Insurance Fraud By Any Other Name Smells As … Fishy (NJ)

The New Jersey Insurance Fraud Protection Act was enacted to aggressively confront such fraud by facilitating detection and requiring the restitution of fraudulently obtained insurance benefits.  Recently the New Jersey Appellate Division considered a case in which it certainly looked like fraud and smelled like fraud.  Despite the insured’s protestations, the Court concluded it indeed was fraud.

A.I.G. insured a yacht against all risk and physical loss or damage. When the engine developed problems and emitted black smoke, the insureds learned that it had been damaged to the tune of $23,975.  They presented a claim to A.I.G., which promptly paid them $15,975 (an amount less their $8,000 deductible).

During the course of A.I.G.’s investigation into possible subrogation , it learned that the entire cost of the repairs had been covered by the manufacturer.  Naturally A.I.G. notified its insureds to recover the amount it had paid on the claim.  When the insureds declined, A.I.G. stepped up its efforts – to which the insureds took offense.

In A.I.G. v Walsh,  when A.I.G. sought recovery of the claim payment, the Walshes counterclaimed for bad faith.  Going on the offense, they claimed that A.I.G. had badgered them excessively to return the funds.  The Walshes contended that nothing in their policy required them to return the money once the manufacturer picked up the tab.

The Appellate Division did not agree.  By concealing the manufacturer’s repair payment, the Walshes had a double recovery for the claim.  This violated the terms of the Fraud Prevention Act.  Not only did they owe restitution, the court remanded the matter for proceedings for A.I.G.’s claim under the Act.  Needless to say, the court was not impressed with the Walshes’ bad faith claims.

In the end, fraud is fraud – and double compensation for the loss is just that.

For more information, contact Denise Fontana Ricci at dricci@wcmlaw.com.