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New Jersey - Fraud/Bad Faith - Renewal Policy Terms

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In Trocki v. Penn Nat’l Mut. Cas. Ins. Co. (Feb. 14. 2022), the District of New Jersey granted an insurer’s summary judgment motion seeking dismissal of its policyholder’s fraud claims grounded in the insurer’s alleged use of inflationary adjustments to limits and premiums in renewal policies.

The policyholder, Ira Trocki, owned a real estate development and management company. He purchased property and general liability insurance from National Mutual Casualty Insurance Company from 2006 through 2014. In doing so, the policyholder renewed the policy annually during this time period and paid “increased premiums as [the insurer] would demand.”

With each policy renewal, the insurer allegedly “used a mechanism called Inflation Guard to increase his coverage limits and insurance premiums to account for yearly inflation in property value.” The policyholder allegedly found out about this mechanism during a trial with the insurer in the midst of a 2014 coverage action between the two parties.

The policyholder did not seek to amend his complaint in that prior action to add claims based on the use of Inflation Guard. Further, the general release memorializing the parties’ settlement of that 2014 action stated that the policyholder released and gave up “any and all claims, rights, and causes of action” regarding “any and all claims that were or could have been asserted in the” 2014 action.

The Parties’ Arguments

The policyholder contended that he never knew inflation adjustments were being applied to his policies. His resultant causes of action included a common law fraud claim and a claim under the New Jersey Consumer Fraud Act. In response, the insurer moved for summary judgment, arguing that the parties agreed that Inflation Guard was never used in relation to the 2006 to 2014 policies and that the policyholder’s claims were barred under New Jersey’s entire controversy doctrine and the parties’ release to the 2014 coverage action.

The District Court’s Decision

The court granted the insurer’s motion for summary judgment. It stated that both of the policyholder’s fraud claims “fail for the simple reason that both parties agree that Defendant never applied Inflation Guard to Plaintiff’s policies.” As such, the policyholder could not show he suffered damages or any ascertainable loss, as is required to state either common law or Consumer Fraud Act claims.

The court also rejected the policyholder’s contention that even if Inflation Guard was not applied to the policies, the insurer nevertheless made “customary inflation adjustments” that were fraudulent. The opinion noted that this was an “entirely new legal theory” that the policyholder could not raise for the first time in the case’s summary judgment phase.

Moreover, since the insurer with each policy renewal provided the policyholder an opportunity to review terms and premiums, the court also found no fraud on a substantive basis. The court further reasoned that the policyholder could point to no “law or any evidence in the record that would support the proposition that Defendant had an affirmative duty to disclose its formulas for calculating inflation increases.”

As a result of these findings, the court decided it did not need to reach the insurer’s remaining arguments regarding the entire controversy doctrine and the scope of the parties’ release of the 2014 coverage action. Nevertheless, the court noted that the entire controversy doctrine provided “alternative grounds” for summary judgment since the policyholder could have amended its 2014 action complaint when it allegedly learned at trial about the inflation adjustments.

Conclusion

The Trocki v. Penn Nat’l Mut. Cas. Ins. Co. court’s grant of summary judgment to the insurer shows that a policyholder who is afforded the opportunity to review and evaluate policy renewal terms cannot later bring fraud claims stemming from the incorporation of alleged price inflation adjustments to the policy premium.

Author: 

Nicholas W. Urciuoli


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