by Josh Chetwynd
Insurers continue to have an obligation to cover innocent third parties in New Jersey even when an automobile insurance policy has been fraudulently obtained, according to a recent decision handed down by the state’s Supreme Court.
In Citizens United Reciprocal Exchange v. Perez, the court ruled that an insurer who had issued a “basic policy” to a person who failed to properly disclose a household resident on the application was still required to pay out to a third party after that resident was involved in an accident.
The court’s majority found that despite the argument from the insurer that the policy should be voided because of fatal defects in the original application, “…it would be both unjust and contrary to public policy to invalidate and disregard this minimal amount of liability coverage ($10,000) bargained for by the insured.”
The New Jersey Law Journal, which reported on the decision on Oct. 16, said that while the ruling may run contrary to conventional wisdom, it seems to align with the legislature’s adoption of “a no-fault system of first-party recovery for injuries in automobile accidents, with particular emphasis on the protection of innocent third parties.”
This result, according to the publication, requires further review from the state lawmakers.
“We recommend that the legislature revisit this issue,” the New Jersey Law Journal opined. “At the end of the day, an insurer that has been defrauded should not have to make payment even to an innocent third party. The latter should be relegated to whatever remedies the law provides under the protection of the uninsured motorist law.”
