American Policyholders' Ins. Co. v. Portale

• Decision Date: 20 July 1965
• Docket Number: No. A--1150,A--1150
• Citation: 212 A.2d 668,88 N.J.Super. 429
• Parties: AMERICAN POLICYHOLDERS' INSURANCE COMPANY, a corporation of the State of Massachusetts, Plaintiff-Appellant, v. Joseph P. PORTALE, Defendant-Respondent.
• Court: New Jersey Superior Court — Appellate Division

Page 429

88 N.J.Super. 429

212 A.2d 668

AMERICAN POLICYHOLDERS' INSURANCE COMPANY, a corporation of

the State of Massachusetts, Plaintiff-Appellant, v. Joseph P. PORTALE, Defendant-Respondent.

No. A--1150.

Superior Court of New Jersey, Appellate Division.

Argued June 1, 1965.

Decided July 20, 1965.

Sylvia B. Pressler, Englewood, for appellant (J. Edward Bennett, Newark, attorney, Richard D. Bennett, Newark, of counsel).

Rolf G. Schudel, Jersey City, for respondent (Darling & Jobes, Jersey City, attorneys).

Before Judges KILKENNY, GAULKIN and LEWIS.

The opinion of the court was delivered by

LEWIS, J.A.D.

On May 3, 1962 plaintiff American Policyholders' Insurance Company, a preferred risk underwriter, issued its automobile liability policy to defendant Joseph P. Portale, who subsequently, on January 4, 1963, became involved in an automobile accident in which a pedestrian was killed. The fourth day of the following month, plaintiff tendered the insurance premiums that had been paid, gave notice that the policy was null and void Ab initio, and requested its return for cancellation. Defendant refused to comply.

The proceedings under review were then instituted on February 18, 1963 by American for a rescission of the insurance contract, claiming that Portale had made false and misleading representations in his application for insurance which materially affected the risk assumed by it. A counterclaim was interposed for damages resulting from the attempted cancellation. The Chancery Division entered judgment dismissing the complaint, determined that American should assume coverage under its policy, and awarded damages to defendant on his counterclaim for expenses and legal fees incurred.

Plaintiff appeals contending: (1) an innocent material misrepresentation in an application for automobile liability insurance constitutes grounds for rescission of the policy whose issuance was induced thereby; (2) the question in the application, 'Has the applicant been convicted of a moving traffic violation?' is reasonably designed to elicit material information of convictions based on pleas of guilty, and is not, as a matter of law, ambiguous; and (3) defendant's alleged understanding of the phrase 'convicted of a moving traffic violation' was so incredible as to prove that he in fact understood the meaning of the question and falsely gave a negative answer thereto.

Preliminarily, we note that plaintiff maintained at the trial that defendant had given four false answers in the preinsurance questionnaire, specifically as to questions 8A (prior declination of insurance), 8B (business and commuter use), 8E (prior convictions) and 8F (prior accidents). The trial court found, after analyzing the proofs, that all of the questions were answered truthfully, and plaintiff states in its brief that it does not 'directly challenge' the court's holdings with respect to questions 8A, B and F. We proceed now to focus attention upon the answer to 8E which gives rise to the subject matter of this appeal. The question reads:

'Statement of Convictions. Has the applicant or any other person named in Item D (not have relevant) been convicted of a moving traffic violation as a result of operating any private passenger type of automobile during the three year period ending three months prior to the effective date of the policy?'

The reply given was 'No,' when in fact the irrefutable evidence, and Portale does not contend otherwise, is that during the specified period he had been involved in a series of violations of the Motor Vehicle Traffic Laws.

A certified abstract of the defendant's operating record secured from the Division of Motor Vehicles, dated January 24, 1963, and admitted in evidence, reveals, in addition to four non-moving offenses (relating to registration and inspections), a violation on March 25, 1959 for careless driving, and a stop-sign passing violation on January 23, 1962. On the latter two charges he paid fines of $15 and $5 respectively. They were paid by him to the violations clerk of the municipal court of Fairlawn, when and where he signed the reverse side of the summonses issued by the enforcing officials at the time of the violations. It is conceded that in neither case was there a trial and that he did not appear in court or before a judge.

Four of the defenses interposed by Portale are, in the circumstances of this case, ineffectual and can be disposed of summarily, viz.:

(1) The policy did not become noncancellable upon the occurrence of loss or damage as contemplated by N.J.S.A. 39:6--46 to 48. That statute has been held to be applicable only to situations where the insured has been required to file proof of financial responsibility under N.J.S.A. 39:6--23 et seq. See Merchants Ind., etc. v. Victory Iron Works, Inc., 80 N.J.Super. 7, 14, 192 A.2d 592 (App.Div.1963), affirmed o.b. 42 N.J. 364, 200 A.2d 782 (1964); Buzzone v. Hartford Accident & Indemnity Co., 41 N.J.Super. 511, 517, 125 A.2d 551 (App.Div.1956), affirmed 23 N.J. 447, 129 A.2d 561 (1957). Portale had not been required to supply such proof of responsibility.

(2) Laches is not here present. Plaintiff acted with reasonable diligence and dispatch. See West Jersey Title, &c., Co. v. Industrial Trust Co., 27 N.J. 144, 153, 141 A.2d 782 (1958); Citizens Casualty Co. of New York v. Zambrano Trucking Co., Inc., 141 N.J.Eq. 310, 312, 57 A.2d 17 (E. & A.1948).

(3) Statements made by an insured which are unincorporated in an automobile liability insurance policy are not necessarily inadmissible as evidence in proceedings for an equitable rescission. Misrepresentations of fact, although Aliunde the contract, may constitute a source of relief for an insurer, but as this court pointed out in Merchants Indem. Corp. of New York v. Eggleston, 68 N.J.Super. 235, 244, 172 A.2d 206, 210 (App.Div.1961), affirmed 37 N.J. 114, 179 A.2d 505 (1962):

"Representations,' * * * whether contained in the policy itself or merely in the applicant's declarations preparatory to issuance of the policy, will only invoke forfeiture of the insured's rights if they are untruthful, material to the particular risk assumed by the insurer, and actually and reasonably relied upon by the insurer in executing the contract.'

The trial court found in favor of the plaintiff on the issues of materiality and reliance but not on the issue of untruthfulness.

(4) The insurance company's independent investigation prior to the issuing of its policy would not, without more, preclude a subsequent allegation that unbeknown to it the factual statements so investigated had been falsified. 'The mere fact that an insurer makes an investigation does not absolve the applicant from speaking the truth nor lessen the right of the insurer to rely upon his statements,' John Hancock, &c., Ins. Co. of Boston, Mass. v. Cronin, 139 N.J.Eq. 392, 398, 51 A.2d 2, 5, 169 A.L.R. 355 (E. & A. 1947), unless, of course, the disclosures by the investigation 'place upon the insurer the duty of further inquiry.' Ibid. See Gallagher v. New England Mutual Life Ins. Co. of Boston, 19 N.J. 14, 21--22, 114 A.2d 857 (1955). We are not concerned in the instant case with any failure on the part of the insurer to have sought and obtained a violations report from the Motor Vehicle Division, as in State Farm Mut. Auto. Ins. Co. v. Wall, 87 N.J.Super. 543, 556, 210 A.2d 109 (Law Div.1965), because we are satisfied from what is before us that plaintiff did, within the month following the issuance of its policy, request and obtain from that state agency a three-year 'Driver Record Information' report on the insured, which communication apparently, by inadvertence or clerical mistake, erroneously indicated that defendant had 'no record' of violations.

Merit, however, is perceived in defendant's contention that this negative answer, to the printed form inquiry in controversy, was not false within the fair, reasonable and lay interpretation which the insured applied to the posited question. We cannot subscribe to plaintiff's argument that the phrase 'convicted of a moving traffic violation' in the context of the declaration under review is unambiguous as a matter of law.

The substance of defendant's testimonial explanation was that to him 'conviction' meant to be sentenced to jail or, at least, to appear in court before a judge and to be found guilty. The following excerpts from his testimony are illustrative of his declared understanding:

'Q. At that time what did you understand conviction to mean?

A. I understood a conviction as being almost put in jail.

THE COURT: And if you did not go to jail, you were not convicted as far as you were concerned?

THE WITNESS: That is correct, sir.

Q. Had you ever gone to court before a judge and had the judge say that you were guilty of a motor vehicle offense during this three year period?

A. No sir. * * *

THE COURT: Let's try it once more. When you pleaded guilty to the commission of these motor vehicle offenses, what did you understand you were doing when you appeared at the violation clerk's office?

THE WITNESS: I was paying a fine, sir.'

On cross-examination

'Q. It is your opinion that when you go to a court and you pay a fine that is not a plea of guilty.

A. Paying the fine is pleading guilty, yes.

Q. Isn't that a conviction?

A. No, because a conviction is like going before the judge.'

That a layman might readily misunderstand the technical meaning of the word 'conviction' is not at all incredible when we consider the difficulties of lexicographers, law encyclopedists, legal text writers and jurists in finding and applying a precise unequivocal and uniform interpretation for the word.

Webster's New Twentieth Century Dictionary of the English Language (1953) furnishes this definition of 'conviction': 'The act of providing, finding or determining to be guilty of an offense; specifically, in law, the act of finding or the state of being found guilty of crime before any legal tribunal,...