The Appellate Division recently affirmed prior case law holding that an insurance carrier, which retroactively voided coverage due to its insured’s prior conduct, is still required to provide mandatory minimum liability coverage in the amount of $15,000/$30,000, pursuant to N.J.S.A. 39:6A3, to an innocent third party.
In Citizens United Reciprocal Exchange v. Perez, A-3100-11T1, Defendant Green was injured in a motor vehicle accident with a car driven by Defendant Machuca, owned by Defendant Perez, and insured by Plaintiff, CURE. Defendant Green filed a personal injury claim with CURE.
Defendant Perez insured her automobile under a basic policy with the optional $10,000 liability coverage. In applying for her policy, she did not list Defendant Machuca as a resident of her household, and later admitted she knowingly presented false and misleading information to CURE by failing to disclose this information. CURE submitted it would not have issued the policy if it knew Defendant Machuca was a household member, and denied Defendant Green’s claim.
CURE then filed a declaratory action seeking to hold the policy void ab initio due to Defendant Perez’s misrepresentation, and to further find no liability coverage was available to innocent third parties under the reformed voided policy.
The Trial Court declared the policy void ab initio. However, it found that CURE was responsible for providing mandatory minimum liability insurance coverage, with limits of $15,000/$30,000, to Defendant Green.
On appeal, the issue was whether CURE was required to provide mandatory minimum liability insurance coverage to Defendant Green. CURE’s primary argument was that because Defendant Perez’s basic policy had no mandatory minimum liability coverage, Defendant Green was not entitled to such coverage.
In rejecting CURE’s argument, the Appellate Division addressed the interplay of N.J.S.A. 39:6B-1(a) (requiring compulsory minimum liability coverage with limits of $15,000/$30,000) and N.J.S.A. 39:1(b) (finding that this requirement can be satisfied by maintenance of a basic policy, which provides optional liability insurance coverage with a $10,000 limit).
The Court confirmed that an insurance carrier must afford liability coverage in the least amount mandated by the Legislature, which is $15,000/$30,000, and only the insured may elect to purchase the reduced coverage provided by the basic policy. Moreover, an insurance carrier, seeking to void coverage based on its insured’s prior conduct, cannot avoid providing mandatory minimum liability insurance coverage by relying on the basic policy’s lack of mandated liability coverage. This Court concluded this reasoning is logical, given the Court’s and Legislature’s goal to protect innocent third parties up to the $15,000/$30,000 limits.
The holding in Citizens United Reciprocal Exchange v. Perez is significant, as the Court clearly prefers a finding of coverage in cases involving innocent third parties, despite an insurance carrier’s ability to void a policy of insurance ab initio based upon the misrepresentations of its insured. The Appellate Division’s affirmation of its prior holdings indicates the Court’s unwillingness to change the outcome in these cases, even if “anomalous,” without formal intervention by the Legislature.
By Erin L. Peters, Esq.