Third Circuit Clarifies Scope of Liability for Insurance Companies Under the Consumer Fraud Act

In a precedential decision interpreting the New Jersey Consumer Fraud Act (CFA), the Third Circuit determined that an automobile insurance carrier may be liable under the CFA for deceptively inducing one of its customers into releasing claims against another party represented by the carrier.

In Alpizar-Fallas v. Favero, Defendant’s car struck Plaintiff’s vehicle, causing serious injury and damages. Both parties were insured by Defendant’s insurance company, Progressive. A Progressive claims adjuster arrived at Plaintiff’s home and presented her with a document that he claimed required her signature. The adjuster represented that by signing the document Plaintiff would expedite the claim process. Plaintiff signed the document relying on the adjuster’s statements. The document, however, was a “comprehensive general release of any and all claims” against defendant driver, also insured by Progressive. Plaintiff was not advised by the adjuster to seek counsel.

Plaintiff subsequently brought a putative class action against Progressive for violation of the CFA. On Progressive’s motion, the district court dismissed Plaintiff’s claims, reasoning that the CFA did not apply to “an insurance company’s refusal to pay benefits” but only to the “sale or marketing” of the policies.

On appeal, the Third Circuit reversed, holding that the district court mischaracterized Plaintiff’s claim as one for denial of her benefits. Reaffirming its 2007 decision in Weiss v. First Unum Life Insurance Co., the Third Circuit stated that the CFA covered fraud in the procurement of a contract, as well as fraud in the subsequent performance of the contract. The Court explained that, here, the CFA was implicated because: (1) Plaintiff relied on the adjuster’s express false misrepresentation that the documents requiring her signature expedited the claims process and facilitated faster payment, when, in fact, the document was a comprehensive general release of all claims; (2) Progressive’s adjuster represented that he was an agent of Plaintiff’s insurance company, making her reliance on the adjuster’s representations reasonable; and (3) Progressive had engaged in a similar “deceptive and unconscionable” pattern of conduct with other consumers, stripping these consumers of the right to pursue claims against other Progressive policy holders. The Third Circuit found that Plaintiff articulated a viable CFA claim because the facts “amount to an allegation of fraud in connection with the subsequent performance of a consumer contact”— a situation, the Court noted, that the CFA was enacted to prevent.

This decision not only offers a cautionary word to insurance companies representing both parties in an accident, but further exemplifies the Court’s liberal interpretation and application of the CFA. In the Third Circuit, insurance companies are subject to CFA liability not only for actions taken to procure contracts, but also for actions taken during subsequent performance.

Kevin H. Gilmore is an Associate in the Gibbons Commercial & Criminal Litigation Department.
Print