Insurance Fraud Act Suits by Insurers Held to Trigger Right to Jury Trials in New Jersey

Last week, the New Jersey Supreme Court unanimously held that a civil defendant sued by an insurance company for violations of the state’s Insurance Fraud Prevention Act (IFPA) has the right to trial by jury.  In Allstate New Jersey Ins. Co. v. Lajara, 2015 WL  4276162, 2015 N.J. LEXIS 797 (Jul. 16, 2015), the six justices decided that a statutory IFPA claim triggers the jury trial right because it seeks compensatory and punitive damages and is legal in nature as a result and because the elements necessary to prove such a claim are similar to common-law fraud.

shutterstock_121502677In December, 2008 Allstate and four affiliated companies brought suit against 63 defendants, alleging the violations of IFPA.  Those sued included physicians, chiropractors, and medical and equipment providers.  The 604 paragraph complaint asserted that the defendants that engaged in a wide-ranging scheme to defraud the carriers of over $8 million by providing unnecessary care, engaging in fraudulent testing, creating bogus medical bills and records, and even staging accidents and recruiting accident victims.  The plaintiffs sought compensatory and treble damages, as well as equitable relief in the form of disgorgement of benefits already paid and liens on the defendants’ assets.

The complaint demanded trial by jury, but the insurers subsequently moved to withdraw their jury demand.  The defendants opposed that, but the trial court granted the motion and denied the defendants’ request for trial by jury.  That was affirmed by the Appellate Division, but the intermediate level panel also permitted the defendants to take an appeal to New Jersey’s highest court.

Last Thursday, the state Supreme Court reversed, holding that “the right to a civil jury trial . . . applies to private-action claims seeking compensatory and punitive damages under the IFPA.”  Justice Barry Albin’s opinion began by explaining that:

The right to a civil jury trial is one of the oldest and most fundamental of rights.  It predates the founding of our Republic, is enshrined in the Federal Bill of Rights, and is part of the fabric of all three of New Jersey’s Constitutions.  A jury trial is self-government at work in our constitutional system, and a verdict rendered by one’s peers is the ultimate validation in a democratic society.

IFPA itself did not expressly provide that insurance fraud suits could go before juries, but the justices noted that under both the state and federal constitutions, the jury trial right applied to all causes of action — whether statutory or at common law — that sounded in law rather than in equity.  In making this determination, the nature of the remedy sought is “the most persuasive factor.”  IFPA authorized an insurer to pursue compensatory and punitive damages against a violator of the Act, and the decision explained that such monetary damages are “a typical form of legal relief” and “the traditional form of relief offered in courts of law.”

The justices also held that the statutory cause of action authorized by IFPA was comparable to a fraud action at common law, which is also a factor that indicates that jury trial is called for under New Jersey jurisprudence.

In sum, the court concluded as follows:

[T]he right to a jury trial under Article I, Paragraph 9 of the New Jersey Constitution is triggered because the IFPA provides legal relief in the form of compensatory and punitive damages and because an IFPA claim is comparable to common-law fraud.

The insurers’ arguments that equitable remedies were sought in their complaint was unavailing.  As the justices explained, “[w]hen equitable claims or defenses are lodged in what is predominantly a dispute at law, . . . the jury will decide those issues that fall within its domain, and the court those issues falling within its compass.”

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About The Property Insurance Law Observer
For more than four decades, Cozen O’Connor has represented all types of property insurers in jurisdictions throughout the United States, and it is dedicated to keeping its clients abreast of developments that impact the insurance industry. The Property Insurance Law Observer will survey court decisions, enacted or proposed legislation, and regulatory activities from all 50 states. We will also include commentary on current issues and developing trends of interest to first-party insurers.
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