First-Party Property Concealment or Fraud

There are several forms of insurance fraud that can rescind insurance coverage for insureds’ claims. Generally, we witness such fraud contained in applications for insurance policies, staged accidents, and claims to health care providers rendering treatment to injured policy holders. To combat the rise in insurance fraud cases, insurers’ have implemented concealment or fraud provisions that authorize the insurer to deny coverage for a insurance claims by the insured if the insured intentionally concealed or misrepresented any material fact or circumstances or engaged in fraudulent conduct before or after a claimed loss.

In Yolanda Vargas v. SafePoint Insurance Company, 47 Fla. L. Weekly D171a (Fla. 3rd DCA 2022), Florida’s Third District Court of appeal recently addressed the interpretation of Homeowners’ insurance policy’s containing “Concealment or Fraud” provisions providing for forfeiture of coverage when an insured makes “false statements relating to this insurance.” The insured, YolandaVargas, reported a loss to her First-Party Insurance Carrier, SafePoint Insurance Company, resulting from water damage due to a plumbing leak. Safepoint’s corporate representative testified that SafePoint immediately requested repair invoices from any prior claims and photographs of the pre-loss condition of the property. Vargas failed to provide this information and, instead, submitted a sworn proof of loss with an itemized estimate of her property damage prepared by a public adjuster.

After conducting its own investigation, SafePoint denied coverage and Vargas commenced suit. Safepoint served Vargas with its first set of interrogatories asking Vargas to disclose any previous claim made on the property. Vargas responded by recalling a roof claim made ten years prior. Vargas did not disclose any prior claims involving water damage. In her deposition, Vargas stated that she had not made any prior insurance claims involving a plumbing leak on the property. After receiving these answers, Safepoint added an affirmative defense based on the “Concealment or Fraud” provision of the insurance policy. To support this affirmative defense, Safepoint deposed Christina Crossway, the corporate representative of Citizens Property Insurance Company. Crossway testified that Vargas made a prior claim on the property in 2013 for “a broken water pipe under the kitchen sink” resulting in “water damage to the kitchen cabinets.” The damaged areas listed under this prior claim included many of the same areas in the claim Vargas had submitted to Safepoint.

Safepoint moved for summary judgment based on the “Concealment or Fraud” affirmative defense. The motion asserted that Vargas had violated the concealment or fraud provision in the contract by failing to disclose the previous water leak in her deposition and interrogatory answers and by including damages from the previous claim in her sworn proof of loss. Vargas argued that while Safepoint had submitted evidence of a prior claim, it had submitted no evidence to counter Vargas's statement under oath that she did not recall the prior claim when giving her interrogatory answers and deposition testimony. The trial court granted Safepoint's motion for summary judgment.

The legal question addressed by the Third District Court of Appeal was whether the term “false statement” in this post-loss context means (1) incorrect statement or (2) intentionally incorrect statement as the insurance policy in question failed to define this term. The term “false statement” holds two distinct meanings, the first being “contrary to fact or truth” and latter being “deliberately untrue.” However, while “false” is included in both meanings, the more common usage of the word, certainly in the legal context, carries the connotation of an intentionally deceptive statement. The District Court of Appeal concluded that the term “false statement” in this post-loss context, includes an element of intent to mislead, which, in the case at hand, involves a genuine issue of material fact. The Third District Court of Appeal reversed and remanded trial court’s ruling. 

Policy provisions should be considered in direct and assignee claims when analyzing potential Motions for Summary Judgement, like the Concealment and Fraud provision involved in SafePoint Insurance Company.  Callahan and Fusco will continue to monitor court decisions on this issue.

New Jersey Contemplating New Legistlation to Force Insurers Into Quicker Settlements

The New Jersey legislature introduced late last year a potential bill that could affect both insurers and their customers. Senate Bill 1559 (where it has passed) and its companion Assembly Bill 1659 (undergoing a second reading in committee), named the “New Jersey Insurance Fair Conduct Act,” will establish a private cause of action for first-party claimants regarding certain unfair or unreasonable practices by their insurer.

Specifically, the bill defines “insurer” to mean any individual, corporation, association, partnership or other legal entity which issues, executes, renews or delivers an insurance policy in this State, or which is responsible for determining claims made under the policy. Further, the bill defines as “first-party claimants” as individuals injured in a motor vehicle accident and entitled to the uninsured or underinsured motorist coverage of an insurance policy asserting an entitlement to benefits owed directly to or on behalf of an insured under that policy.

According to the bill, a claimant may file a civil action in a court of competent jurisdiction against its automobile insurer for: (1) an unreasonable delay or unreasonable denial of a claim for payment of benefits under an insurance policy; or (2) any violation of New Jersey law preventing unfair or deceptive practices. For example, a claimant may file a cause of action for activities as unfair methods of competition and unfair and deceptive acts or practices in the business of insurance, including, but not limited to, unfair claim settlement practices and failure to maintain competent handling procedures. Moreover, upon establishing that a violation of the provisions of the bill has occurred, the claimant shall as a matter of law be entitled to: (1) actual damages caused by the violation including but not limited to, actual trial verdicts; and (2) prejudgment interest, reasonable attorney’s fees, and all reasonable litigation expenses.

If the bill becomes law this could greatly impact policies that have already been written by insurers as it provides yet another tool for plaintiff’s attorneys to leverage insurers and their defense counsel into settling earlier and at higher than usual rates because of the threat of a pending trial. Further, it creates a bigger rift between the insured and the insurer as insurance companies now have to underwrite their policies with the expectation that every insured is a potential claimant. This new concern will bear a higher cost to the consumer who is legally obligated to purchase insurance, leading to higher premiums.

All indications are that the Assembly will be voting to pass the law and it will be signed by Governor Murphy later this year. Given, the infancy of the law, it will now be in the hands of the courts to interpret the language laid out by the New Jersey Legislature. At this moment, it is unclear what would be considered “unreasonable delay” or “unreasonable denial”, nor is it certain what would be considered “unfair or deceptive practices” under the Act. As such, we must await the judiciary taking up these matters and setting the precedent for future practice.

The Limit Does Exist: Reinstating Complaints Have Deadlines

The New Jersey Appellate Division affirmed the lower court’s decision denying a plaintiff’s ability to reinstate her case against a defendant, as well as the subsequent Motion for Reconsideration, due to the exorbitant delay in seeking to prosecute the action for plaintiff’s alleged personal injuries.  See Valentin v. Pinckney, No. A-3678-19, 2021 N.J. Super. Unpub. LEXIS (App. Div. Dec. 15, 2021).  Specifically, the Appellate Court found that the plaintiff failed to demonstrate “good cause” for the lengthy delay for reinstatement for failing to prosecute the action within a reasonable amount of time.

In Valentin, the plaintiff filed suit against a defendant in August of 2012 for a motor vehicle accident that occurred in October of 2011; the defendant was allegedly the driver of the second vehicle which rear-ended plaintiff.  Following the filing of the complaint, plaintiff attempted to serve her complaint by process serve, but it was unsuccessful because the process server could not locate the defendant’s specific apartment; plaintiff failed to further investigate the defendant’s location in 2012.

Plaintiff’s case was dismissed, without prejudice, by the lower court for lack of prosecution on March 15, 2013. When the court dismissed the action, an internet search revealed several Newark addresses for the defendant and in April of 2016, plaintiff contacted the Newark Postmaster with the several Newark addresses for the defendant without any success.  Plaintiff started to serve all of the potential Newark addresses for the defendant and it was not until March 15, 2020—seven years after the dismissal—that defendant was successfully served at the address defendant listed on the October 2011 police report; plaintiff’s attorney promptly filed a Motion to Reinstate the Case.

The lower court denied plaintiff’s Motion to Reinstate the Case without oral argument emphasizing that plaintiff “did not ‘articulate[] a reason for the inordinate delay in moving to restore the matter’ and there was ‘no showing of good cause or exceptional circumstances to explain the gaps in activity to restore this [seven-plus] year[-]old matter.”  See Valentin, No. A-3678-19, 2021 N.J. Super. Unpub. LEXIS at *3.  The lower court subsequently denied the plaintiff’s Motion for Reconsideration as the plaintiff failed to meet the Reconsideration Standard.  This appeal ensued. 

The Appellate Division affirmed the lower court’s denial of both of plaintiff’s motions, without oral argument, finding the lower court did not abuse its discretion.  While New Jersey Courts have liberally indulged motions to reinstate complaints dismissed for lack of prosecution, if a defendant would be prejudiced by the reinstatement, it should be denied by the courts as in the Valentin action.  The Appellate Division agreed that the defendant would suffer prejudice by plaintiff’s exorbitant delay in serving and seeking reinstatement of the action as many medical records, witnesses, and other relevant evidence is lost in the more than seven years since the accident and chose to affirm the denial of reinstating the complaint. 

From a defense perspective, Valentin teaches us that matters dismissed for lack of prosecution are not always reinstated when a defendant can clearly articulate prejudice from the inordinate delay and when a plaintiff fails to utilize available alternatives for service of the complaint, reinstatement is not proper. Therefore, during a litigation, establishing that a defendant would be prejudiced by reinstating an old complaint when there is a lack of investigative material and evidence available for defendant to adequately defend against a plaintiff’s stale claims for personal injuries.

Spoliation! What is it Good for?

Recently, in Jekeya Gilliam v. University Holdings, LLC, et al, 2021 N.Y. App. Div. LEXIS 6845, the New York Appellate Division, First Department, held that “one’s body is the kind of evidence” that is not subject to a spoliation analysis.
 
The underlying suit arises from an accident that took place on June 25, 2017, when the Plaintiff was struck by a portion of a falling ceiling in her apartment. As a result of the incident, Plaintiff alleges she sustained an injury to her lumbar spine, specifically a disc bulge at L4-5. On May 22, 2018, Plaintiff filed suit against the defendant property owners, University Holdings, LLC. At a Preliminary Conference, held in August 2018, the Court ordered Plaintiff undergo an independent medical examination (IME) within forty-five (45) days of her deposition. Plaintiff’s deposition took place on January 7, 2019 and her IME was scheduled for March 6, 2019; plaintiff failed to appear for the IME. Instead, Plaintiff underwent a discectomy to her lumbar spine on April 2, 2019. Plaintiff attended an IME in May 2019. Thereafter, Defendants moved to dismiss Plaintiff’s Verified Complaint arguing Plaintiff’s intentional destruction of evidence, namely, her lumbar spine. Defendants argued spoliation applies as Plaintiff’s lumbar spine was significantly altered, as a result of the surgery, and, therefore, prejudiced their defense to damages. The Supreme Court denied the Defendant’s motion to dismiss but ordered sanctions which precluded Plaintiff from offering evidence as to her L4-5 injury. In support of its ruling, the Supreme Court cited to a Second Division decision, Mangione v. Jacobs, 2014 N.Y. App. Div. LEXIS 7135, which upheld the lower court’s dismissal of the Verified Complaint for failure to attend numerous medical evaluations and spoliation through surgery. Plaintiff sought an appeal.
 
Generally, spoliation is the willful or negligent destruction or substantial alteration of evidence. For a party to seek sanctions or remedies under a claim of spoliation “must establish that the non-moving party had [1] an obligation to preserve the item in questions, [2] that the item was destroyed with a culpable state of mind, and [3] that the destroyed item was relevant to the party’s claim or defense.” The Court begins their analysis of the type of evidence that spoliation is generally applied, namely inanimate objects (i.e. video footage, a computer, hard drives, etc.) and found that a person’s body party is fundamentally distinct. The Court characterized the duty to preserve one’s body as antithetical to a person’s personal liberty and control over their body. Moreover, the Court emphasized a plaintiff’s need to follow their treatment plan advised by a physician and to treat a plaintiff’s pain or discomfort level; regardless if such surgery was deemed “emergency” or not. The Appellate Division, First Department, ultimately held one’s body is not subject to spoliation and reversed the lower court’s decision.
 
From a defense perspective, if a pre-surgery IME is deemed necessary it would behoove the defendants to conduct an IME early in litigation and supplement the defense expert with medical records and plaintiff’s deposition as the evidence becomes available.

Florida Courts Addres Rear-End Presumption in Auto Accidents

The judicially created rear-end presumption in vehicle collision cases came before the Florida First District Court of Appeal in a November 2021 opinion.  In Crime v. Looney, the trial court (Circuit Court in Duval County) held the rear-end presumption in vehicle collision cases defeated the Defendant’s claim of comparative fault. Crime v. Looney, 46 Fla. L. Weekly D2548a (Fla. 1st DCA November 24, 2021).  The First DCA held the trial court erred in its interpretation of the rear-end presumption. Id. In Looney, the Defendant presented evidence that he was not the sole cause of the accident.  As such, the First DCA held the rear-end presumption should have vanished and lost its legal effect. Id. 

In Birge v. Charron, the Florida Supreme Court addressed a similar issue with the judicially created rear-end presumption. Birge v. Charron, 107 So. 3d 350, 359 (Fla. 2012).  The Court held that the rear-end presumption is an evidentiary tool not an alternate means of tort recovery in derogation of Florida's well-established system of recovery based on comparative negligence. Id. at 361. In Looney, the First DCA adopted the reasoning from Birge, to wit: where evidence is produced from which a jury could conclude that the front driver in a rear-end collision was negligent and comparatively at fault in bringing about the collision, the presumption is rebutted and vanishes. Crime v. Looney, 46 Fla. L. Weekly D2548a (Fla. 1st DCA November 24, 2021)

The decision in Looney reinforced that Defendants in rear-end collisions can rebut the judicially created rear-end presumption.  Therefore, addressing issues of comparative negligence early in discovery is critical to rebutting the presumption of negligence in a rear-end collision.  This could put the defendant in a more favorable position regarding liability.  The ability to contest liability will lead to a stronger position during settlement negotiations.  Significantly, the party originally entitled to the presumption now has to prove their case in chief, which would be more costly and time consuming.     

Florida Supreme Court Rules that the Financial Relationship Between Defense and Expert Witness is Discoverable

Recently, on October 14, 2021, the Supreme Court of Florida revisited its ruling in Worley v. Central Florida Young Men's Christian Ass'n, 228 So. 3d 18 (Fla. 2017) in two significant decisions concerning the limits of expert witness discovery.  At its core, Worley held that the attorney-client privilege “precludes defense counsel from asking a plaintiff whether his or her attorney referred the plaintiff to a physician for treatment,” and that “a law firm representing a plaintiff in personal injury litigation that refers its clients to a specific physician for treatment is not required to disclose the extent of its referral or financial relationship with the physician.”  Id. at 24.  The Worley court did note that a defendant could explore credibility issues without conducting discovery into the possible relationship between the physician and the plaintiff’s law firm, which could potentially implicate attorney-client privileged documents and information. 

Worley is another milestone case in a line of opinions concerning the limits of financial relationship discovery to a party’s expert.  Previously, the Florida Supreme Court held in Allstate Insurance Co. v. Boecher, 733 So. 2d 993 (Fla. 1999), that discovery requests “regarding the extent of that party’s use of and payment to a particular expert” were permissible because they were “directly relevant to a party’s efforts to demonstrate to the jury the witness’s bias.”  Id. at 994-97.  Worley extended the Boecher rule to “allow discovery of the financial relationship between law firms and treating physicians.”   Worley, 228 So. 3d at 23.  Unfortunately for the defense, the decisions in this line of cases have strongly favored plaintiffs, and the recent decisions of Dodgen v. Grijalva and Younkin v. Blackwelder are no different.

The issue of the discoverability of a defendant’s financial relationship with an expert witness was considered by the Court in Dodgen v. Grijalva, No. SC19-1118 (Fla. 2021).  The plaintiff, below, Grijalva, sought discovery from the defendant and petitioner, Dodgen, concerning the financial relationship, if any, between Dodgen’s nonparty liability insurer and his expert witnesses.  Dodgen moved for a protective order, which the trial court denied, refusing to extend the rationale of Worley, and ordered Dodgen to produce the discovery.  The trial court did not find that the holding in Worley, that the financial relationship between a plaintiff’s law firm and treating physicians is never discoverable, applied to the financial relationship between Dodgen’s expert witnesses and his liability insurer.  Dodgen, 281 So. 3d at 490-92.  The distinction made by the trial court was that treating physicians are not hired experts.  Id.  Dodgen filed a petition for writ of certiorari in the Fourth District Court of Appeal, reasoning that Worley must equally apply to defendants and that “the financial relationship between a defendant’s law firm or insurance company and expert witnesses [must] no longer [be] discoverable.”  Id.  The Fourth District Court of Appeal denied this petition, affirming the trial court’s reasoning that Worley did not apply, but the court did hold that “the discovery laws in this context have resulted in disparate and possibly unfair treatment of plaintiffs and defendants.”  Id.

On the same day it decided Dodgen, the Florida Supreme Court decided Younkin v. Blackwelder, No. SC19-385 (Fla. 2021).  In Younkin, the plaintiff requested certain information regarding the financial relationship between the defendant's law firm and the defense's medical expert, and the defendant moved for a protective order that was denied by the trial court. Id.  The defendant filed a petition for writ of certiorari, which was denied by the Fifth District Court of Appeal, holding that the trial court’s order was consistent with the Fifth District’s earlier decision in Vazquez v. Martinez, 175 So.3d 372, 374 (Fla. 5th DCA 2015) (discovery of the doctor/law firm relationship or doctor/insurer relationship is allowed). 

With both Dodgen and Younkin, the Supreme Court did not address whether Worley, stating that “[t]he holding of Worley should be reexamined only in a case in which it is actually at issue.”  Dodgen, at 15.

However, the dissent by Justice Polston in Younkin, which echoed the opinion of Fifth District Judge Brian Lambert, offered an example that illustrates the problematic and uneven application of Worley between plaintiffs and defendants:

[U]nder Worley, a plaintiff law firm can refer 100 of its clients to the same treating physician, who may later testify as an expert witness at trial, without that referral arrangement being either discoverable or disclosed to the jury, yet if a defense firm sends each one of these 100 plaintiffs to its own expert to perform a CME [compulsory medical exam] under Florida Rule of Civil Procedure 1.360, and then later to testify at trial, the extent of the defense law firm’s financial relationship with the CME doctor is readily discoverable and can be used by the plaintiff law firm at trial to attack the doctor’s credibility based on bias…. Nevertheless, this appears to be the present status of the law.
 
That the Supreme Court has recognized that a solution is needed in this area is promising.   However, maybe the way to fix this problem is not an evenhanded approach.  Perhaps the laws will strike a balance by allowing greater discovery by defendants into how medical treatment is funded, a systemic problem in personal injury matters that has led to an explosion in the cost of medical treatment, which in turn has resulted in overvaluation of damages and, in some cases, nuclear verdicts.  We will continue to monitor changes in the law in this area, and keep you apprised of any significant developments.