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Citizens United Reciprocal Exchange v. Perez

Superior Court of New Jersey, Appellate Division

September 13, 2013


Argued November 8, 2012

On appeal from the Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-3837-10.

Eric Poe argued the cause for appellant (Bright & Sponder, attorneys; Chad B. Sponder, of counsel and on the brief).

Marc A. Deitch argued the cause for respondents Dexter Green and Progressive Garden State Insurance Company (Mr. Deitch, on the brief).

George R. Hardin argued the cause for amicus curiae The Insurance Council of New Jersey (Hardin, Kundla, McKeon & Poletto, P.A., attorneys; Mr. Hardin and Arthur A. Povelones, Jr., on the brief).

Before Judges Fuentes, Ashrafi and Hayden.



Plaintiff Citizens United Reciprocal Exchange (CURE) filed a civil complaint seeking a declaration that an automobile insurance policy it issued based on a fraudulent application was void from its inception and that it had no financial obligation under the policy. The trial judge affirmed the voiding of the policy but found that, for purposes of innocent third parties, the voided policy should be reformed to the mandatory minimum liability insurance coverage under N.J.S.A. 39:6A-3 of $15, 000 per person and $30, 000 per occurrence. CURE argues on appeal that since the automobile insurance reforms in 1998, when the newly created basic policy provided only optional liability coverage, there has been no mandatory minimum liability coverage in this State and no necessity for the issuer of a voided policy to pay liability claims of innocent third parties. We disagree and affirm.

The parties stipulated to the underlying facts giving rise to the controversy here. Defendant Luis Machuca, [1] while driving with defendant Jonathan Quevedo in a car owned by defendant Sabrina A. Perez, was involved in an auto accident with a car driven by defendant Dexter Green. Green claimed he was injured as a result of the accident and made a personal injury claim against Perez's policy.

Perez insured her automobile under a basic policy with the optional $10, 000 liability coverage. When she applied for insurance, she did not list Machuca, the father of her two children, as a resident of her household. In a recorded statement five days after the accident, Perez acknowledged that Machuca lived with her. After a fraud investigation by the Bureau of Fraud Deterrence, Perez entered into a consent order admitting that she "knowingly presented false and misleading information to [] CURE by failing to disclose her boyfriend, Luis Machuca, on her application . . . ."

Due to Machuca's extremely poor driving record, CURE would not have issued Perez a policy if she had disclosed that Machuca was a household member. CURE also denied Green's personal injury claim, and by letter dated May 27, 2010, informed Perez that the insurance policy was being retroactively voided ab initio due to the fraudulent information supplied in the application.

However, CURE instead filed a declaratory action seeking an order that the policy was void ab initio due to a material misrepresentation, that Perez and Machuca were liable to CURE for compensatory damages due to the fraudulent application, and that the reformed voided policy provided no liability coverage to innocent third parties. Green and his insurer, defendant Progressive Garden State Insurance Company, filed an answer. Defendants Perez, Machuca and Quevedo failed to file answers and defaults were entered against them. The remaining parties agreed to try the case on stipulated facts.

After hearing argument, on February 9, 2012, the trial judge granted CURE's first two requests for relief. In reference to the issue of the mandatory minimum liability amount, the judge, relying on New Jersey Manufacturers Insurance Co. v. Varjabedian, 391 N.J.Super. 253 (App. Div.), certif. denied, 192 N.J. 295 (2007), held:

I conclude that the only mandated or compulsory liability coverage limits in our statutes are the $15, 000 per injury and $30, 000 per accident prescribed in [N.J.S.A.] 39:6A-3 and 39:6B-1.
I conclude as well that the alternative coverage provided by the basic policy under [N.J.S.A.] 39:6A-3.2 mandates no minimum amount of liability coverage. It simply ...

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