N.J. Supreme Court lowers bar for proving customer fraud

The New Jersey Supreme Court has set an easier standard of proof for an insurance company suing an insured for fraud than a lower court had required.

Instead of proving fraud by “clear and convincing evidence,” an insurer suing under the state’s Insurance Fraud Protection Act need only prove its case by a “preponderance of the evidence,” a lower standard, the high court ruled 5-2.

The case involved Liberty Mutual Insurance Co.’s denial of an inflated claim for property damage to a small vacation cabin in Highland Lakes owned by Rose Land.

Liberty Mutual won in the first round when a court found it had presented clear and convincing evidence that the claim was fraudulent. However, when the plaintiffs appealed, Liberty also counter-appealed, arguing that the standard it had been held to, “clear and convincing evidence,” was not the appropriate standard under the IFPA. That question of the appropriate standard reached the state Supreme Court where Liberty Mutual won its argument for a lower standard.

Facts reviewed
In December 2000, a tree located on the property of Joseph Rizzo, the Lands’ next-door neighbor, fell onto the roof of the Lands’ cabin. Land telephoned his nephew, Steven Budge, a licensed public adjuster, to assess the damage.

After Rizzo’s wife reported that there were men on Land’s roof doing “additional damage,” Rizzo videotaped Budge and his associates working on the roof. The video depicts the three men taking a portion of the fallen tree and slamming it against the roof, creating further damage. It also shows Frank Land on the ground gesturing to Budge and his associates.

Budge assisted the Lands in filing a claim with Liberty Mutual for $69,338.

Joseph Balinski, a builder employed by Liberty Mutual, inspected the cabin 10 days after the incident and prepared a damage estimate of $9,921. At trial, Balinski testified that some prior damage was included in Budge’s estimate and that many repairs in Budge’s estimate were unnecessary.

Liberty Mutual denied coverage and filed suit against the Lands and Budge, alleging IFPA violations. They counterclaimed against Liberty Mutual alleging bad faith in denying the claim.

The jury returned a verdict in favor of Liberty Mutual, finding that it had proven by clear and convincing evidence that all three defendants “knowingly misrepresented, concealed, or failed to disclose any material fact concerning the property loss.” The Appellate Division reversed and remanded for a new trial. The panel also affirmed that the proper burden of proof under IFPA is clear and convincing evidence.

The Supreme Court granted certification solely to determine the appropriate standard of proof . On March 14 it released its opinion that the standard of proof required under the IFPA is a preponderance of the evidence.