The New Jersey Insurance Fraud Prevention Act (“IFPA”) provides for the imposition of certain penalties in connection with the commission of insurance fraud by an insured and/or certain individuals acting on behalf of an insured. N.J.S.A. §17:33A-1 to -30. The purpose of the IFPA “is to confront aggressively the problem of insurance fraud in New Jersey by facilitating the detection of insurance fraud, eliminating the occurrence of such fraud through the development of fraud prevention programs, requiring the restitution of fraudulently obtained insurance benefits, and reducing the amount of premium dollars used to pay fraudulent claims.” Id. at §17:33A-2.
A claim alleging a violation of the IFPA may be brought by the Office of the Insurance Fraud Prosecutor. The IFPA sets forth certain statutory penalties for violation of the IFPA. The IFPA also provides that an insurance company may bring a private cause of action seeking compensation for damages sustained as a result of the fraud, and provides for the recovery of “reasonable investigation expenses, costs of suit and attorney’s fees.” Id. at §17:33A-7a. In addition, an insurer is entitled to recover treble damages “if the court determines that the defendant has engaged in a pattern of violating [the] act.” Id. at §17:33A-7b. A “pattern” means “five or more related violations.” Id. at §17:33A-3. Given the potential to recover treble damages and attorney’s fees, the IFPA provides insurance companies with an effective weapon for fighting insurance fraud.
In a 2013 decision, Allstate New Jersey Ins. Co. v. Lajara, 433 N.J. Super. 20, 77 A.3d 491 (App. Div. 2013), the Appellate Division held that there is no statutory or constitutional right to a jury trial under the IFPA. That decision represented a major change in the law because IFPA claims had routinely been tried before juries since at least 1994.
In 2014 the New Jersey Supreme Court granted leave to appeal the Lajara decision. On July 5, 2015, the New Jersey Supreme Court issued a decision reversing the Appellate Division’s decision. See Allstate New Jersey Ins. Co. v. Lajara, 2015 WL 4276162 (N.J. July 16, 2015).
In Lajara, Allstate asserted claims under the IFPA against numerous chiropractors, physicians, and others. A total of sixty-three defendants were sued by Allstate and its affiliated companies. Allstate alleged that the defendants submitted fraudulent claims on behalf of various insureds seeking personal injury protection benefits. Allstate alleged, among other things, that:
Unlicensed defendants provided “purported healthcare services” through companies that concealed their true status. Defendants provided unnecessary care and prescribed unnecessary medical equipment, engaged in fraudulent testing of patients, misrepresented test results and patients’ symptoms, and unlawfully split fees and concealed prohibited self-referrals—all for the purpose of wrongly securing or enhancing recoveries for claimants or price gouging.
Id. Allstate further alleged that certain “defendants paid fees to individuals who staged accidents, created fraudulent medical records and bills, and recruited persons involved in accidents who suffered either minor or no injuries.” Id.
Allstate initially requested a jury trial in the complaint. It later decided, however, to withdraw that demand, a move that was opposed by a number of the defendants. The trial court held that there was no right to a jury trial under the IFPA and, therefore, granted Allstate’s request to withdraw its demand. That decision was affirmed on appeal by the Appellate Division.
The New Jersey Supreme Court reversed the Appellate Division. The court observed that “[t]he right to a civil jury trial is one of the oldest and most fundamental of rights.” Id. at *1. The court then went on to note that:
In determining whether the jury-trial right applies to a statutory cause of action, we assess whether the grant of a jury trial is consistent with our common-law tradition. An IFPA claim meets that standard because compensatory and punitive damages are legal—not equitable—in nature and because the elements necessary to prove an IFPA claim are similar to common-law fraud.
Id. Consequently, the court concluded that the defendants were entitled to a jury trial.
There is a general perception that juries tend to be prejudiced against insurance companies. Thus, most insurance companies prefer bench trials, in which the claims are decided by a judge and not a jury. Insureds, on the other hand, typically favor having insurance claims resolved by juries. Thus, it is not surprising that certain defendants fought so persistently to have Allstate’s claims heard by a jury, taking the case all the way to the New Jersey Supreme Court. Ironically, had Allstate not requested a jury trial to begin with, the issue may never have arisen.
© William D. Wilson and NJInsuranceBlog.com, 2015. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to William D. Wilson or NJInsuranceBlog.com with appropriate and specific direction to the original content.
