Recently, the New Jersey Appellate Court determined that an automobile insurance carrier could rescind a policy for a misrepresentation of a material fact where the misrepresentation was made unknowingly by the applicant. The case that brought about this decision, Rashabov v. Alfuso, 2010 WL 3932899, involved a lawsuit brought by Usman Rashabov (“Rashabov”) against Selective Insurance Company (“Selective”) for coverage for personal injury protection (“PIP”) benefits despite inaccurate information concerning the number of household residents listed by Rashabov on his application for automobile insurance. By way of background, Rashabov, who is of Turkish decent, immigrated to the United States from Russia as a refugee. He was accompanied by his wife, his parents, and his two brothers. Rashabov did not speak English. Within several months, Rashabov obtained employment and a driver’s license. Rashabov then purchased a used minivan; however, at the time of the purchase, the dealership would not release the vehicle to Rashabov without insurance. An employee of the dealership, who was known to Rashabov only as Slovik, spoke Russian and helped Rashabov purchase a policy from Selective. Slovik assisted Rashabov in completing Selective’s application by “briefly” translating the “gist” of the application. Rashabov assumed that Slovik translated whatever was important, Slovik filled out the application, and Rashabov signed it.

A section of the application instructed the applicant to “list all household residents and dependants (licensed or not) and regular operators.” Only Rashabov’s name was listed. At the time, however, he was residing in New Jersey with his wife, parents, and two brothers, all of whom were adults. Although Rashabov was the only member of his household with a drivers’ license, his wife had a learner’s permit and his brothers obtained licenses a few months after the purchase of the minivan. Selective was never notified of any of these licenses.

Several months later, Rashabov was driving his minivan in New Jersey with his wife, mother, and brothers as passengers when they were involved in an accident. Rashabov and his family all incurred injuries, and their medical bills were submitted to Selective for payment. Upon conducting an investigation of Rashabov’s application, Selective learned that Rashabov’s wife resided with him at the time the application was completed. Selective paid for Rashabov’s brothers’ claims. However, Selective refused to pay for Rashabov’s and his wife’s claims, and rescinded the policy on the grounds that Rashabov “willfully made false statements as to material matters in the documents submitted in support of [the] application for insurance.”

Rashabov and his wife sued for coverage under the policy obtained by Rashabov. The trial court initially dismissed their claims; however, on reconsideration, the court held that Rashabov’s wife was entitled to PIP benefits. The court found that she was an innocent third party since her marriage to Rashabov was not recognized in Russia, and hence, was also not recognized in New Jersey. The court upheld its holding as to Rashabov, from which an appeal ensued.

On appeal, Rashabov argued that Selective could not rescind the policy unless his misrepresentation was material and intentional, and here, the misrepresentation was made unknowingly. The Appellate Division found, however, that although Rashabov did not speak English and could not read the application, he had the opportunity to understand the questions through the interpreter that he selected. Further, although Slovik did not translate all the questions to Rashabov, it was Rashabov’s obligation to assure himself that he understood what he was signing. Finally, while the Court recognized that innocent mistakes can refute the presumption of a knowing misrepresentation, it was Rashabov’s burden to overcome the presumption. Upon reviewing the application, the Court found that Slovik must have asked some very specific questions in order to complete the application for Rashabov. As such, the Court could not find that Slovik had failed to ask specific questions concerning Rashabov’s household residents. Rashabov’s deposition testimony also did not refute the presumption that he was not asked about his household residents. Accordingly, the Court upheld Selective’s determination to rescind the contract and deny benefits to Rashabov.

The decision in this case is a small victory for insurers. Although New Jersey courts typically support rescinding a policy where a material representation is made knowingly, this case broadens the scope of this determination and examined whether the insured knew or should have known that representations made in the application were false.