Palisades Safety & Ins. v. Bastien

• Citation: 175 N.J. 144,814 A.2d 619
• Court: United States State Supreme Court (New Jersey)
• Decision Date: 29 January 2003
• Parties: PALISADES SAFETY & INSURANCE ASSOCIATION, Plaintiff-Respondent, v. Leonel BASTIEN and Paule Bastien, Defendants-Appellants, and Mary Laroche, Defendant.

814 A.2d 619

175 N.J. 144

PALISADES SAFETY & INSURANCE ASSOCIATION, Plaintiff-Respondent, v. Leonel BASTIEN and Paule Bastien, Defendants-Appellants, and Mary Laroche, Defendant.

Supreme Court of New Jersey.

Argued November 18, 2002.

Decided January 29, 2003.

Ramon Rubio argued the cause for appellants (Robert A. Lord, attorney).

Lawrence F. Citro, Jersey City, argued the cause for respondent (Biancamano & DiStefano, attorneys).

The opinion of the Court was delivered by LaVECCHIA, J.

This appeal concerns entitlement to personal injury protection ("PIP") benefits pursuant to N.J.S.A. 39:6A-4. We are called on to consider whether a wife, who resides with her husband (the insured) but intentionally is not named on his policy of automobile liability insurance, may receive PIP benefits for injuries sustained while driving one of the insured vehicles. At issue is whether an insured's resident spouse is precluded from benefits when the insured lies to the insurer about his marital status and represents that there were no other persons of driving age residing in his household. The Appellate Division affirmed the trial court's grant of summary judgment, denying benefits on the basis that a resident spouse is not entitled to receive minimal PIP coverage as an innocent injured third party under an automobile policy declared void ab initio. We now affirm.

I.

The essential facts are undisputed. In November 1996, defendant Leonel Bastien ("Leonel") applied for automobile liability insurance from Palisades Safety & Insurance Company ("Palisades" or "the company"). The company's application required him to state his marital status and to list all household residents of driving age. Leonel falsely represented that he was single and the sole driver of the two vehicles he sought to insure. In fact, Leonel resided with his wife, Paule, who held a license to drive issued by the State of New York. Although the record does not indicate whether Paule knew of Leonel's misrepresentations to Palisades, we assume for purposes of this decision that she did not.

Based on the information that Leonel provided, Palisades issued a policy for an annual premium of $2201.00, which, according to the record, would have been more costly but for the misrepresentations. The policy contained the following provision:

MISREPRESENTATION: We do not provide coverage for any person who has knowingly concealed or misrepresented any material fact or circumstance related to this insurance:

1. At the time application was made; or

2. At any time during the policy period; or

3. In connection with the presentation or settlement of a claim.

Over the course of the next eight months, Leonel twice submitted required documents to Palisades, each time continuing the misrepresentation that he was the sole licensed driver and household resident over the age of sixteen. Later, in July 1997, he added coverage for a third car (a Mazda), premised on the same false information.

On October 3, 1997, Paule was involved in an accident while driving the Mazda. Both she and her passenger (her mother, Mary LaRoche ("LaRoche")) were injured. Each filed a claim for PIP benefits under Leonel's policy. In response, Palisades commenced this declaratory judgment action to declare the policy void ab initio and avoid any PIP liability for Paule as an additional insured under the policy. The action also sought to limit LaRoche's third-party PIP benefits to the statutory minimum. See Marotta v. NJAFIUA, 280 N.J.Super. 525, 656 A.2d 20 (App.Div.1995), aff'd o.b., 144 N.J. 325, 676 A.2d 1064 (1996)

(holding third party coverage under void policy is restricted to minimum limits required by compulsory insurance law requirements).

The trial court granted Palisades's motion for summary judgment, finding that Leonel made material misrepresentations to the company. Although an insurer is liable to third parties for minimum PIP benefits notwithstanding that a policy later may have been declared void, the court observed that that did not compel payment of Paule's claim. The court determined that as Leonel's wife and resident of his household, Paule was an "additional insured" member of the household seeking first-party coverage. As a first-party insured, she was not entitled to recover under the void policy.

The Appellate Division affirmed. Palisades Safety & Ins. Co. v. Bastien, 344 N.J.Super. 319, 781 A.2d 1101 (2001). The court agreed that Paule's claim, made by a resident spouse, properly was viewed as a claim for first-party PIP benefits, which Palisades was not required to honor. Id. at 324-35, 781 A.2d 1101. We granted certification, 172 N.J. 357, 798 A.2d 1270 (2002).

II.

The Legislature provided for PIP benefits as part of New Jersey's no-fault compulsory automobile-insurance system in the New Jersey Automobile Reparation Reform Act, N.J.S.A. 39:6A-1 to -35 (the Act). Since their enactment in 1972, PIP statutory benefits are a required component of every standard automobile insurance policy, and provide an efficient system of "recovery for losses sustained in automobile accidents." Craig & Pomeroy, New Jersey Auto Insurance Law § 4:1 (2002). Stated generally, the benefits include payment of medical expenses, without regard to fault, for the named insured and resident members of his or her family, others occupying a vehicle of the named insured, or pedestrians, injured in an automobile accident. N.J.S.A. 39:6A-4.

As remedial legislation that is protective of automobile accident victims, New Jersey Mfrs. Ins. v. Griffin, 253 N.J.Super. 173, 177, 601 A.2d 261 (1991), the PIP statute is given liberal construction to provide such victims with the "broadest possible coverage." Svenson v. National Consumer Ins. Co., 322 N.J.Super. 410, 416, 731 A.2d 91 (App.Div.1999). Notwithstanding the indulgent view we accord an injured party's claim for PIP benefits, such coverage is unavailable when it is sought as part of an insured's first-party claim for benefits under his or her own policy of insurance declared void because of material misrepresentations made to the insurer. See Remsden v. Dependable Ins. Co., 71 N.J. 587, 589, 367 A.2d 421 (1976) (stating material misrepresentations in application may justify rescission of policy ab initio); Lovett v. Alan Lazaroff & Co., 244 N.J.Super. 510, 513, 582 A.2d 1274 (App. Div.1990)

(holding PIP benefits unavailable to additional insureds under void policy).

A misrepresentation, made in connection with an insurance policy, is material if, when made, "a reasonable insurer would have considered the misrepresented fact relevant to its concerns and important in determining its course of action. In effect, materiality [is] judged according to a test of prospective reasonable relevancy." Longobardi v. Chubb Ins. Co. of N.J., 121 N.J. 530, 542, 582 A.2d 1257 (1990). As we have stated, "[t]he right rule of law ... is one that provides insureds with an incentive to tell the truth. It would dilute that incentive to allow an insured to gamble that a lie will turn out to be unimportant." Id. at 541-42, 582 A.2d 1257. Accordingly, our test for materiality "encourages applicants to be honest." Mass. Mut. v. Manzo, 122 N.J. 104, 115, 584 A.2d 190 (1991) (explaining that misrepresentation is material if it "naturally and reasonably influences[s] the judgment of the underwriter in making the contract at all, or in estimating the degree or character of the risk, or in fixing the rate of premiums") (citation omitted).

III.

There is no question but that Leonel made material misrepresentations to the insurer commencing with his application and continuing throughout the insurer/insured relationship. Applying the standard we announced in Longobardi, Leonel's misrepresentations indisputably affected assessment of the risk and the premium charged. Because Leonel shielded Paule's existence from Palisades, the insurer was unable to assess generally the underwriting costs of a second driver in the household, as well as the risks associated with the type of driving in which Paule would engage (i.e., commutation or pleasure) and usage (average miles per driver). Moreover, the company was prevented from considering specifically Paule's driving record and any relevant claims history. Thus, by denying Palisades essential information relevant to its concerns and important to its course of action, Leonel made material misrepresentations in the procurement of his automobile policy. Accordingly, Palisades was entitled to an order declaring the policy void. Remsden, supra, 71 N.J. at 589,367 A.2d 421.

As noted correctly by the courts below, although the company may rescind the policy, thereby disentitling Leonel to any PIP coverage as the named insured, that does not mean that it escapes liability in respect of innocent, third-party members of the public whose protection is a paramount concern of the PIP, no-fault system. Compare Lovett, supra, 244 N.J.Super. at 513,

582 A.2d 1274 (denying to resident son, injured while driving his own uninsured vehicle, PIP coverage as additional insured under mother's void policy), with Fisher v. N.J. Automobile Full Ins. Underwriting Ass'n, 224 N.J.Super. 552, 557-58, 540 A.2d 1344 (App.Div.1988) (requiring insurer to provide minimal third-party PIP benefits to passenger, injured in insured vehicle, notwithstanding that policy on vehicle was declared void ab initio). The narrow question here is how to treat a resident spouse, whom we assume was innocent of the intentional misrepresentations of her spouse, under her household's voided automobile insurance policy.

As Leonel's spouse residing in his household, Paule plainly met the statutory requirements for...