Monthly Archives: April 2013

Insurers Obligation to Notify Policyholder About Change in Coverage Limits

By Dennis Smith, Esq.

If you like many other insurance policy consumers renew your policy on a yearly basis with the same insurer assuming your coverage limits remain constant — what is the insurer’s notification obligation when a newly added policy provision alters your coverage limits?

Our Supreme Court has held that policy changes must be conveyed fairly to the policyholder, although in no particular form.  Skeete v. Dorvius, 184 NJ 5 (2005). Thus if a policy change altering your coverage amount is buried within a few paragraphs of a 100 page insurance policy this is insufficient. Placement of Notice of a Policy Change is critical and for the new policy language to be enforced the insurer should notify its insured in a cover letter outlining significant policy changes for the upcoming year so that the policyholder is aware of them.  Such a practice gives the policyholder “a chance to digest the changes before drowning …in a sea of paper.”  Skeete, 184 NJ at 9.  For example in Newman v. Insurance. Co., 2009 WL 2243779 (App. Div. 2009), Newman was driving a truck owned by his employer when he was struck and seriously injured by an uninsured driver. Newman had three possible policies under which to assert his uninsured motorist claim: the employer’s Insurance policy, his own insurance policy which had uninsured limits of $15,000 and because he was a resident of his parents’ their NJM policy which had $300,000 limits.  The NJM policy had a step down uninsured motorist provision which stated that NJM’s limits would not exceed the highest applicable limit of liability under any insurance providing coverage to Newman.  NJM took the position that its liability was limited to the $15,000 maximum amount Newman elected under his own automobile policy for uninsured coverage not the $300,000 limit chosen by his parents.  While the court acknowledged that the step – down provisions are enforceable Newman’s parents were not provided with adequate notice of the step – down clause and NJM “should have informed Newman’s parents when the step – down clause was added, that the coverage for any insured who was not a named insured (Newman) would be greatly limited.”  2009 WL 2243779 at p. 5.  Consequently the court found that NJM’s limits applied and Newman was not limited to a $15,000 recovery for his significant injuries.

If your understanding of the scope of coverage purchased by you differs from the insurers after notice of your claim is provided to the company, we can help you navigate through the issues and advise as to the merits of your claim based on policy language and case law.

Dealership Scams and the Consumer Fraud Act – What You Need to Know

By Janie Byalik, Esq.

Have you ever seen an advertisement for a new or used car?  Does the deal sound too good to be true?  What about when you get to the dealership – the car you were promised is nowhere to be found, the price you were quoted suddenly jumps by thousands of dollars, or you are offered a car that you didn’t want, something the dealers called bait and switch.  And what if everything up until the sale goes smoothly, you buy a car that the dealership assured you was in excellent condition only to later discover that car has sustained previous damage, that it was a showroom demonstrator, that it was used as a rental car, or that it was totaled and rebuilt, and none of this information was disclosed to you.

The law in New Jersey protects innocent consumers from unscrupulous actions such as these.  The New Jersey Consumer Fraud Act prohibits the use of any unconscionable commercial practice, deception, fraud, false pretense, false promise, or misrepresentation in connection with the sale or advertisement of any merchandise, including new and used cars.  The Act further prohibits sellers from knowingly concealing or omitting any material fact with the intent that the consumer rely upon the concealment in his or her decision to make a purchase.

The law also prohibits dealership conduct such as:

  • offering a vehicle for sale without disclosing its prior use (such as a rental car)
  • offering for sale a used motor vehicle without disclosing the prior damage to the vehicle;
  • failing to disclose the actual odometer reading
  • overcharging for registration/title fees

This list is by no means exclusive.  There are numerous restrictions placed on dealerships and host of guidelines by which they must abide in advertising and selling cars.  For detailed information, please see the full text of the New Jersey Consumer Fraud Act, the Motor Vehicle Advertising Regulations, and information on New Jersey’s Lemon Law, which can be found on the Division of Consumer Affairs’ website.

Two extremely common schemes by dealerships are overcharging for title and registration fees and selling damaged vehicles.  By law, dealerships are not allowed to charge more for title and registration fees than they pay to the Department of Motor Vehicles.  If there are ancillary fees charged in connection with processing  a title or registration, those fees must be itemized and disclosed to the customer.  A common scheme among dealerships is to charge a set amount as a title/registration fee and note in the sales agreement that the customer may be entitled to a partial refund after it pays the DMV fees, and then to never issue a refund in the hopes that the customer will have forgotten about it.  Just recently,  in 2012, a class action alleged that two Morris County car dealerships were charging customers unlawful fees, including registration fee overcharges.   The case resulted in more than a $3 million settlement.

The most common scam by dealerships is to sell a vehicle that sustained previous damage without disclosing that information to the consumer.  By law, a seller of a vehicle must not misrepresent the mechanical condition of the vehicle and should disclose all material defects in the mechanical condition of the vehicle which is known to the dealer.  The best way to protect yourself against purchasing a previously damaged car is to run a CarFax and if possible, ask the dealers to have an independent mechanic inspect the car before purchasing it.  If you already purchased the car that is later discovered to have sustained accident damage, you may have a claim against the dealership if this information was not disclosed to you.

New Jersey has some of the strictest consumer protection laws in the country.  The Consumer Fraud Act not only is a useful means of providing consumers with a vehicle to bring forth these claims, but also permits the consumer to recover triple damages and attorney’s fees if the case is successful.  For dealership scams, the Consumer Fraud Act is just one of the many tools at your disposal.  You may also have a claim for breach of various warranties, breach of contract, fraud, and possible relief afforded through the New Jersey Lemon Law.

New Jersey Adopts Significant Changes Affecting Shareholder Derivative Lawsuits and Shareholder Rights

By Sean Mack, Esq.

On April 1, 2013, Governor Christie signed into law three bills designed to impose greater restrictions on shareholder derivative suits and to make New Jersey’s corporate governance law more business-friendly.

The new legislation permits companies to opt-in or out of certain provisions.   Company’s should therefore quickly review and understand these changes, and if desirable, adopt and file an appropriate amendment to their certificate of incorporation or bylaws.

The new legislation, which amends N.J.S.A. 14A:3-6, governs derivative lawsuits brought by minority shareholder(s) against the corporation, its directors and officers.

Under the new legislation, prior to the initiation of a derivative lawsuit, the complaining shareholder must make a written demand on the corporation for action.  Absent a demonstrable “irreparable injury to the corporation,” no lawsuit can be filed until the earlier of, the shareholder receiving a written rejection of the demand, or the passing of ninety days from the date of the written demand.  If the shareholder commences litigation after demand has been rejected, the complaint must meet a heightened pleading standard showing particular facts establishing that a majority of the board of directors, or all members of a committee, who determined the matter, did not consist of independent directors at the time the decision was made.

The new legislation provides additional grounds for moving to dismiss a derivative suit.  A court must dismiss a derivative lawsuit if the court finds that independent directors or a majority of independent shareholders have determined that the suit is not in the best interests of the corporation.  Specifically, the law permits the establishment of an independent committee of 1 or more directors, and a court shall dismiss a derivative complaint if the majority of the independent committee has determined in good faith, after reasonable inquiry, that the derivative proceeding is not in the best interests of the corporation.  A corporation also may request that the Court appoint an independent panel of one or more individuals to determine whether the maintenance of the lawsuit is in the best interests of the corporation, and provides that the plaintiff shall have the burden to demonstrate to the panel that the suit is in the best interests of the corporation.

To help ensure that the plaintiff shareholder fairly and adequately represents the interests of the corporation, in addition to being a shareholder at the time of the complained of conduct or having received the shares by operation of law from someone who held them at the time, the new legislation requires that a suing shareholder continue to be a shareholder during the course of the litigation.

The legislation also expressly mandates that the shareholder pay the corporation’s reasonable expenses if the court determines that the proceeding was brought without reasonable cause or for an improper purpose.  Also, for any shareholder holding less than 5% of the corporation’s stock, which is worth less than $250,000, the plaintiff shareholder must post a bond to cover the reasonable expenses of the corporation, including attorney’s fees.

For these new provisions to apply, existing corporations must amend their certificate of incorporation to adopt these provisions.

Another newly enacted piece of legislation amends the New Jersey Shareholder Protection Act, N.J.S.A. 14A:10A-1, et seq., which applies to all “resident domestic corporations.”  The new legislation revises the definition of “resident domestic corporations” to now include all corporations organized under New Jersey law.  However, a New Jersey corporation that does not have its principal executive offices located in New Jersey and does not have significant business operations in New Jersey as of April 1, 2013, may opt out of this new legislation by adopting an amendment to its bylaws opting out of this legislation before September 28, 2013.  Additional changes now permit a resident domestic corporation to engage in a business combination with an interested stockholder if the transaction that caused the holder to become an interested stockholder was approved by the corporation’s board of directors prior to the stock acquisition date.

The third piece of legislation also now permits shareholders to participate in shareholder meetings by means of remote communications.  What constitutes remote communications will be determined by guidelines and procedures established by the board, so long as each shareholder can participate in and have access to the same information and materials as those present for the meeting.

Establishing Fair Market Rent Through Arbitration

By Scott R. Lippert, Esq.

In the commercial lease context, it can be difficult to reach an agreement concerning the methodology for arriving at the amount of base rent for any extensions of the term.  There are several different approaches:  there can be a stated, fixed amount; an amount derived by formula (e.g. CPI increases); or an amount derived by an appraisal process, frequently referred to as “fair rental value”.  In the first two instances, the drafting should be pretty straight-forward.  It is in the last instance where the parties have room to disagree about the process for resolving conflicting appraisals.

Frequently, the language in the lease will require either that the landlord propose the new base rent during the extended term, or that the landlord obtain an appraisal report from a qualified appraiser, stating the proposed rent.  The tenant would then be given the opportunity to dispute the landlord’s position with the tenant’s own appraisal.  The point of contention then becomes how to resolve the difference, if any, between the respective positions of landlord and tenant.

Some clauses provide for an averaging of the two positions if they are within a certain range, say within 5% or 10% of each other.  If not within that range, or if the parties prefer not to provide for averaging, generally a third appraisal is then required, which will be binding upon the parties.  The third appraiser may or may not be aware of the other appraisals. 

There is another approach, one which has been around for a while, which in my experience has recently come into vogue.  It is called “Baseball Arbitration”.  Baseball Arbitration requires each party to submit its number to a neutral, and the neutral’s charge is to pick one number or the other.  The neutral either comes up with his own figure without knowing the figures of the parties and the figure closer to the neutral’s figure will prevail (“night baseball arbitration”) or the neutral is made aware of each party’s figure and picks one or the other.  No averaging, nothing in between.  The theory is that, out of fear that the other side’s number will be chosen, the parties will each submit a reasonable number, within the midrange of possible outcomes.  There’s no point in submitting an outlier, since it is not likely to prevail, or at least so the thinking goes.

This, I believe, is risky business and it surprises me that business people are proponents of this device.  It is unlikely that the three appraiser process will lead to a result that is not within the range of reasonable outcomes.  In contrast, with baseball arbitration, one of the parties could really get hurt.  Chances are the parties will have done some negotiating before reaching an impasse and seeking arbitration.  If the parties are wildly far apart, baseball arbitration seems very risky, as they will likely be more entrenched at that point, in their respective positions.  To reduce the likelihood of a disastrous result, my advice is to stay away from baseball arbitration when establishing fair rental value.