Robert Goodwin recently learned that New Jersey is serious about convicting defendants charged with insurance fraud. He was found guilty at trial of second-degree insurance fraud and sentenced to a prison term of seven years on account of false statements made to an insurance carrier in connection with an insurance claim stemming from the arson of his girlfriend’s car. The Appellate Division vacated his conviction, finding that the trial court erroneously instructed the jury, in essence, that the defendant could not be convicted of insurance fraud unless the carrier actually relied upon the defendant’s false statements and paid the claim. The Supreme Court reversed, finding that the carrier did not have to actually suffer a loss by paying a claim in order for the defendant to be convicted of the crime. The Court found that it was sufficient if the statement could simply influence the carrier’s decision to pay the claim – even if the claim was ultimately denied and not paid.
The trial court hearing Goodwin’s case instructed his jury that the defendant could be found guilty if the false statement could simply affect the carrier’s decision to pay or deny the claim. Thus, the question for the trial court was whether it was reasonable for the carrier to include the false statement in the larger mix of information that was reviewed and considered in connection with a decision to pay or deny the claim. If it was reasonable for the carrier to consider the false statement as part of the decision-making process, the defendant making that statement could be convicted. The Appellate Division reversed, issuing a somewhat convoluted decision that, in brief, found that the carrier had to actually rely upon defendant’s false statements. Accordingly, the Appellate Division believed that for the defendant to be found guilty, the false statement had to factor prominently in, and actually motivate, the carrier’s decision to pay the claim.
The Supreme Court had to determine which of these standards was correct – was it sufficient for the false statement to reasonably affect the carrier’s decision (the relatively relaxed standard set by the trial court), or did the false statement have to actually motivate the carrier’s decision (the standard set by the Appellate Division, which placed a heavier burden on the State). The Court approved of the trial court’s standard, reversed the Appellate Division, and remanded the case to the trial court to, among other things, reinstate defendant’s conviction and seven-year prison sentence.
The Court based its reasoning upon the plain language of the statute and the definition of the term “material.” First, the Court observed that the statute dictated that a defendant could be convicted of insurance fraud by knowingly making or causing to be made a false statement of material fact as part of a claim for payment pursuant to an insurance policy. In this light, the Court noted that the statute does not contain language indicating that criminal liability depends upon whether the carrier actually relied upon, and suffered a loss as a result of, the false statement. “Rather, the statute merely requires the knowing submission of a false or fraudulent statement of material fact for criminal liability to attach.”
The Court then looked to the perjury statute for guidance concerning the definition of the term “material”, and found that this statute provided that a statement is “material … if it could have affected the outcome of the proceeding or the disposition of the matter.” Thus, in the perjury context, a false statement does not have to actually corrupt a proceeding in order to be deemed “material”; rather, it is sufficient if the false statement could potentially affect the course or outcome of the proceeding. The Court found additional support for this approach in, among other sources, the official comments to the perjury statute, cases decided under the common law offense of perjury, the federal false statements statute, and legal dictionaries. Accordingly, the issue, correctly framed, was whether the false statement could have affected the carrier’s decision, as opposed to whether it actually did affect the decision and result in payment to the claimant.
In light of this case, defendants charged with insurance fraud by means of false statements cannot assert non-payment by the carrier as a defense to the charge. The defendant can still be convicted if the carrier could have reasonably relied upon the false statement in the course of making its decision to either pay or deny the claim. This case makes it easier for the State to obtain a conviction for this form of insurance fraud, and raises the bar for a defendant charged with making the false statement(s).
James S. Friedman, LLC, represents defendants charged with Insurance Fraud (and Healthcare Claims Fraud) in the State and Federal courts in New Jersey and New York City. If you or someone you know has such a charge, contact us immediately to start planning your defense.