Citizens United Reciprocal Exchange v. Perez, 121 A.3d 374

In March 2010 Sabrina Perez applied for a basic New Jersey auto policy from Citizens United Reciprocal Exchange (CURE) and elected the optional $10,000 third‑party bodily injury liability limit. She failed to disclose household resident Luis Machuca, whose driving record would have caused CURE to decline issuance.
CURE issued a policy effective March 23, 2010. On April 21, 2010 Machuca drove Perez’s car and injured Dexter Green in an accident; Green filed a claim under Perez’s policy.
CURE rescinded the policy for material misrepresentation (failure to list Machuca) and denied Green’s claim, then sued for a declaratory judgment that it had no obligation to cover any claims arising from the accident.
The trial court found rescission proper as to Perez and Machuca, but held an innocent third party (Green) was entitled to coverage and awarded $15,000 per person / $30,000 per accident, relying on Varjabedian and Marotta.
The Appellate Division affirmed in a split decision (majority awarding $15,000; dissent would have awarded $10,000, the contract limit). The Supreme Court granted certification.
The New Jersey Supreme Court reversed the Appellate Division and held CURE liable to Green only for the $10,000 optional limit Perez purchased; if an insured did not elect the optional $10,000, innocent third parties receive nothing under a voided basic policy.

Issue	Plaintiff's Argument (CURE)	Defendant's Argument (Green/Progressive)	Held
1) May insurer rescind a policy for materially fraudulent application answers?	Yes — Perez’s omission of Machuca was material and justified rescission.	No meaningful dispute — third parties may still claim despite rescission.	Rescission for material misrepresentation permitted; insurer may revoke policy as to insured.
2) If policy is rescinded, are innocent third parties entitled to recover?	Insurer argued it should not be liable for third parties if basic policy mandates no minimum liability.	Third parties argued precedent requires protection of innocent claimants despite rescission.	Innocent third parties remain entitled to recover under established NJ precedent.
3) If entitled, what is the correct recovery amount under a voided basic policy?	CURE: either nothing (because AICRA basic policy mandates no minimum) or at most the contract limit ($10,000).	Green: $15,000/$30,000 statutory minimum should apply despite AICRA.	Where insured purchased the optional $10,000, insurer owes that $10,000; Varjabedian’s $15,000 rule for standard policies does not apply to basic policies.
4) If insured did not elect optional coverage, does insurer owe any third‑party bodily injury coverage after rescission?	Insurer: owe nothing.	Third party: argued compulsory minimum still applies.	If insured did not elect the optional $10,000 under the basic policy, insurer is not liable to innocent third parties under that contract.

New Jersey Mfrs. Ins. Co. v. Varjabedian, 391 N.J. Super. 253 (App. Div.) (held rescinded standard policies should be molded to $15,000/$30,000 compulsory limits)
Marotta v. N.J. Auto. Full Ins. Underwriting Ass’n, 280 N.J. Super. 525 (App. Div.), aff’d, 144 N.J. 325 (1996) (third parties protected despite insurer’s rescission under pre‑AICRA law)
LaCroix v. Rutgers Cas. Ins. Co., 194 N.J. 515 (2008) (innocent third‑party claims evaluated as if application had been honest; fraud should not enhance recovery)
Bastien v. Palisades Safety & Ins. Ass’n, 175 N.J. 144 (2003) (policy rescission permitted for material misrepresentation; protects incentive to be truthful)
Proformance Ins. Co. v. Jones, 185 N.J. 406 (2005) (reinforces that rescission does not automatically eliminate third‑party PIP/coverage claims)