Allstate Ins. Co. v. Sullam
| Decision Date | 26 October 1973 |
| Parties | ALLSTATE INSURANCE CO., Petitioner, v. David SULLAM, Respondent, and Liberty Mutual Insurance Co., Co-Respondent. |
| Court | New York Supreme Court |
Rivkin, Leff & Sherman, Freeport, for petitioner.
Lawrence E. Elovich, Long Beach, for respondent.
Marshall, Bellofatto & Callahan, Lynbrook, for co-respondent.
An imposter, a careless insurer, an auto accident in New York involving only New York parties, and a New England State perhaps more protective of its own than its neighbors, all figure in this legal tale of two states. Together they whisper of the fragility of multiple state regulation of automobile accident insurance. And, they warn of the perils of shoddy investigation by insurers upon issuance of their auto liability policies.
We add our own elements to this story by applying the Law as it is applied in New York to its own people and its own happenings. In this State, rescission of auto liability insurance policies after an accident stands in high disfavor, and is generally prohibited. Certainly, where the rights of innocent auto accident victims are concerned, insurers who undertake to investigate their insureds upon issuance of auto liability policies are charged with the knowledge to which they are reasonably alerted. They cannot simply disregard danger signs. They are bound to the reasonably discoverable events of their insurability search. In auto accident cases, insurers who, in face of investigative results which signal caution, accept premiums and let their policies continue to run, enabling their insureds to remain on the roads, must reckon with the doctrine of estoppel when they seek post-loss disclaimer of coverage.
The nature of the facts and issues suggests the desirability of a prefacing outline. This framework may enable an easier view of the unfolding controversy.
I. The Facts of the Case
II. The Issue: Considering Everything, Can Liberty Mutual Disclaim?
III. Choice of Law: New York Versus Massachusetts
IV. Liberty Mutual is Estopped from Disclaiming as Against an Innocent Auto Accident Victim
(a) Assigned Risk or Compulsory Insurance Not Divisible
(b) Massachusetts Issuance Does Not Change Result
V. There is Coverage Here By Liberty Mutual
I. The Facts of the Case
A sequence of events forms the basis of the dispute.
(a) On December 10, 1971, a man using the name 'Michael Swords' applied at a Massachusetts public office for automobile liability coverage through that state's Motor Vehicle Assigned Risk Insurance Plan. He indicated in his application that he resided in Garden City, New York, had a valid New York State operator's license, and was a student with a Boston mailing address. He applied for Liability Coverage 'A' on Massachusetts roads, which is made compulsory by statute there, and for Optional Coverage 'B' on all roads, even outside Massachusetts, for the total sums of $10,000 for one party and $20,000 for all parties in any one accident. This is described as $10,000/$20,000. The sums applied for were twice the minimum limits required on Massachusetts roads.
(b) The insurance application was approved by the State Motor Vehicle office with the coverage then bound and was forwarded to Liberty Mutual Insurance Company (Liberty), which accepted the cash premium collected. On January 19, 1972, Liberty issued a policy with the full requested $10,000/$20,000 coverage, effective for 20 days, covering the period from December 10, 1971 to January 1, 1972. No investigation report or verification of the information given on the application had been received in the 40 days between application approval and policy issuance.
(c) In January 1972, Liberty undertook to investigate its applicant through the Beacon Underwriting Service. Beacon reported to Liberty, in writing, on January 21, 1972:
.
Respondent's Ex. I at trial.
As Liberty's underwriter testified (tr. p. 64), the purpose of this report was:
'basically verifying the records, Motor Vehicle records of the insured, verification of the residential garaging, type of vehicle driver, moral standards, character, Et cetera'.
(d) Liberty sent a questionnaire to its applicant in January 1972 (Tr. p. 85) seeking to elicit information on which to generate a policy as part of its post-issuance underwriting procedure. There was never any response to the questionnaire.
(e) According to the Liberty underwriter (Tr. pp. 89--90), the carrier attaches significance to its post-issuance investigatory efforts. His testimony was, in part:
'Q Do I understand it correctly that you relied enough on the December, '71 application so that you, in fact, investigated those statements?
A We write and attempt to verify and establish information as rendered on the application, nothing more.
Q We are playing with semantics. Did you check the application?
A Yes, sir, right.
Q So you didn't accept the application at face value?
A That's correct.
Q So you didn't reply on it as it was given to you, fair statement?
A No, again we checked the information.
Q That's right, you did not reply on it, you went out and checked it?
A Yes.'.
(f) Liberty made no inquiries at the Garden City home address given by the applicant. Liberty made no inquiries of the New York State Motor Vehicle Department.
(g) On March 8, 1972, a policy for the year 1972 was issued retroactive to January 1, 1972. No new application was made for this renewal policy.
(h) On September 23, 1972, the applicant and his automobile (accurately described as to make and model in the insurance papers) became involved in an auto accident in Long Beach, New York. The injured driver of the other car, David Sullam, of Long Beach, later sued the applicant for personal injuries.
(i) The applicant telephoned to Liberty a report of the accident. In the ensuing claim investigation, Liberty learned that the applicant was in reality named Walter Leydet, formerly of Garden City, but now of Long Beach, and that he was not Swords at all. Moreover, Leydet had no valid New York State driver's license. However, the car, while improperly registered in Swords' name, along with the insurance, actually did belong to Leydet. (Tr. p. 13).
(j) Liberty then disclaimed liability on the ground of fraud and misrepresentation by Leydet in procuring his policies in the name of Swords, both for the short 1971 period and for 1972.
(k) Liberty refunded the premiums for both periods on November 11, 1972, almost two months after the accident.
II. The Issue: Considering Everything, Can Liberty Mutual Disclaim?
Allstate Insurance Co. is the auto insurer for Sullam, the injured party. Since Liberty disclaimed, Sullam sought to charge Allstate under the Uninsured Motorist Endorsement of his own policy. Allstate resists this charge, claiming there is coverage here, namely by Liberty. It attacks, by this petition for declaratory judgment, the validity of Liberty's disclaimer.
Mr. Sullam, holding a personal injury claim, which from all pretrial conferential indications is modest (even within the financial limits described in Liberty Mutual Coverage A), is caught in the cross-fire between the two warring titans of insurance finance. He can only watch the timely recompense to which he may be entitled become continually eroded by litigious delay and the expense of hanging in there. The unfairness of this position has been commented upon by this Court in a previous decision, Cf. Brown v. Reid, 72 Misc.2d 237, 339 N.Y.S.2d 204, in which there was discussed the desirability of some procedure in which disputing carriers should be obliged to clear the claim of an innocent victim before fighting the matter out at length between themselves.
By memorandum decision dated March 5, 1973, and order dated March 14, 1973, Mr. Justice Suozzi set the matter down for a hearing and determination on two issues, first, whether Liberty was deceived by Leydet's giving a false name and address and, second, whether its disclaimer for fraud was valid.
III. Choice of Law: New York Versus Massachusetts Which law is to apply: New York or Massachusetts?
We conclude that the law of New York must prevail, for two general reasons. First, upon massing the contacts, it is clear that the issue has most pertinent and profound effect in New York. Second, Massachusetts law, to the extent that it fails to accord the same panoply of protection from tardy insurance cancellations for out-of-state victims of Massachusetts driver negligence as it does for its own resident victims, is...
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