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(Article from Insurance Law Alert, July/August 2015)

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Reversing a trial court decision, a New Jersey appellate court ruled that a homeowner was entitled to pursue a Consumer Fraud Act claim against his mortgage company based on a delay in payment of insurance proceeds for storm-related losses.  Abbas v. PennyMac Corp., 2015 WL 4275962 (N.J. Super. Ct. App. Div. July 16, 2015) (unpublished decision). 

Abbas’s home was damaged during Superstorm Sandy.  His homeowner’s insurance company assessed the damage at approximately $12,000 and sent a check to PennyMac, Abbas’s mortgage company.  Abbas claimed that although he made repeated requests for payment from PennyMac, he was forced to pay out-of-pocket for repair costs.  After approximately six months without payment, Abbas sued PennyMac, alleging common law fraud and violation of New Jersey’s Consumer Fraud Act (“CFA”), N.J.S.A. 56:8-1-20, based on the wrongful withholding of the insurance funds.  Shortly thereafter, PennyMac issued Abbas the insurance proceeds, which Abbas returned as a rejected settlement offer.  PennyMac moved for summary judgment, arguing that Abbas did not suffer an ascertainable loss as required by the CFA because the insurance funds had been released to him.  The trial court agreed and granted the motion.  The appellate court reversed.

To prevail on a CFA claim, a plaintiff must establish wrongful conduct, an ascertainable loss, and a causal relationship between the two.  See N.J.S.A. 56:8-19.  The appellate court concluded that Penny Mac lacked a good-faith basis for the delay and that Abbas suffered an ascertainable loss when PennyMac failed to release the insurance funds in a timely manner.  The court explained that PennyMac’s “decision to send the proceeds at a time of its choosing does not eliminate liability under the CFA because the $12,277.43 in insurance proceeds became the ascertainable loss the moment the funds were wrongly withheld.”  The court noted that allowing PennyMac to escape CFA liability by issuing delayed payment could “leave[ ] the door ajar for unscrupulous operators to use unconscionable commercial practices, so long as [they] can close the door before the victimized consumer initiates legal action.” Pursuant to the appellate court’s decision, full reimbursement may not insulate a defendant from CFA liability if there has been an unjustified delay in issuing payment.