No Second Chances: New Jersey Appellate Division Prohibits Alleged Insurance Fraudster From Re-Litigating Issue Of Whether There Was An Underlying Auto Accident

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The New Jersey Appellate Division held that an individual alleged to have submitted a fraudulent insurance claim as a result of an auto accident was collaterally estopped from litigating for a second time the issue of whether there was in fact an auto accident. In Badolato v. McMillan, No. A-5474-16, 2018 WL 5091799 (App. Div. Oct. 19, 2018) an individual, Charyse McMillan, filed a claim with New Jersey Manufacturers Insurance Company (NJM) for personal injury protection (PIP) benefits as a result of injuries she allegedly sustained in an auto accident involving her boyfriend’s car. After NJM denied the claim, McMillan sued NJM and that dispute was arbitrated. NJM appealed the arbitration award, and following trial, the jury found that McMillan had not been involved in an auto accident and thus, a defense verdict was entered in favor of NJM.

The Commissioner of the Department of Banking and Insurance filed a separate lawsuit against McMillan based on her PIP claim under the New Jersey Insurance Fraud Prevention Act (IFPA). The trial court granted the Commissioner’s motion for summary judgment based on the finding of the jury in McMillan’s lawsuit against NJM that no accident had occurred.

In affirming summary judgment, the Appellate Division found that McMillan was collaterally estopped from contesting the jury’s finding that she was not in a car accident. The Appellate Division held that an element of the Commissioner’s burden of proof under IFPA is that the defendant presented a statement that she knew contained “false or misleading information”. The Appellate Division therefore held that the jury’s finding that McMillan was not in an accident established that she must have known her PIP claim to NJM was fraudulent, and thus, the court found that the Commissioner was entitled to summary judgment on the IFPA claims.

Badolato serves as a reminder that the IFPA is an important tool for insurers in New Jersey faced with potentially fraudulent claims.  Notably, while the complaint in Badolato was filed by the Commissioner, the IFPA permits an insurance company who suffers damage “as the result of a violation of any provision of” the IFPA to bring a civil action to recover compensatory damages, which include “reasonable investigation expenses, costs of suit and attorneys fees.”  N.J.S.A. 17:33A-7(a).

The decision also makes clear that insurers can take advantage of favorable fact-findings rendered against the claimant in a prior tort or insurance coverage action to establish a violation of the IFPA.  To that end, insurers may wish to consider utilizing special verdict forms at trials involving potentially fraudulent claims, to obtain the specific findings that may conclusively establish critical elements of the burden of proof under the IFPA.  In addition, the decision highlights that an IFPA claim may be brought even if the claimant did not succeed in the attempted fraud, as the insurer in Badolato denied the PIP claim and never issued payment to McMillan.