Great Am. Ins. Co. v. Yellen, A--367

• Decision Date: 27 November 1959
• Docket Number: No. A--367,A--367
• Citation: 156 A.2d 36,58 N.J.Super. 240
• Parties: GREAT AMERICAN INSURANCE COMPANY, Plaintiff-Appellant, v. Morris YELLEN, Defendant-Respondent, and James De Ritter, Defendant-Cross Claimant-Respondent.
• Court: New Jersey Superior Court — Appellate Division

Page 240

58 N.J.Super. 240

156 A.2d 36

GREAT AMERICAN INSURANCE COMPANY, Plaintiff-Appellant, v. Morris YELLEN, Defendant-Respondent, and James De Ritter, Defendant-Cross Claimant-Respondent.

No. A--367.

Superior Court of New Jersey

Appellate Division.

Argued Sept. 28, 1959.

Decided Nov. 27, 1959.

Samuel A. Gennet, Newark, argued the cause for plaintiff-appellant.

George W. Wolin, Newark, argued the cause for defendant-respondent Morris Yellen.

Before Judges CONFORD, FOLEY and MINTZ.

The opinion of the court was delivered by

CONFORD, J.A.D.

The plaintiff insurance company sued to recover the sum of $463.05 allegedly paid to defendants by mistake on a claim of fire loss. The district court judge, sitting without a jury, found for defendants after excluding certain evidence offered by plaintiff to substantiate its contention of mistake. Defendant De Ritter's cross-claim against defendant Yellen was allowed to the extent of 75% Of the sum mentioned. That ruling is not involved in this appeal. Plaintiff's appeal is before us upon a statement of facts and proceedings certified by the trial judge without objection or exception of either party. The material facts are as follows.

Defendant De Ritter held a fire insurance policy on household contents at his Paterson home issued by plaintiff. He testified that on January 17, 1958 he smelled smoke in his cellar. He did not see any flame but called the fire department. A fireman testified that when he arrived there he found a 'slight haze and smell of burning rubber' in a washing machine, which was 'hot.' On cross-examination, he said, 'There could have been a fire.' De Ritter called the matter to the attention of his insurance agent. On January 21, 1958 a Mr. Robb from the insurance company came made an inspection, said he 'had no claim,' but offered to return if he 'could show a case.'

Robb testified he was an adjuster employed by the General Adjustment Bureau. Plaintiff directed him to investigate the De Ritter claim. He did so but found no evidence of 'hostile fire.' He gave it as his opinion that there had been an electrical disturbance in the washing machine motor not covered by the policy. He told De Ritter 'to forget the claim unless there was further evidence of hostile fire.'

Later Yellen, a public adjuster, solicited De Ritter and made an agreement with him to prosecute the claim on a 25% Contingency basis. De Ritter testified he told Yellen that Robb, an adjuster, had turned down the claim; also that Yellen told him it was a difficult type of case. Yellen testified in corroboration of De Ritter as to this, saying he explained to De Ritter that 'the companies did not readily make payment on this type of electrical disturbance' and that he told him 'he could recover above $150 damage for him.' Yellen filed a proof of loss directly with the plaintiff for damage to furniture and washing machine in the sum of $463.05.

The company received the proof of loss from Yellen March 18, 1958 and issued its draft for the exact amount of the claim to Yellen and De Ritter on March 21, 1958. The court excluded several attempts by plaintiff to have Robb 'testify as to what the usual practice was where an adjuster is representing an insurance company on an investigation and payment of losses.' It was explained at the argument that the proof would have been that adjusters for claimants customarily negotiate claims with and file proofs of loss through company adjusters where such have been assigned to investigate a claim.

The trial court, on objection, also refused to allow plaintiff's supervisor in charge of proofs of loss and issuance of drafts to show the usual procedure in checking proofs and as to the payment of losses within the company organization. At the argument it was indicated the proof would have been that the company clerk receiving a proof of loss is required to ascertain its status as to approval by the company adjuster before processing the claim for payment and that this step was omitted in the present case through mistake or inadvertence, resulting in the mechanical issuance of the check to defendants.

In its findings the trial court referred to the provision of the policy in this case that 'the insured shall render to this Company a proof of loss signed and sworn to'; also that 'No permission affecting this insurance shall exist, or waiver of any provision be valid, unless granted herein or expressed in writing added hereto. No provision, stipulation or forfeiture shall be held to be waived by any requirement or proceeding on the part of this Company relating to appraisal or to any examination provided for herein.' The court stated that 'for the above reasons' (the policy provisions) the tendered proof as to company procedure 'in checking proofs and payment for losses' within the plaintiff organization 'was held to be inadmissible.' It was stated in the finding, in effect, that the payment by the company was not recoverable because the check had been issued 'in settlement of the claim' after the company had received due proof of loss as required by the policy.

The theory of the action is undue enrichment of the defendants through payment by plaintiff under a mistake of fact. The defense is stated to be that an insurance company cannot recover a payment it makes on a policy claim 'under an alleged mistake of fact in the absence of fraud.'

It is the general rule that one who has paid money under a mistake of fact but for which payment would not have been made may have restitution from the payee notwithstanding that the mistake was unilateral and a consequence of the payor's negligence, providing, however, that such restitution will not prejudice the payee. Restatement, Restitution (1936), § 59, p. 232; 70 C.J.S. Payment § 157(c), (d), pp. 370--371; 40 Am.Jur., Payments, § 194, p. 848; Annotation 40 A.L.R.2d 997 (1955).

Exemplifying the situation of prejudice to the payee is Behring v. Somerville, 63 N.J.L. 568, 44 A. 641, 49 L.R.A. 578 (E. & A.1899). As to the effect of negligence inducing the mistake by the party seeking equitable relief for mistake, generally, see Crane v. Bielski, 15 N.J. 342, 347, 104 A.2d 651 (1954); Conduit & Foundation Corp. v. City of Atlantic City, 2 N.J.Super. 433, 440--441, 64 A.2d 382 (Ch.Div.1949), in both of which relief was allowed.

While the rule of restitution, as just stated, is generally available to insurance companies making payments on policies, Annotation, 167 A.L.R. 470, 471 (1947), there is a well-defined exception, sometimes described as 'assumption of the risk,' in cases where the insurance company deliberately elects to make payment of a claim on a policy although it is conscious that it does not know all the facts material to its liability to the payee. 167 A.L.R. op. cit., supra, at page 476. Later discovery by the company of a state of facts disestablishing the validity of the claim will not, in such a case, require a restitution of the payment where there is no showing of fraud by the payee. Grand Trunk Western R. Co. v. Lahiff, 218 Wis. 457, 261 N.W. 11, 13 (Sup.Ct.1935). The cases in this State applying this rule, Dobbs v. New Amsterdam Casualty Co., 101 N.J.L. 176, 127 A. 209 (E. & A.1925) (where question arose on an action by assured to compel performance by company of agreement to settle claim); General Accident Fire and Life Assurance Corp., Ltd. v. Batterson, 14 N.J.Super. 436, 82 A.2d 490 (Ch.Div.1951), appear to be guided by the analogy of the binding effect of a compromise of a disputed claim notwithstanding mistake of fact by one of the compromising parties, as in Worcester Loom Co. v. Heald, 78 N.J.L. 172, 72 A. 421 (Sup.Ct.1909); and see De Caro v. De Caro, 13 N.J. 36, 43, 97 A.2d 658, 42 A.L.R.2d 1312 (1953). Since, however, the rule applies even where the insurance company pays 100% Of the claim, its rationale might more appropriately be regarded as constituted by the public policy of attaining finality by enforcement of the intent of the payor to terminate a dispute over a claim.

Of major import in applying the law to the case here presented is the philosophy of the rule of restitution as one generated by considerations of equity and fair dealing. It is considered unjust enrichment to permit the recipient of money paid under mistake of fact to keep it unless the circumstances are such that it would be inequitable to require its return. We are clear that the testimony excluded by the trial court was material to a solution of the controversy on equitable principles and consistently with the rules stated above. Prior to the receipt of the proof of loss from Yellen the plaintiff company obviously had no intention of paying defendant's claim, regarding it as unsupported factually and being of no mind to settle it in any manner on the facts then...