Opinion
DOCKET NO. A-2267-13T1
11-20-2014
CONTINENTAL CASUALTY COMPANY, by and through its Marine Manager BOAT U.S., Plaintiff-Respondent, v. GARY M. HOCHSCHILD, Defendant-Appellant. GARY M. HOCHSCHILD, Plaintiff-Appellant, v. BOAT OWNERS ASSOCIATION OF THE UNITED STATES d/b/a BOAT U.S.; CONTINENTAL CASUALTY COMPANY, Defendants-Respondents.
Paul R. Sheehan argued the cause for appellant (Avolio & Hanlon, P.C., attorneys; Mr. Sheehan, on the brief). John C. Grady argued the cause for respondents (Craig, Annin & Baxter, LLP, attorneys; Mr. Grady, of counsel and on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Sabatino, Guadagno and Leone. On appeal from the Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-5910-09, consolidated with Mercer County, Docket No. L-3051-09. Paul R. Sheehan argued the cause for appellant (Avolio & Hanlon, P.C., attorneys; Mr. Sheehan, on the brief). John C. Grady argued the cause for respondents (Craig, Annin & Baxter, LLP, attorneys; Mr. Grady, of counsel and on the brief). PER CURIAM
This litigation arises out of several alleged misrepresentations that a recreational boat owner made on an application form when obtaining an insurance policy for his vessel. After the boat caught fire and was damaged, the owner filed a claim with the insurer. The insurer disclaimed coverage and cancelled the policy upon determining that the owner had made several false statements on his application. The insurer sued the owner, seeking a declaration voiding the policy because of the owner's misrepresentations. In moving for that relief, the insurer invoked alternative legal theories of breach of contract, equitable fraud, and the common-law doctrine of "uberrimae fidei." The insurer also sought damages and other remedies from the owner under the Insurance Fraud Protection Act, N.J.S.A. 17:33A-1 to -34 ("IFPA"). In turn, the owner sued the insurer, alleging, among other things, its bad faith denial of coverage.
After the two lawsuits were consolidated and discovery was completed, the trial court granted summary judgment in the insurer's favor and dismissed with prejudice the boat owner's own affirmative claims. In particular, the court upheld the insurer's cancellation of the policy because of the material misstatements that the owner had made on the policy form. The court also granted summary judgment to the insurer on its statutory claims under the IFPA, conclusively determining that the owner had made the misrepresentations with knowledge of their falsity. The court awarded the insurer a total sum of $119,992.02 under the IFPA, including its costs of investigation and counsel fees.
The owner now appeals, alleging that the trial court erred in voiding the policy, entering judgment against him under the IFPA, and dismissing his own claims without a trial. For the reasons that follow, we affirm the trial court's decision to uphold the cancellation of the policy. We do so based solely on the doctrine of equitable fraud, without reaching the insurer's alternative theories of breach of contract and uberrimae fidei. We also sustain the dismissal of the owner's own claims. However, because the record presents genuine issues of material fact concerning the stringent state-of-mind requirements that an insurer must prove to obtain affirmative relief under the IFPA, we vacate that discrete aspect of the summary judgment ruling. We consequently remand for a trial on the insurer's statutory claims, which shall focus on whether the insured "knowingly" made false or misleading statements to the insurer, as required by N.J.S.A. 17:33A-4(a).
I.
We derive from the record the following pertinent facts. As we must in a summary judgment context, we consider those facts in a light most favorable to the boat owner as the non-moving party. R. 4:46-2(c); Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995); W.J.A. v. D.A., 210 N.J. 229, 237-38 (2012) (applying those same standards on appeal). We glean the facts mainly from the boat owner's sworn oral statements to the insurer when it was investigating his claim, the owner's deposition testimony and that of the insurance company's representatives, and numerous documents in the record, including the policy application itself.
A.
The recreational vessel in question is a 1977 Uniflite cruiser known as "Sanity Chek." Appellant Gary M. Hochschild purchased the used boat in 1996 from Essex Boat Sales at a marina in Baltimore. After certain repairs were done, Hochschild eventually docked the boat in New Jersey, where he resides.
Because Hochschild is the defendant in the insurer's case but the plaintiff in his own case, we avoid using the terms plaintiff and defendant in our discussion to spare confusion.
During the twelve-year period between Hochschild's 1996 purchase and his 2008 policy application that is the subject of this case, Hochschild obtained coverage for the boat from several different insurance carriers. Those prior policies were issued by the Travelers Insurance Company ("Travelers") and then by Boat U.S. Marine Insurance, an affiliate of Continental Insurance Company and Continental Casualty Company. During that same time frame, Hochschild filed several insurance claims for damage to the boat and was paid in the aggregate as much as approximately $93,000.
For simplicity, we shall refer to Boat U.S. Marine Insurance and the related Continental entitles as "Continental." The record also indicates the involvement of Rue Insurance Company ("Rue") during a prior coverage period, although it is unclear whether Rue is an affiliate of Travelers or acted here as an agent of Travelers.
On or about June 30, 2008, Hochschild completed, signed, and submitted a one-page, two-sided application form for marine insurance with Continental. The standardized form contains a series of typewritten questions asking about the boat owner, the vessel itself, and the boat's location and intended use. The form also sets forth various special conditions and other information, including details about additional coverages, discounts, and premiums.
At the bottom of the back page of the policy application, the following language appears in italicized print:
While my signature verifies this information to be true, this application does not bind me to accept insurance, nor does it bind Boat U.S. or the Insurance Company to accept me as an applicant for insurance. If I accept, I hereby authorize any company, credit bureau, or Department of Motor Vehicles that has knowledge of me to give such information to Boat U.S. Underwriting to be used for Boat U.S. insurance purposes only. Omitting, misrepresenting or stating information falsely on this application constitutes insurance fraud, voids all coverage, and is subject to criminal and civil penalties. The Insurance Company will consider your claims history for purposes of determining whether to cancel or refuse to renew your policy.Hochschild's signature and the date appear immediately below this italicized language.
Most of Hochschild's corresponding answers on the application form were typed instead of handwritten. Some of the answers were typed in large font, while others were typed in much smaller font. The record is inconsistent as to whether Hochschild was assisted by an insurance broker or agent in filling out the form. Hochschild contends that a representative of the company e-mailed the application to him, and that certain portions of the answers had already been filled out in advance. He testified that he completed the rest of the answers and sent the form back to the insurer.
The parties were unable to provide us with a fully legible copy of the completed application form. However, Hochschild attempted to decipher the illegible portions in his sworn statements to the insurer and also at his deposition. We have accepted the accuracy of his oral attempts to decipher the exhibit for purposes of our review.
Conversely, Continental's witnesses testified at their depositions that the company's general practice was to begin the application process with a blank form rather than with one containing pre-filled information. Continental acknowledged that it was possible that, during intake discussions with an applicant, a representative might derive and use information from a prior policy with the same insured or from other sources. According to Continental, the representative who spoke with an applicant over the phone typically would not send the form to that applicant, but instead would only electronically generate the form and another department within the company would send it out.
According to the testimony of Continental's vice-president for claims, the company's database assigns a unique membership number to each applicant. That membership number enables the company to link to that applicant any prior claims or policy applications he may have with the company.
B.
Continental focuses in this case upon five separate responses on Hochschild's application that it contends were false or misleading. The five items concern: (1) boat purchase price; (2) prior claims or losses; (3) prior damage; (4) previous insurance company and prior premium; and (5) prior insurance refusals or cancellations. We examine each of these responses, and Hochschild's attempted explanations of his corresponding answers on the form, in turn.
Purchase Price
The first page of the application form contains a blank seeking disclosure of the "Boat Purchase Price." Hochschild responded with "$56,0 00."
The record shows that Hochschild paid only $20,000 in cash to Essex Boat Sales in connection with his 1996 purchase. An Essex Boat Sales document with the heading "Sales Contract" recites a "purchase price" of $69,520. The record also shows that Hochschild received financing of $53,333 from a lender at the time of his purchase. Even so, Hochschild's counsel conceded at oral argument on appeal that his client actually paid the seller only $20,000 in cash for the boat, plus possibly $4,000 for a generator and other incidental sums for repair work that the seller may or may not have performed. There is no proof in the record that the seller received $56,000, or any sum remotely approaching that figure.
Hochschild testified that he considered the vessel's "purchase price" to consist of not only the $20,000 he paid to the seller, but also money he allegedly paid to one or more third parties to repair and upgrade the boat when he bought it. Hochschild also points out that a surveyor who performed a visual inspection of the boat estimated the market value of the boat to be approximately $69,0 00 at the time of his 2008 insurance application.
Hochschild did not document how the remaining amount of his $53,000 loan was disbursed.
Prior Claims or Losses
Another portion of the application form posed the following query:
List all claims or losses to this or other boats or from liability in the past 3 years. IF NONE, CHECK HERE: ___The box after this question was marked "None." Despite that denial of prior claims or losses, Hochschild followed his answer with a typewritten explanation. According to Hochschild's testimony, that explanation, which is illegible on the exhibit, reads as follows:
Had one theft and vandalism claim but I believe that was over three years ago. Had
some small damage in the Erie Canal. Champlain Lock number six due to faulty lock valve, but the New York State Thruway is processing this claim.Unable to decipher the next few typewritten words, Hochschild testified that his response to this query then finished with: "to have the damage repaired. This occurred approximately June 30, 2008, in the afternoon."
The record shows that Hochschild's vessel had an extensive prior history of claims or losses, including some that potentially occurred during the three-year pre-application period inquired about on the form. For example, in September 1997, Hochschild claimed the vessel hit bottom in the vicinity of Barnegat Inlet, resulting in a $37,768 claim paid to Hochschild by either Rue or Travelers. In August 1999, Hochschild claimed the boat clipped a log, resulting in another insurance payment to Hochschild of $1,543. In May 2011, Hochschild claimed equipment was stolen from the boat while it was docked at a marina, resulting in a theft claim paid to Hochschild for $3,667. More substantially, Hochschild made a claim for theft and vandalism occurring "sometime" during the "spring" of 2005, in the amount of $45,950.62. There was also a claim paid to him for $925 relating to oil removal in July 2005, and for $4,235. 17 in labor, parts and service at a boat shop that same month. During his sworn pre-suit examination, Hochschild also referred to damage in the "Lake Champlain lock."
It is unclear from the record if this particular claim was ever paid, in full or otherwise. It is also unclear whether this claim or loss from 2005 falls within the three-year period asked about on the application form, which Hochschild filled out on or about June 30, 2008.
Again, it is unclear if all of these 2005 items fall within the three-year period.
It is readily apparent that Hochschild's responses on the form — disclosing only a previous theft and vandalism claim of an unspecified amount "over three years ago," and "small damage" in the Erie Canal, in or near "Champlain Lock number six" — do not accurately reflect his actual claim history. The Champlain Lock claim occurred in 2008, the year of his application, and was, in fact, an event that precipitated his 2008 application for coverage. When Hochschild called Continental, he was advised that his prior Continental policy had already lapsed, which prompted him to submit in mid-2008 the application in dispute here.
It is unclear from Hochschild's confusing sworn statements whether the "Erie Canal" damage and the "Champlain Lock number six" damage are the same.
Prior Damage
Another question on the policy form asked:
Was this boat ever damaged? No ___ Yes ___.Hochschild checked the "No" box, but then he provided a typed explanation for this item as well. Although a portion of that explanation on the exhibit is illegible, Hochschild deciphered it at his pre-suit examination as follows: "Not that I know of except for minor scrapes, dings, et cetera from cruising but corrected each and every occurrence and year. See survey."
IF YES, EXPLAIN: ___
According to Hochschild, he did not consider the September 1997 running-aground incident, which resulted in a paid $37,000 claim, as damage that he was required to report on the application. He initially asserted that he understood the application question to be referring solely to damage that was not already repaired. Later, at his deposition, Hochschild alternatively contended that he may have interpreted the question as referring to damage as to which Continental was unaware, thus excluding damage that had occurred during the period of previous Continental coverage. As a third possibility, Hochschild suggested at his deposition that, in retrospect, he may have been thinking at the time of his application that the question sought information only about damage sustained during the previous three years, even though this particular question on the form contained no such time
Previous Insurance Coverage
The application form also asked about Hochschild's prior boat insurance. Specifically, it asked him to disclose his "prior company," "prior premium $," and to indicate whether his prior coverage had "[e]ver [been] cancelled or refused?" The typed response Hochschild provided as to the first question was "Markell." He answered the second question by checking the box "No."
The word is spelled "Markell" on the form, but is referred to in the transcripts as "Markel."
At his pre-suit examination under oath and at his deposition, Hochschild insisted that he did not know who or what "Markell" referred to, and that the word must have been preprinted on the form by Continental. The witnesses for Continental had no explanation of why the word "Markell" appeared on the form, asserting that it must have come from Hochschild.
The record shows that Hochschild did have prior marine insurance for the vessel with at least two successive companies: Travelers and Continental. The Travelers coverage existed prior to 2002. In 2002, Hochschild obtained a Continental policy, but that policy lapsed approximately in the 2005-06 time frame.
Prior Cancellations or Refusals
The fifth and final item of alleged misrepresentation concerns Hochschild's answer to the following question on the application form:
Ever cancelled or refused? No ___ Yes ___.Hochschild marked "No" to this question, this time without inserting an explanation. His answer is untrue, or, at the very least misleading, because (1) Hochschild's coverage was cancelled in December 1997, (2) Travelers discontinued coverage in August 2001, and (3) his prior Continental policy lapsed in or about 2005-06.
Hochschild acknowledged at his pre-suit examination that he remembers his boat policy having been cancelled or refused renewal, but he could not remember any specific details, such as what companies or time frames were involved. He could not recall receiving a cancellation notice from either Travelers or Rue, copies of which are in the record. Hochschild argues that Continental should have known about the prior cessation of its own coverage, as that event was what prompted him to submit a new Continental application in 2008 after his phone call with its representative who told him his prior policy was no longer in force.
C.
After receiving Hochschild's answers on the application form, Continental issued a marine policy to him insuring Sanity Chek for an agreed amount of $80,000, covering the policy period for July 30, 2008 through July 30, 2009. There is no contention that Hochschild failed to pay the premiums due under the policy.
On May 19, 2009, Sanity Chek was destroyed by a fire that broke out while the vessel was docked in Manasquan in Monmouth County. Although arson was initially suspected, the State Police closed their investigation, concluding that the fire was accidental and that it had resulted from ignition by electrical energy.
Hochschild thereafter filed a claim with Continental for the fire loss. After reviewing the matter and taking the statements under oath from Hochschild, Continental denied the claim and cancelled the policy. It did so upon concluding that Hochschild had made several material misrepresentations on his 2008 policy application.
D.
In November 2009, Continental filed suit against Hochschild in the Law Division in Monmouth County. In its two-count complaint, Continental sought a declaratory judgment voiding the policy due to Hochschild's misrepresentations. In count one, Continental pled claims of insurance fraud under the IFPA, seeking compensatory damages authorized under the statute, including reasonable investigation expenses, attorney fees, and costs. In count two, Continental sought rescission under the Declaratory Judgment Act, N.J.S.A. 2A:16-50 to -62.
Shortly thereafter, Hochschild sued Continental in the Law Division in Mercer County, the county where he resides. In his own complaint, Hochschild alleged that Continental was liable for breach of contract, breach of the implied covenant of good faith and fair dealing, negligence, and unjust enrichment. Continental then filed a counterclaim in Hochschild's case, essentially repeating the contentions it had asserted in its own action.
The trial court consolidated the two Law Division cases in Monmouth County. Following discovery and oral argument, the court granted summary judgment to Continental and dismissed Hochschild's claims. Among other things, the motion judge concluded, in his accompanying written Statement of Reasons that the 2008-09 marine policy was voidable because of Hochschild's material misrepresentations. As part of his analysis, the judge applied the common-law doctrine of "uberrimae fidei" (meaning a duty of "utmost good faith" in connection with a policy of insurance). As alternative grounds to support summary judgment, the judge also relied upon principles of equitable fraud and breach of contract. In addition, the judge found Hochschild had violated the IFPA, and that Continental was entitled to damages and other remedies under that statute. Lastly, the court dismissed Hochschild's own claims.
Thereafter, Continental tabulated its investigation costs, expenses, and attorneys' fees. It submitted a certification of those sums to the trial court. In an ensuing final order, the court awarded Continental $58,409 in investigation and other costs and $61,583 in counsel fees, all to be paid by Hochschild under the IFPA.
This appeal by Hochschild ensued.
II.
We analyze the legal issues before us under New Jersey law, the state of Hochschild's residence, as well as the state where the vessel has been commonly docked. Although Continental's principal place of business is in Illinois, and Hochschild's 2008 policy application was handled by a Continental representative in California, the parties have agreed that New Jersey law should be applied in this case. See Polarone Mfg. Co. Inc. v. Commerce & Indus. Ins. Co., 310 N.J. Super. 168, 172-73 (App. Div.), certif. denied, 155 N.J. 590 (1998) (applying a multi-factor choice of law test in insurance claims litigations, including an analysis of the parties' domiciles, the place where the contract was formed, and the place of performance). Like the trial court, we accept that choice-of-law stipulation, which appears well-founded in any event.
A.
Continental asserts that it was entitled to cancel Hochschild's coverage because of his numerous material misrepresentations on the 2008 policy application. It asserts three alternative legal theories to support such cancellation: (1) the doctrine of uberrimae fidei; (2) Hochschild's breach of certain anti-fraud provisions appearing both on the policy application and in the insurance policy itself; and (3) equitable fraud.
1.
Uberrimae fidei has its roots in British jurisprudence. The doctrine has historically been applied to certain types of insurance contracts in the United States, dating back to 1828. See M'Lanahan v. Universal Ins. Co., 26 U.S. 170, 185, 7 L. Ed. 98, 105 (1828). The doctrine imposes the highest duty on parties to an insurance contract to disclose facts that materially affect the insurer's risk. See 7 Jeffrey E. Thomas, New Appleman on Insurance Law Library Edition § 76.01 (LexisNexis 2014).
Several federal cases have applied the duty of uberrimae fidei in the marine insurance setting. Under uberrimae fidei, any failure to disclose a material fact not known by the underwriter that is, or should be, within the knowledge of the insured party, is grounds for rescission of the policy, even if the omission or misstatement is the result of the insured's mistake, accident, or forgetfulness. See, e.g., Cassin, supra, 544 F.3d at 262.
See, e.g., AGF Marine Aviation & Transp. v. Cassin, 544 F.3d 255, 262-63 (3d Cir. 2008) (involving an insured's misrepresentation of charter yacht's purchase price in obtaining its policy); N.Y. Marine & Gen. Ins. Co. v. Tradeline, 266 F.3d 112, 123 (2d Cir. 2001) (involving an insured shipper's alleged failure to disclose weather predictions when seeking rainwater coverage in its marine insurance coverage); HIH Marine Servs., Inc. v. Fraser, 211 F.3d 1359, 1362-63 (11th Cir. 2000) (involving a tour company's failure to disclose that it did not have a finalized charter agreement with a yacht it wished to add to its coverage).
Not all federal circuit courts apply the uberrimae fidei doctrine to marine insurance policies. For example, the Fifth Circuit Court of Appeals in Albany Insurance Co. v. Anh Thi Kieu, 927 F.2d 882, cert. denied, 502 U.S. 901, 112 S. Ct. 279, 115 L. Ed. 2d 230 (1991) (5th Cir. 1991), concluded that the uberrimae fidei doctrine is not "entrenched federal precedent." The Fifth Circuit observed in Anh Thi Kieu that the published cases citing the uberrimae fidei doctrine do not "authoritatively conclude . . . that the doctrine applies to the exclusion of state law." Id. at 880. See Wilburn Boat Co. v. Fireman's Fund Ins. Co., 348 U.S. 310, 313; 75 S. Ct. 368, 370, 99 L. Ed. 337, 342 (1995) (articulating that, in the absence of a "federally defined" or "judicially established" federal admiralty rule, states are free to adjudicate marine insurance disputes).
Moreover, the Third Circuit's opinion in Cassin applying uberrimae fidei is not, as the motion judge in the present case inaccurately stated, a "mandate" to apply the doctrine under New Jersey law. In fact, Cassin is factually distinguishable from the case at bar in several respects. The case involved a commercial charter boat that sank in Grenada, precipitating litigation in the Virgin Islands. Id. at 257. None of the facts in that case involved a nexus to New Jersey. Significantly, the insurance policy had specified that the parties first be governed by "well established entrenched" federal admiralty law, and, in the absence of such, then by New York law. Id. at 262. Here, the boat in question is recreational, not commercial, and Continental's marine policy contains no choice-of-law provision.
Only two published cases in our state in the last four decades have mentioned the doctrine of uberrimae fidei. In Gallagher v. New England Mutual Life Insurance, 33 N.J. Super. 128, 129-36 (App. Div.), aff'd, 19 N.J. 14 (1955), we upheld the rescission of a life insurance policy under principles of uberrimae fidei because of an insured's misrepresentations of material facts about his health. The opinion cites to several older decisions illustrating principles of uberrimae fidei, but none of them involved marine insurance.
In the most recent case, Weir v. City Title Insurance Co., 195 N.J. Super. 23, 31 (App. Div. 1973), we applied uberrimae fidei and concluded that a title insurer had the right to rescind a policy where its insured had not timely disclosed a title problem that arose after the policy had issued. For reasons that are not elaborated upon in Weir, our discussion of uberrimae fidei included an observation that "[t]itle insurance is no different from any other type of non-marine insurance and, as such, is governed by the same general rules and principles[.]" Id. at 29 (emphasis added). Given that observation, Weir suggests that marine policies, such as the Continental policy here, might not necessarily be subject to the high degree of accuracy in disclosure demanded under uberrimae fidei principles. In fact, Hochschild urges that we take this opportunity to reject the application of uberrimae fidei in the present context involving a recreational boat owner.
2.
The second alternative basis for cancellation invoked by Continental is breach of contract. In particular, Continental points to this sentence within the previously-quoted cautionary boilerplate language at the bottom of the policy application: "Omitting, misrepresenting or stating information falsely on this application constitutes insurance fraud, voids all coverage, and is subject to criminal and civil penalties." The insurance policy that was thereafter issued to Hochschild contains similar anti-fraud language:
There is no coverage from the beginning of this policy if you or your agent has omitted, concealed, misrepresented, sworn falsely, or attempted fraud in reference to any matter relating to this insurance before or after any loss.Neither of these contract provisions expressly requires that the insured misrepresent or omit facts knowingly, or with an intent to deceive the insurer, in order to enable Continental to cancel the policy.
Both the doctrine of uberrimae fidei and the anti-fraud language included in Continental's standardized policy form and contract allows the cancellation of coverage because of material misrepresentations or omissions, even in instances where an insured has not knowingly or intentionally tried to deceive the insurer. Those legal theories each impose a high degree of care upon an insured to assure the utmost accuracy in the responses that he or she provides on his or her policy application. Hochschild argues that, as a matter of public policy, these requirements are too onerous, especially for an individual boat owner who infrequently applies for coverage for a recreational vessel, as opposed to a commercial enterprise that maintains business records and which may have one or more employees involved in applying for insurance coverage and keeping track of premiums, claims, and damage to a vessel.
We need not resolve this appeal on either the alternative grounds of uberrimae fidei, or breach of contract. Nor do we need to address the public policies that may bear upon those concepts. We choose to leave aside those issues, because there is a third alternative that more readily authorizes cancellation of Hochschild's policy: the doctrine of equitable fraud.
3.
Unlike common-law legal fraud, the concept of equitable fraud does not require that a defendant make misstatements with an intent to deceive the plaintiff. Cf. Gennari v. Weichert Co. Realtors, 148 N.J. 582, 610 (1997) (delineating and applying the elements of legal fraud in contrast to equitable fraud). Instead, equitable fraud requires proof of only three elements: (1) material misrepresentation, (2) a defendant's intent that a plaintiff rely on those statements, and (3) plaintiff's detrimental reliance. Jewish Ctr. of Sussex Cnty. v. Whale, 86 N.J. 619, 624 (1981). See also Marino v. Marino, 200 N.J. 315, 341 (2009) (reciting these same standards); Rutgers Cas. Ins. CO. v. LaCroix, 194 N.J. 515, 528 (2008) (same). As contrasted with common-law fraud, equitable fraud does not require a defendant's knowledge of falsity, nor does it require proof of resulting damage. Ibid. "Even an innocent misrepresentation can constitute equitable fraud justifying rescission." Ledley v. William Penn Life Ins. Co., 138 N.J. 627, 635 (1995). "[S]cienter is not at issue." Jewish Ctr. of Sussex Cnty., supra, 86 N.J. at 625.
Here, the proofs in this record, even when considered in a light most favorable to Hochschild, clearly show that his false or misleading responses to several objective questions on the 2008 application satisfy the three classic elements of equitable fraud. There are no genuine issues of material fact that need to be tried to a jury as to those elements.
First, all — or at the very least, several — of the misrepresentations Hochschild made on the 2008 application form are unquestionably material. Information provided to an insurer is material if "a reasonable insurer would have considered the misrepresented fact relevant to its concerns and important in determining its course of action." Palisades Safety & Ins. Ass'n v. Bastien, 175 N.J. 144, 148 (2003). The questions posed on the application form probed into relevant questions about the value of Hochschild's vessel, any prior damage to the vessel, its claims history for the preceding three years, the identity of prior insurers, and the insured's track record in maintaining past policies. These are all topics that logically would affect the underwriting process, both as to the carrier's decision to insure the vessel at all and, if so, as to what premium to charge.
Second, it is obvious from the circumstances that Hochschild submitted his answers on the 2008 application with an intent and expectation that Continental would rely on his answers. Hochschild clearly wanted the insurer to provide him with coverage for his boat, once he learned after the Champlain Lock incident that his prior coverage had lapsed. His briefs make no effort to gainsay that self-evident proposition.
Third, the uncontroverted record establishes that Continental relied on Hochschild's material misrepresentations on the completed application to its detriment. As Continental's vice-president of claims, Carroll Robertson, testified at her deposition, the actual purchase price of a vessel, and the difference between the purchase price and third-party estimates of that vessel's value, are important facets of the insurer's decision to issue a marine insurance policy. Continental's reliance is further corroborated by the certification of James Holler, a Senior Vice President who heads Continental's underwriting department. Holler certified that Continental would not have insured this vessel "at all" if Hochschild had supplied accurate answers responding to the five queries at issue.
Hochschild provides no counter-proof to contradict these sworn proofs of Continental's representatives. He speculates that Continental had no need to rely on his application answers because it presumably had access to his claims history and to other information about the vessel from its prior policy period. But an insurer's capacity to cross-reference certain prior information from within its own files does not mean that it lacked the need for honest and complete answers from the applicant.
Several of the five queries in question related to topics that would not necessarily be contained in Continental's database. For example, Continental's files would not reveal prior damage to the vessel that did not result in a claim filed with Continental. Nor would Continental have knowledge of the boat's actual purchase price when Hochschild bought it in 1996 and then insured it with another carrier.
Given this vessel's checkered history with multiple prior incidents of damage and claims, it is entirely logical to accept Holler's unrebutted testimony that Continental would not, in fact, have underwritten the 2008-09 policy for Sanity Chek if Hochschild had truthfully disclosed that material background in his application responses.
Because all three elements of equitable fraud are manifestly established by the record, the trial court appropriately granted summary judgment upholding Continental's cancellation of coverage and its denial of Hochschild's fire loss claim. The court also rightly dismissed Hochschild's own claims, given its unassailable finding that he had made material misrepresentations.
B.
Continental's separate claims for damages and other affirmative relief against Hochschild under the IFPA require more rigorous proofs than its declaratory request to simply rescind the policy and deny coverage for his fire loss.
A violation under the IFPA in the context of an application for an insurance policy requires proof by a preponderance of the evidence that the applicant knowingly made false or misleading statements material to the insurer's decision to issue the policy. The statute reads, in relevant part:
A person or a practitioner violates this act if he:Although the IFPA surely advances important public policies to deter and root out insurance fraud, see State v. Fleischman, 189 N.J. 539, 545 (2007), the statute's state-of-mind requirement is a critical component that must be proven in order to grant the expansive remedies that the statute authorizes.
. . . .
(4) Prepares or makes any written or oral statement, intended to be presented to any insurance company or producer for the purpose of obtaining:
. . . .
(b) an insurance policy, knowing that the statement contains any false or misleading information concerning any fact or thing material to an insurance application or contract . . . .
[N.J.S.A. 17:33A-4(a) (emphasis added)].
Hochschild argues that this critical state-of-mind question under the IFPA — as to whether he knowingly misled Continental on the 2008 application — is a question of fact for a jury to decide. By way of illustration, he cites to Building Materials Corp. of America v. Allstate Insurance Co., 494 N.J. Super. 448, 486-87 (App. Div.), certif. denied, 212 N.J. 198 (2012). In Building Materials, we considered, among other things, whether the evidence in a jury trial had been sufficient to establish that an insured had, in fact, knowingly misled an insurer's underwriter. Id. at 485-87. The trial judge had concluded before trial that a factual determination whether the insured had knowingly misled the underwriter "was a question for the jury to decide." Id. at 487. The jury was provided in that case with the opportunity to weigh all of the pertinent evidence surrounding the communications between the insured and the insurer's underwriters. Upon assessing the credibility of the witnesses' testimony and other evidence, the jury concluded in Building Materials that the insured had knowingly made material representations to the underwriter. We upheld that jury finding on appeal because it had an adequate grounding in the evidence at trial. Id. at 487-88.
Here, there are similarly genuine issues of material fact that must be evaluated by a fact-finder under the IFPA, including the pivotal question under the statute respecting Hochschild's knowledge of the falsity of his statements on the 2008 application. The record raises credibility-laden and disputed questions as to whether Hochschild actually knew that each of his statements relating to the fire pertinent queries on the application form were false. In his written Statement of Reasons, the motion judge did not identify or expand upon this essential knowledge requirement under the IFPA, although the judge did find that all of Hochschild's alleged misrepresentations were material to the risk.
The Supreme Court recently granted leave to appeal this court's decision in Allstate N.J. Ins. Co. v. Lajara, 433 N.J. Super. 20, 34-44 (App. Div. 2013), leave to appeal granted subnom. Allstate N.J. Ins. Co. v. Nagendra, 217 N.J. 289 (2014), in which we held that there is no right to a jury trial in a civil action by a private plaintiff under the IFPA. When and if the IFPA claims are tried, we presume that the trial court will be applying the controlling precedent in force on this jury issue at the time of that proceeding.
--------
To be sure, we recognize that we have already concluded in our equitable fraud analysis, supra, that Hochschild's responses on the 2008 application form contained material misrepresentations about the vessel's purchase price, damage history, loss history, past insurers and previous policy cancellations. Those determinations of materiality and falsity are now the law of the case. Even so, the mens rea question of whether Hochschild made each of these material statements with the level of culpable knowledge required by the IFPA is not amenable to conclusive resolution on this paper record. Equitable fraud, by comparison, requires only a defendant's intent to have another party rely on his or her statements, but it does not require knowledge that the statements are indeed false. See Jewish Ctr. of Sussex Cnty., supra, 86 N.J. at 625 (noting the "lesser burden" of proving equitable fraud, as opposed to legal fraud, and the lack of a need to prove scienter as to the former).
On this point, we distinguish Continental's reliance upon State v. Kasir, 355 N.J. Super. 96 (App. Div. 2002), certif. denied, 175 N.J. 54 (9003). Kasir was an IFPA case in which summary judgment was granted to the State, where the record clearly showed that the insured had falsely denied being treated by a healthcare practitioner in the preceding five years. According to the factual account in this court's opinion, the insured's answers to those queries on both his policy application form and his claim form simply were "No," without further qualification or attempted explanation. Id. at 99-101. Those unqualified negative responses were contradicted by the insured's true medical history. Id. at 101.
By contrast here, Hochschild did not answer all of the pertinent questions on Continental's application form in an unequivocal manner. Instead, he typed in somewhat lengthy narrative explanations for several of his answers. Thereafter, he further attempted, both in his sworn pre-suit interviews and his deposition testimony, to explain what he had thought and had intended in providing his answers on the form. He repeatedly denied making any misrepresentations at all.
Although Hochschild's attempted explanations are not necessarily credible or persuasive, they do provide at least some evidential support for his contention that he did not act, on the whole, with the "knowing" and culpable state of mind required to establish liability under the IFPA. It will be up to a trier of fact to assess whether those explanations are indeed credible. Cf. Bellino v. Verizon Wireless, 435 N.J. Super. 85 (App. Div. 2014) (upholding a compensation judge's fact-finding under analogous anti-fraud provisions in the Workers' Compensation Act, where the judge found the claimant's trial testimony credible in denying that she had knowingly attempted to deceive the insurer about her past medical condition and treatment).
Given Hochschild's (1) denials that he had knowingly misrepresented facts when submitting the policy application, (2) his inclusion of explanatory language on the application form, and (3) his sworn statements and deposition testimony attempting to provide contextual explanations for his previous state of mind, we are constrained to vacate the trial court's decision granting summary judgment to Continental under the IFPA. We do so because we are obligated to view the record in a light most favorable to Hochschild as the non-moving party on a summary judgment motion. Brill, supra, 149 N.J. at 540. We also do so because the law recognizes that disputed state-of-mind issues frequently are not well suited for disposition on summary judgment, and must instead await credibility assessments by a trier of fact. See, e.g., Mayo, Lynch & Assocs. v. Pollack, 351 N.J. Super. 486, 500 (App. Div. 2002).
We consequently remand for a trial on Continental's IFPA claim, in which the sole liability question will center upon Hochschild's alleged knowledge of the falsity of the material misrepresentations that appeared on his 2008 policy form.
Affirmed in part, vacated in part, and remanded in part for trial on the IPFA claims. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION