Aetna Cas. & Sur. Co. v. O'Connor

• Decision Date: 17 November 1960
• Citation: 8 N.Y.2d 359,207 N.Y.S.2d 679,170 N.E.2d 681
• Parties: , 170 N.E.2d 681, 83 A.L.R.2d 1099 AETNA CASUALTY AND SURETY COMPANY, Appellant, v. Thomas P. O'CONNOR et al., Respondent.
• Court: New York Court of Appeals Court of Appeals

Page 679

207 N.Y.S.2d 679

8 N.Y.2d 359, 170 N.E.2d 681, 83

A.L.R.2d 1099

AETNA CASUALTY AND SURETY COMPANY, Appellant, v. Thomas P. O'CONNOR et al., Respondent.

Court of Appeals of New York.

Nov. 17, 1960.

Joseph Fennelly and William S. O'Connor, New York City, for appellant.

Horold M. Harkavy, New York City, Fred Gardner, Huntington Station, and Frederick M. Garfield, New York City, for respondents.

FULD, Judge.

The question for decision, one of first impression in this court, is this: Does the New York Automobile Assigned Risk Plan of insurance, which in explicit terms provides only for prospective cancellation, abrogate the insurer's common-law right to void a policy from its inception on the ground that it had been obtained through fraud or misrepresentation?

The facts are undisputed. In his application for insurance under the New York Automobile Assigned Risk Plan, Thomas O'Connor falsely stated that he had not been convicted of any non-vehicular offense within the preceding three-year period. He had actually been twice convicted of disorderly conduct and twice of public intoxication, a fact which rendered him ineligible for insurance under the Plan. Following its execution, O'Connor's application was forwarded to the Assigned Risk Plan which assigned the risk to the Aetna Casualty and Surety Company. The latter, relying on O'Connor's misrepresentation, issued a policy for one year on June 8, 1955 and, shortly thereafter, it conducted an investigation which failed, however, to uncover the prior convictions.

On March 4, 1956, while the policy was still in force, O'Connor's automobile was involved in an accident causing damage to a car belonging to Millie Hamilton and personal injuries to Perley Hamilton. Receipt of a report of the accident initiated an investigation during the course of which Aetna discovered the existence of the insured's four prior convictions. It thereupon informed the Hamiltons that it would decline coverage on the policy and notified O'Connor that it elected to rescind his policy, to void it from its inception. This action, in which O'Connor and the Hamiltons were joined as defendants, was then brought by Aetna for a declaratory judgment. The courts below decided the case in favor of the defendants, holding that, although the insurer had the right to cancel under the Plan, it did not have the right to rescind.

The case obviously turns on the construction to be accorded the Plan. And such construction calls not for the mechanical application of overly abstract principles of statutory interpretation, but rather for a painstaking reading of the Plan in the light of the circumstances surrounding its adoption. If the Plan bespeaks a design to provide a detailed and comprehensive set of regulations governing the rights and liabilities of the parties entering into assigned risk insurance contracts, the carrier may not void the policy from its inception since tht remedy is not provided by the Plan. If, on the other hand, the Plan is merely a collection of separate provisions, covering but a few unrelated aspects of the legal relation between carrier and insured, then it may only be taken to supplement, not supplant, our common-law rules relating to insurance contracts, and in such case the insurer may rescind ab initio and be relieved of any liability on the policy.

In 1946, the Legislature faced the problem of making 'automobile bodily injury and property damage liability insurance available to motorists unable to obtain coverage throuth normal channels' because of their status as 'poor risks'. See Smith, The New York Automobile Assigned Risk Plan, appearing in vol. 4 of Examination of Insurance Companies, pp. 453, 456, published by the New York State Insurance Department in 1954; cf. California State Auto. Ass'n, Inter-State Insurance Bureau v. Maloney, 341 U.S. 105, 106-107, 71 S.Ct. 601, 95 L.Ed. 788. Its solution, in section 63 of the Insurance Law, Consol.Laws, c. 28, was an authorization to the Superintendent of Insurance to adopt, after consultation with insurers, a plan 'for the equitable apportionment among * * * insurers of applicants for such insurance who are in good faith entitled to but are unable to procure insurance through ordinary methods', and to make participation in such a plan complusory for all New York insurers.

The very condition for which the legislative remedy was sought and the very tenor of the statute authorizing the Plan provide initial indications of its comprehensive character. Manifestly, nothing would be gained by compelling insurance carriers to issue insurance to individuals otherwise unable to obtain a policy if the conditions under which the insurance could be cancelled or avoided were not also the subject of regulation. The compulsory character of the carrier's participation in the Plan and the very need for the legislation suggest a concern for the entire range of duties and obligations which comprise the assigned risk insurance contract instead of a concentration on isolated aspects of the contractual relationship.

The Plan itself furnishes a number of signposts pointing the same direction as do both the legislative background and the language of the statute. To begin with, and it is highly significant, the Plan is broad in scope, containing 22 sections, one devoted to a statement of its purposes (§ 1), another to its administration (§ 4), a third to the extent of...