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Do As I Say, Not As I Do: Insurer Must Pay Benefits Despite Father's Misrepresentation

May 15, 2008

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As parents, we counsel our children to be forthright and trustworthy in their business dealings. But some parents forget to take their own advice. In <em>Rutgers Casualty v. LaCroix</em>, Mr. LaCroix dutifully filled out an application for auto insurance but failed to list his 18 year old daughter as a licensed resident of his household in order to pay less in premium. His daughter was later involved in a serious accident while driving one of her father's cars. When the daughter submitted a claim for PIP benefits, Rutger's denied it and filed an action seeking a declaration that the policy was void <em>ab initio</em> and that it had no obligation to pay any PIP benefits.

The New Jersey courts had previously upheld the denial of PIP benefits where a spouse was not listed as a resident member of the named insured's household. In that earlier case, the court had to decide whether the injured spouse was akin to an "innocent insured" who is entiled to coverage or whether the sins of a husband should be visited on his wife. Given the close relationship between adult spouses, the court refused to permit the wife to benefit from her husband's mispresentation and denied her PIP benefits. On the other hand, courts have awarded PIP benfits to an innocent party where, despite a named insured's misrepresentations, the injured party is unrelated to the named insured and is hurt in the named insured's vehicle.

<em>LaCroix</em> was a close call. The motion court voided the policy <em>ab initio</em> and held that the daughter could not obtain PIP benefits based on her father's misrepresentations. The Appellate Division upheld the rescission but ordered Rutgers to pay the statutorily minimum PIP benefits.

The New Jersey Supreme Court began by noting that recission was an equitable remedy, designed to promote justice and fairness. You see where this decision was going. The daughter was described as "a dependent child, newly licensed, only recently of driving age, and living with her parents...who placed her trust in her father" in insurance matters. Now we know that the insurer is in deep troube. Thus, in "these exceptional circumstances," the Supreme Court upheld the recission but ordered Rutger's to pay the statutorily minimum PIP benefits.

Whether <em>LaCroix</em> is an anomaly remains to be seen. When pitting the equities of an injured party against an insurer, the personal interests frequently trump the corporate. On that level, <em>LaCroix </em>is not an ususual decision. However, the real danger is that <em>LaCroix</em> will result in a discomforting level of unpredictability in the battle against insurance fraud.

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