In Citizens United Reciprocal Exchange (CURE) v. Sabrina A. Perez et al., certif. granted 217 N.J. 292 (2014), the Supreme Court of New Jersey will determine how much bodily injury liability coverage plaintiff insurance company CURE must pay under an automobile insurance policy, when that automobile insurance policy is based on a fraudulent application and was voided from its inception.

CURE insured the vehicle of Sabrina Perez under a basic policy of insurance, pursuant to N.J.S.A. 39:6A-3.1, with $10,000 in liability coverage, which is considered a “basic policy” in New Jersey. Perez’s boyfriend and father of her children, Luis Machuca, was driving the vehicle and became involved in an accident with another car, driven by Dexter Green. Machuca lived with Perez at the time, however, she did not list him as a resident of the home on her insurance application. As a result of injuries sustained in the accident, Green brought a personal injury claim against the policy issued by CURE.

Perez admitted Machuca did reside with her and furthermore, she had willfully failed to disclose him on her insurance application. As a result, CURE voided the policy due to the misrepresentation and filed a declaratory action seeking an order that the policy was void, that Perez and Machuca were liable to CURE for compensatory damages due to the fraudulent application, and that CURE was not required to provide any liability coverage to third parties. Green and his insurer, defendant Progressive Garden State Insurance Company, filed an answer to the action.

After a bench trial, the trial court determined Machuca was not entitled to any coverage under the policy due to the misrepresentations made by Perez regarding his residence at the time of the accident. The court further determined the policy was void as to Machuca, however, citing New Jersey Manufacturers Insurance Co. v. Varjabedian, 391 N.J. Super. 253 (App. Div), certif. denied, 192 N.J. 295 (2007) and N.J.S.A. 39:6-48(a), reformed the policy to $15,000, as “an insurance carrier may not retroactively void a policy after its insured becomes liable to an innocent third party for damages.” $15,000 per person and $30,000 per occurrence is the mandatory minimum levels provided by N.J.S.A. 39:6A-3. Perez’ policy, however, was only issued to provide coverage up to $10,000.

The trial court, relying on Marotta v. New Jersey Automobile Full Insurance Underwriting Association, 280 N.J. Super. 525 (App. Div. 1995), aff’d o.b., 144 N.J. 325 (1996), concluded a driver has the right to expect all other drivers will be insured to the extent required by compulsory insurance. Thus, the court held “15/30 is still the standard minimum coverage in the State of New Jersey.” The decision further noted Varjabedian likewise held a person covered with compulsory standard liability insurance with the mandated underinsured motorist (UM) coverage has the right to expect that all other drivers with compulsory standard policies will have limits of at least 15/30.

The Appellate Division, in an opinion authored by the Judge Margaret M. Hayden, J.A.D., affirmed the trial court’s decision. The majority of the panel agreed the policy should have been voided due to the fraud of Perez in procuring the policy. However, for the purposes of innocent third parties, the voided policy should be reformed to the mandatory minimum liability insurance coverage under of $15,000 per person and $30,000 per occurrence. However, Judge Victor Ashrafi, J.A.D., dissented. Judge Ashrafi argued CURE should only be entitled to provide coverage up to $10,000, which were the terms of the actual insurance policy purchased by Perez, pursuant to N.J.S.A. 39:6A-3.1. Judge Ashrafi observed the fraud against CURE had nothing to do with the amount of coverage in the policy and therefore, the court should not increase the amount of coverage available above the limits of the purchased policy.

The Supreme Court has not yet set an argument date for this matter.