and Alvarez.

New Jersey Manufacturers Insurance Company (NJM) appeals from the March 14, 2008 order declaring invalid its letter of rescission to its insured, plaintiff Sonia Henriques, and ordering it to provide her uninsured motorist (UM) coverage in the amount of $300,000 under her personal automobile insurance policy with NJM. Thereafter, on January 8, 2009, the parties entered into a consent judgment, by which NJM would pay plaintiff $275,000 UM benefits. However, the judgment further provided that if NJM was successful on appeal, the judgment would be vacated and the matter would be remanded to the trial court for dismissal of plaintiff's UM claim.

The rescission had been based upon an alleged material misstatement of fact by plaintiff in her application for the policy. NJM argues that the trial court erred in ruling that a false statement made by an insured in an application for insurance must be made with the intent to deceive or defraud the insurer in order to allow rescission of a policy based on the doctrine of equitable fraud. We agree with NJM. Because the record establishes that NJM proved all of the requisite elements of equitable fraud, it was entitled to rescission. Accordingly, we reverse.

While operating her personal vehicle, which was insured under her NJM policy, plaintiff was injured in an accident on September 1, 2005. The accident was caused by an unidentified vehicle, thus triggering the applicability of UM coverage.

Prior to this accident, in January 2004, plaintiff completed an application for an NJM policy. The application form contained the following statement, all in boldface print, on the first page: "All of the requested information is important. The NJM Insurance Group pursues evidence of insurance fraud. Please answer completely and clearly to avoid a misunderstanding." Just above the signature line on the eighth and final page of the form, the following statement, all in bold face and capital letters appeared: "I UNDERSTAND THAT ANY PERSON WHO INCLUDES ANY FALSE OR MISLEADING INFORMATION ON AN APPLICATION FOR AN INSURANCE POLICY IS SUBJECT TO CRIMINAL AND CIVIL PENALTIES."

Plaintiff completed the application form and signed it. Next to her signature, she filled in the date as January 20, 2004. However, she apparently did not submit the form to NJM until March 22, 2004. Notably, on the first page of the form, in response to the inquiry regarding the desired policy effective date, plaintiff responded "ASAP." She also identified the expiration date of her current auto policy as July 19, 2004.*fn1

In two different places on the form, she identified Mohammad Azhar Ulhaq as her spouse. She further specified that Ulhaq was a resident of her household and a driver of the vehicles to be insured.

After the application was submitted, an NJM representative conducted a recorded telephone interview with plaintiff on April 22, 2004. The representative reviewed with plaintiff the information on her application. At four different times during the interview, plaintiff stated or acknowledged that Ulhaq was her husband. She also stated that she was the sole owner of the three vehicles to be insured. She requested that coverage become effective as soon as possible, and specifically requested an effective date of May 1, 2004. The NJM representative advised plaintiff to contact her current carrier "to set up the cancellation and they should be able to prorate any unused portion of the insurance that you've already paid for."

The statements regarding plaintiff's marital status were false. Although plaintiff and Ulhaq lived together and were engaged to be married, they were not married when plaintiff completed the application in January 2004, when she finalized it with the NJM representative on April 22, 2004, or when the policy went into effect on May 1, 2004, the date plaintiff requested it. Plaintiff's statement that she was the sole owner of the three vehicles to be insured was also not true. One of the vehicles was co-owned by her and Ulhaq.

Plaintiff and Ulhaq were scheduled to be married in June 2004. They had been engaged since December 31, 2000, and had been living together in a home they purchased together since 2003. Shortly before the date scheduled for the wedding in June 2004, it was postponed for family reasons, the details of which are not relevant. The wedding was rescheduled for November 2005. During the interim, plaintiff submitted a renewal application in March 2005, again identifying Ulhaq as her spouse, although they were still not married and were not then scheduled to be married until eight months later. As a result of the accident on September 1, 2005, the planned November 2005 wedding was postponed. Ultimately, during the pendency of this litigation, plaintiff and Ulhaq were married in November 2007.

On May 3, 2006, plaintiff filed a complaint against NJM claiming UM benefits. At her October 17, 2006 deposition, when asked about her marital status, plaintiff acknowledged that she was not married and had never been married. She stated that she and Ulhaq were still planning to marry in the future.

On February 6, 2007, NJM issued a letter to plaintiff notifying her it was rescinding the policy from its inception on May 1, 2004 because of her misrepresentation that she and Ulhaq were married and because of the misrepresentation regarding ownership of one of the vehicles, "which was jointly owned by a non-relative resident, Mr. Ulhaq, and yourself."

After receiving the rescission letter, plaintiff filed a motion in the pending litigation for a declaration that the NJM policy was valid and in effect at the time of the accident. By way of opposition, NJM filed the certification of John Fink, an assistant secretary in NJM's personal automobile underwriting department. He explained that if plaintiff had truthfully represented her marital status and that Ulhaq, a member of her household, was an authorized driver of the three vehicles and a co-owner of one of the vehicles, NJM would not have issued the policy. Under the true circumstances, plaintiff would not have been eligible for an NJM policy. The New Jersey Manufacturers Insurance Group would have instead offered plaintiff a policy with NJM's subsidiary company, New Jersey Re-Insurance Company. The premium for the 2004-2005 policy would have been $1351 higher than the premium NJM charged plaintiff; for 2005-2006, it would have been $1390 higher; for 2006-2007 (which included only two of the vehicles) it would have been $413 higher.

Further, because the jointly owned vehicle would not have qualified for the multi-car discount that was granted plaintiff, the differences each year would have been even greater if the truth had been known. Fink further explained that NJM assumed a greater risk under the terms of the policy with respect to Ulhaq. Because he was identified as the spouse of the insured, the policy terms provided that he would receive the same coverage as the named insured (plaintiff).

On February 8, 2008, the judge conducted a plenary hearing, in which he received the testimony of plaintiff and Fink. Plaintiff contended that she misstated her marital status because the wedding was scheduled for June 2004, and her existing policy was set to expire in July 2004. As a result, she contended that she believed she would be married by the time the present policy expired and the new NJM policy took effect. This explanation, of course, was not credible for at least two reasons. First, plaintiff requested and was given a May 1 effective date for her NJM policy, which clearly predated her planned wedding date. Second, plaintiff fully understood that she and Ulhaq were not married. This is not a situation, for example, where she claimed there was some uncertainty about the validity of her marriage or the status of a pending dissolution or annulment proceeding, or that she had some mistaken belief that New Jersey recognized common law marriages. She freely admitted that she was aware that she and Ulhaq were not married when she represented otherwise. Further, at the time of her renewal application in March 2005, she and Ulhaq were still not married, yet plaintiff continued to represent that they were.

Plaintiff testified that she did not know there would be a difference in premium based upon her marital status. She further testified she was not trying to mislead NJM with the intent of obtaining a lower premium by stating she was married.

Fink testified consistent with his certification. He explained that had plaintiff truthfully answered the marital status question, she would not have been eligible for insurance with NJM, but instead would have been offered enrollment with New Jersey Re-Insurance Company at a higher premium. He confirmed the figures set forth in his certification, representing the amounts by which the premiums would have been higher in each policy year. This was because one of the vehicles listed for coverage was co-owned by the couple, and if a vehicle is co-owned by a non-married, non-relative couple, the premium is higher than it would be if the car was co-owned by, for example, a husband and wife or a father and son.

Fink further explained that within the New Jersey Manufacturers Insurance Group, NJM is the preferred insurer and, in addition to providing lower premiums, policyholders are eligible to receive dividends each year, contingent upon NJM's financial success that year. Fink also noted that because plaintiff listed Ulhaq as her spouse, Ulhaq obtained the status of "you" under the definitions in the insurance policy, which would not have been the case had plaintiff truthfully disclosed that he was her fiancé rather than her spouse. By virtue of his status as "you" Ulhaq was afforded the broadest possible coverage and was eligible for all benefits under the policy for which plaintiff, the named insured, was eligible. In sum, Fink concluded that NJM took on a greater exposure and greater risk than it would have if plaintiff truthfully disclosed that she was not married. He concluded that "we rendered a decision that we wouldn't have made, had we known."

The trial court rendered its decision on March 14, 2008. In denying NJM's attempted rescission, the judge found that plaintiff did not intend to mislead NJM. The judge acknowledged that material factual misrepresentations can provide the basis for rescission of an insurance policy. However, he characterized plaintiff's misrepresentation about her marital status as only a "misstatement," stating, "I'm going to use the word misstatement because there's a difference between an intentional misrepresentation and a misstatement." He then said: "There was no concealment of any material facts whatsoever. Misstatement, yes. Willful concealment, no." He found it significant that plaintiff, not Ulhaq, was the one injured in this accident and the claimant. He concluded:

Therefore, I find that the case law that I have referred to requires that there be an intentional and willful concealment or misstatement of a material fact to an insurance company to induce them to write this coverage. She did none of the above.

She misstated the obvious, which was she intended to get married, fully intended to get married, had two wedding dates, and is now legally married to the man that she intended to marr[y]. That misstatement is not going to defeat this policy. And the public policy in New Jersey is clear that when and if possible, the courts are to construe policies of insurance in favor of coverage; therefore, I find that the policy if in full force and effect and she is entitled, obviously, to collect those benefits.

We defer to the factual findings of the trial judge. Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974). However, the trial court's determination that the doctrine of equitable fraud requires a willful concealment of facts with the intent to mislead the insurer constitutes an interpretation of law, for which we owe no deference. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).

"It 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." Remsden v. Dependable Ins. Co., 71 N.J. 587, 589 (1976). Without question, plaintiff's statement, repeatedly made at the time of her initial application in 2004 and at the time of her renewal application in 2005, that she was married was a misrepresentation. That she planned to marry Ulhaq, and eventually married him in 2007, does not alter that fact. Plaintiff's contention that she thought she would be married by the time the policy went in effect is simply not credible based on the record as a whole. She requested that the NJM policy be put into effect as soon as possible, and specifically requested an effective date of May 1, 2004, which was granted. This was prior to her first scheduled wedding date. Further, when it came time for renewal a year later, plaintiff and Ulhaq were still not married, yet plaintiff continued to represent that they were.

Courts are more lenient toward insureds when reviewing their misrepresentations in response to a subjective question, because such a response could be said to be a correct statement of the insured's knowledge and belief. Ledley v. William Penn Life Ins. Co., 138 N.J. 627, 636 (1995). Objective questions on an insurance application call for "information within the applicant's knowledge, such as whether the applicant has been examined or treated by a physician." Ibid. (citations and internal quotation marks omitted). Subjective questions, on the other hand, "seek to probe the applicant's state of mind. They are concerned with more ambiguous issues, such as what is the state of the applicant's health." Ibid. (citations and internal quotations marks omitted). Whether one is married or not falls within the knowledge of the applicant. In her testimony, plaintiff freely admitted that she knew she was not married when she said she was. As we have stated, there is no circumstance alleged here that could create any uncertainty or ambiguity.

Misrepresentations to objective, unambiguous questions calling for statements of fact are "inexcusable." Id. at 637. "Even an innocent misrepresentation can constitute equitable fraud justifying rescission." Id. at 635. Thus, "an insurance policy may be declared invalid and ordered rescinded on the ground of equitable fraud, i.e., for a misrepresentation of a material fact even though innocently made.... The rule is applied rather strictly to objective questions in an application for insurance." Formosa v. The Equitable Life Assurance Soc'y of the U.S., 166 N.J. Super. 8, 15 (App. Div.) (citations omitted), certif. denied, 81 N.J. 53 (1979).

An insurer is not required to prove that an insured lied with the intent to deceive. Mass. Mut. Life Ins. Co. v. Manzo, 122 N.J. 104, 114 (1991). Plaintiff acknowledged her understanding that her answers to the questions on the application form were important and would be relied upon by NJM. In the context of an automobile insurance policy, rescission is warranted under the doctrine of equitable fraud if a statement in an application "is untruthful, material to the particular risk assumed by the insurer, and actually and reasonably relied upon by the insurer in the issuance of the policy." Allstate Ins. Co. v. Meloni, 98 N.J. Super. 154, 159 (App. Div. 1967). See also Rutgers Cas. Ins. Co. v. LaCroix, 194 N.J. 515, 527-30 (2008); Palisades Safety & Ins. Ass'n v. Bastien, 175 N.J. 144, 149 (2003).

We conclude that plaintiff's false statement about her marital status constituted an intentional misrepresentation for purposes of equitable fraud analysis. It was not an oversight or honest mistake. The trial judge erred in characterizing it as something less than an intentional misrepresentation and in holding NJM to a standard of proof not required under the equitable fraud doctrine, namely that the misstatement was made with the intent to deceive the insurer. The Supreme Court has instructed:

A mere oversight or honest mistake will not cost an insured his or her coverage; the lie must be willful. The insured's motive for lying, however, is irrelevant. Forfeiture does not depend on proof that an insured harbored an intent to recover proceeds to which he or she was not entitled. An insurer may refuse payment if an insured willfully misrepresented material facts after a loss, even if the insured did not harbor such an intent.

[Longobardi v. Chubb Ins. Co., 121 N.J. 530, 540 (1990) (citations omitted).]

The remaining inquiry is whether plaintiff's misrepresentation was material and whether NJM reasonably relied on it. Forfeiture will result "only when the fact misrepresented is material." Longobardi, supra, 121 N.J. at 540. A misstatement is material if it would have influenced a reasonable insurer's decision in deciding whether to offer insurance at all, in estimating the degree of risk involved, or in setting the rate of the premium. Manzo, supra, 122 N.J. at 115. The focus of materiality is at the time the misstatement was made. Longobardi, supra, 121 N.J. at 541-42. This rule avoids incentivizing the insurance applicant to gamble that his or her misstatement will turn out to be unimportant. The Court explained it thusly:

The right rule of law, we believe, is one that provides insureds with an incentive to tell the truth. It would dilute that incentive to allow an insured to gamble that a lie will turn out to be unimportant. The focus, therefore, should be on the time when the insured is about to let loose the lie. An insured's misstatement is 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. [Ibid.]

Plaintiff does not dispute the test for materiality. She argues that her misstatement was not material. In its findings, the trial court suggested that plaintiff's statement could not be material because it pertained to Ulhaq, who was neither the injured party nor the claimant.

The unrefuted evidence is that NJM would not have issued the policy as written had it known the truth. Instead, plaintiff would have been offered a policy by NJM's subsidiary, at a substantially higher premium. Further, it is irrelevant that there was no causal connection between plaintiff's accident and her marital status. The Court explicitly so held in Manzo. In that case, the insured falsely claimed on his life insurance application that he had no history of diabetes. Manzo, supra, 122 N.J. at 108. However, he did not die of complications from diabetes, but was shot to death. Ibid. The Court found this lack of causal connection between the misstatement and the cause of death irrelevant, noting that a rule requiring no connection prevents insureds from gambling that they do not die from the concealed disease. Id. at 118.

Fink's testimony established that had NJM known the truth, plaintiff would not have been eligible for a policy issued by it. He further explained that NJM would not have accepted as great a risk and exposure if it knew the truth. And, the policy that would have been offered plaintiff through the New Jersey Manufacturers Insurance Group would have come from a subsidiary company at standard (as opposed to preferred) rates that would have been between $1350 and $1400 per year higher. See LaCroix, supra, 194 N.J. at 520 (noting that a $500 per year differential in premium made the insured's misrepresentation "plainly material to the insurer"). Plaintiff had the opportunity to present evidence to refute Fink's testimony. She failed to do so, and Fink's unrebutted testimony establishes the materiality and reasonable reliance element. Thus, the record is clear and there is no need for a remand on this issue.

The judge's alternative basis for denying rescission was that the public policy of this State requires construction of insurance policies to favor coverage. That rationale has no applicability here. The public policy to which the judge referred deals with interpretation of ambiguous provisions in insurance contracts. That is not the issue here. This case deals with a defense to enforcement of an insurance contract.

Finally, plaintiff argues that NJM should be estopped from raising the defense of equitable fraud. We disagree. The truth about plaintiff's marital status became known at the time of her deposition on October 17, 2006. NJM acted promptly by issuing its rescission letter on February 6, 2007. Fink explained in his testimony that when the newly acquired information was discovered, there were internal meetings and discussions, and consultation with NJM's legal advisors, leading to the decision to rescind. There was no undue delay or any other basis for estoppel.

Reversed and remanded to the trial court for entry of an order vacating the judgment in favor of plaintiff and dismissing her UM claim.

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