Dillard v. Hertz Claim Management

• Decision Date: 22 November 1994
• Citation: 650 A.2d 1,277 N.J.Super. 448
• Parties: Christine DILLARD, Plaintiff-Respondent, v. HERTZ CLAIM MANAGEMENT and/or EDS Systems, as servicing agent for the New Jersey Automobile Full Insurance Underwriting Association (NJAFIUA), Defendants, and New Jersey Automobile Full Insurance Underwriting Association (NJAFIUA), Defendant-Appellant.
• Court: New Jersey Superior Court — Appellate Division

Page 448

277 N.J.Super. 448

650 A.2d 1

Christine DILLARD, Plaintiff-Respondent, v. HERTZ CLAIM MANAGEMENT and/or EDS Systems, as servicing agent for the New Jersey Automobile Full Insurance Underwriting Association (NJAFIUA), Defendants and New Jersey Automobile Full Insurance Underwriting Association (NJAFIUA), Defendant-Appellant.

Superior Court of New Jersey Appellate Division.

Submitted Oct. 3, 1994.

Decided Nov. 22, 1994.

Gebhardt & Kiefer, Clinton, for appellant (Robert G. Engelhart, of counsel and on the brief).

Raymond T. Sheldon, Freehold, for respondent (Mr. Sheldon, of counsel and on the brief).

Before Judges DREIER and VILLANUEVA.

The opinion of the court was delivered by

VILLANUEVA, J.A.D.

Defendant, New Jersey Automobile Full Insurance Underwriting Association (NJAFIUA), appeals from a declaratory judgment holding it liable for benefits payable to plaintiff Christine Dillard. Plaintiff was injured while a passenger in a car operated by Deborah Dillard, which was struck by a car operated by Esther Kim. Deborah's car had been uninsured and unregistered for the year prior to the accident. However, just prior to the accident, Deborah had applied for insurance through a servicing agent for NJAFIUA and paid for such insurance by a check that was later dishonored for insufficient funds. When the defendant/insurer discovered this dishonor after the accident, it retroactively revoked the policy.

The issue in this case is whether that retroactive revocation affects the rights of the third party plaintiff/passenger.

Plaintiff filed a complaint for damages against her sister, Deborah Dillard, and Esther Kim. Plaintiff also sought benefits from the Unsatisfied Claim and Judgment Fund (UCJF).

Plaintiff then brought this declaratory judgment action against Hertz Claim Management and/or EDS Systems, as servicing agent for the New Jersey Automobile Full Insurance Underwriting Association (NJAFIUA). NJAFIUA's motion to dismiss the complaint against Hertz Claim Management and EDS Systems was granted.

At a bench trial, based upon stipulated facts, the trial judge found in favor of plaintiff, concluding:

I find that the voidance [of the policy] does not apply to the passenger who's an innocent third party, and therefore she's entitled to PIP coverage, and she's entitled to make a claim against her driver for liability which she has and any verdict in her favor must be paid by the defendant carrier, and she also has a right to make a claim under the UM coverage because I understand the Kim car was not insured ...

On appeal, defendant argues that under the terms of the application for insurance executed by Deborah Dillard, the insurance contract never went into effect and therefore no policy existed to provide any benefits. It is true that the applicant's statement on the NJAFIUA application includes the following statement: "I agree that no coverage will be in effect if my premium remittance, which accompanies the application and is forwarded to the servicing carrier, is justifiably dishonored by the financial institution." However, that disclaimer does not necessarily preclude actions on the policy by innocent third parties.

The distinction between first and third party claims against a canceled or void policy is of critical importance in determining whether coverage is afforded. In Tucker v. Allstate Insurance Co., 195 N.J.Super. 230, 478 A.2d 1220 (App.Div.1984), plaintiff was the named insured under a new policy written by a private insurer, but had written a "bum check" to his agent. Id. at 232, 478 A.2d 1220. Notwithstanding the fact that plaintiff had not received a notice of cancellation prior to the accident, we held that plaintiff had no coverage for payment of his medical bills. Id. at 233-34, 478 A.2d 1220. However, we specifically noted that this ruling was only as to first party claims:

Here we are only concerned with the rights of Tucker to make a first-party claim under the alleged contract of insurance with MCA [a co-insurer with Allstate] for which he never paid any premium and which was never physically issued to him. Even MCA concedes in its brief that if the insurance identification card issued to Tucker at the time he filled out the application had been used to register his car and an innocent third party had been injured it would have afforded coverage even though the premium was never paid.

[Ibid.]

Plaintiff is just such an innocent third party.

N.J.S.A. 39:6-23 et seq., the Financial Responsibility Act, ¹ was adopted to "forbid the use of roads to certain persons unless they were able to respond to damages in case they caused injury to others." Atlantic Casualty Insurance Co. v. Bingham, 10 N.J. 460, 465, 92 A.2d 1 (1952) (citing U.S. Casualty Co. v. Timmerman, 118 N.J.Eq. 563, 180 A. 629 (Ch.1935)). Specifically, N.J.S.A. 39:6-48(a) specifies that once loss or damage occurs under the policy, the liability of the insurer becomes absolute. "No such policy shall be canceled or annulled as respects any loss or damage by any agreement between the carrier and the insured after the insured has become responsible for the loss or damage and any such cancellation or annulment shall be void."

In Williams v. American Home Assur. Co., 121 N.J.Super. 351, 297 A.2d 193 (App.Div.1972), we reiterated that:

It has been universally held or recognized that an insurer cannot, on the ground of fraud or misrepresentations relating to the inception of the policy, retrospectively avoid coverage under a compulsory or financial responsibility insurance law so as to escape liability to a third party * * *

[Id. at 364, 297 A.2d 193 (quoting 7 Am.Jur.2d Automobile Insurance § 9 at 303 (1963)) ].

Notwithstanding the fact that there is no corresponding provision establishing a financial responsibility law in the enabling legislation establishing the New Jersey Automobile Full Insurance Underwriting Association ( N.J.S.A. 17:30E-1, et seq.), this general rule has been followed in New Jersey when the innocent third party seeks to recover from the canceling NJAFIUA insurer. Fisher v. New Jersey Automobile Full Insurance Underwriting Ass'n, 224 N.J.Super. 552, 557, 540 A.2d 1344 (App.Div.1988). "Since the Association allows drivers who have been classified as risks to obtain insurance at an affordable rate and to continue to drive on our roads, the public is entitled to an equal, if not greater, degree of personal injury protection than as against safe drivers who are not subject to the provisions of N.J.S.A. 17:30E-1 et seq.". Id. at 558, 540 A.2d 1344.

Defendant argues that Fisher, supra, should not be "extended" to the facts of this case to include coverage for compensatory damages and uninsured motorists benefits. However, we see no reason to distinguish Fisher where the insured was not a "qualified applicant" and this case where the "insured" issued a bad check for the premium.

In Atlantic Casualty Insurance Co., supra, the defendant Bingham was the owner and operator of a motor vehicle that collided with a taxi owned by Donnelly, injuring taxi passengers Clarkin and Zukotynski. When Bingham applied for his policy, he denied...