CIVIL INSURANCE FRAUD DEFENDANTS NOW ENTITLED TO TRIAL BY JURY

In Allstate New Jersey Insurance Co. v. Gregorio Lajara (A-70-13) (073511) (Decided July 16, 2015) the New Jersey Supreme Court  ruled yesterday that actions by insurance carriers under New Jersey’s Insurance Fraud Prevention Act, N.J.S.A. 17:33A-1 to 30 have now joined the ranks of disputes to be resolved by a jury. Trial by Jury is a constitutional right guaranteed by the Seventh Amendment of the United States Constitution and Article I, §7 of the 1844 and Art. I ¶ 9 1947 New Jersey Constitutions. But not all legal disputes give rise to a right to a trial by jury.  In the New Jersey state court system the right to a trial by jury must be found in either a statute or the New Jersey Constitution. Prior to yesterday’s ruling, the civil cause of action created by the Legislature for insurance carriers in the Insurance Fraud Prevention Act (“IFPA”) had been interpreted to not provide for a trial by jury and the common law right to a jury trial did not apply. A prior decision in State v. Sailor, 355 N.J.Super. 315 (App. Div. 2001) addressing the right to a trial by jury when the State of New Jersey is the civil plaintiff under the IFPA, found that the equitable nature of the remedies afforded the State and the absence of an express grant of a right to a jury in the IFPA required such actions to be decided by a judge alone. The New Jersey Supreme Court found that the claims by an insurance carrier under the IFPA are legal rather than equitable in nature, drawing an important distinction between the State’s legal remedies under the IFPA and an insurance carrier’s.  A successful lawsuit by an insurance carrier under N.J.S.A. 17:3A-7 (a) and (b) will necessarily involve an award for damages.  N.J.S.A. 17:33A-7(a).  An insurer’s claim under the IFPA is comparable but not identical to a common-law fraud action that would be tried before a jury.  The Supreme Court also considered the implied right to a trial by jury for Consumer Fraud Act (“CFA”) claims under N.J.S.A. 56:8-1 to 109, despite the lack of complete symmetry between a CFA claim and common law fraud.   The combination of persuasive reasons for finding a right to a trial by jury resulted in the Supreme Court’s conclusion that a right to a jury trial must have been intended by the  Legislature, consistent with the New Jersey Constitution’s demands for a trial by jury for legal remedies. The procedural implications for this decision are limited, in most civil insurance fraud cases between insurance carriers and insureds, claimants, or providers the IFPA cause of action would be combined with other contractual and common law causes of action that would be subject to trial by jury.  In that context, only the IFPA claims would have been excluded from the jury’s consideration and reserved to the judge.  It would be unusual for such a dispute to involve only an IFPA claim. More interesting will be the jury dynamic; every premium-paying member of a jury is impacted by insurance fraud in some way.  In March 2015 the Insurance Information Institute reported; Insurance industry estimates generally put fraud at about 10 percent of the property/casualty insurance industry’s incurred losses and loss adjustment expenses each year, although the figure can fluctuate based on line of business, economic conditions and other factors.[1] Using this measure, over the five-year period from 2009 to 2013, property/casualty fraud amounted to about $32 billion each year. Also, the Federal Bureau of Investigation said that healthcare fraud, both private and public, is an estimated 3 to 10 percent of total healthcare expenditures.[2] Based on U.S. Department of Health and Human Services’ Centers for Medicare and Medicaid Services’ data for 2010, healthcare fraud amounted to between $77 billion and $259 billion.  © Insurance Information Institute, Inc. www.iii.org/issue-update/insurance-fraud (Accessed July 17, 2015.) Individual defendants matched up against insurance companies assume that they will get the benefit of an “us” against “them” mentality that will favor “the little guy”.  In New Jersey, dissatisfaction with the response to property damage claims after Sandy is also a simmering issue with potential jurors.  Whether these sentiments or the impact on their premium bill will be the biggest motivation for jurors will be interesting to watch. All of this means that future civil insurance fraud trials between insurance carriers and individual defendants will require the talents of experienced trial lawyers to prepare and present persuasive cases with the eventual audience of jurors in mind.

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