Lilly v. Allstate Ins. Co.

• Decision Date: 17 June 1987
• Citation: 218 N.J.Super. 313,527 A.2d 903
• Parties: Frederick W. LILLY, Jr., Plaintiff-Appellant, v. ALLSTATE INSURANCE COMPANY, Defendant-Respondent, and Robert Beuttel, Defendant.
• Court: New Jersey Superior Court — Appellate Division

Page 313

218 N.J.Super. 313

527 A.2d 903

Frederick W. LILLY, Jr., Plaintiff-Appellant, v. ALLSTATE INSURANCE COMPANY, Defendant-Respondent and Robert Beuttel, Defendant.

Superior Court of New Jersey Appellate Division.

Submitted May 20, 1987.

Decided June 17, 1987.

Becker & Lands, for plaintiff-appellant (Alan M. Lands, on the brief).

Horn, Kaplan, Goldberg, Gorny & Daniels, for defendant-respondent (Edward Tucker, on the letter-brief).

Before Judges FURMAN, SHEBELL and STERN.

The opinion of the court was delivered by

SHEBELL, J.A.D.

Plaintiff, Frederick W. Lilly, Jr., appeals from orders granting summary judgment to defendant, Allstate Insurance Company.

Plaintiff filed a three-count complaint against defendants, Allstate and Beuttel. Count one alleged that plaintiff paid over 21% of the annual premium on the policy and therefore should be covered for that percentage of the annual term, which would include the date of the accident. Count two alleged that before the accident Beuttel told plaintiff that because he paid the additional premium the insurance would not be cancelled, and therefore coverage existed. Count three alleged that Beuttel misadvised him on how to avoid cancellation of the insurance policy and that Allstate was liable for Beuttel's negligence since Beuttel was Allstate's agent. The complaint alleged that plaintiff sustained $4,687 in medical expenses. It demanded judgment declaring that Allstate provide liability and no-fault coverage, as well as damages, attorneys' fees and interest. Allstate and Beuttel filed a joint answer which denied liability, and also denied that Beuttel was an agent, employee or representative of Allstate. Beuttel settled with plaintiff for an undisclosed amount.

On February 11, 1984 plaintiff procured an automobile insurance policy through defendant, Robert Beuttel. The policy was issued in accordance with the New Jersey Automobile Full Insurance Availability Act, N.J.S.A. 17:30E-1 et seq., the successor to the assigned risk plan. Plaintiff filled out a form entitled "New Jersey Automobile Full Insurance Underwriting Association Application." The form recited a total premium of $733, plus $12 for "installment fees." Plaintiff selected the 25% payment option, under which he was required by regulation to pay an initial installment of 25% of the total annual premium. However, plaintiff paid to Beuttel and Beuttel accepted only $160, 21% of the total premium of $745. The form contained a printed "Applicant's Statement," which asserted that the applicant understood that the "Producer" was "not acting as an agent of any company for the purpose of this insurance." On that day plaintiff was given a temporary State of New Jersey insurance identification card.

Although the answer filed on behalf of Allstate and Beuttel denied that Beuttel was an agent, employee or representative of Allstate, Beuttel stated in his deposition that he was an Allstate agent and had been one for several years and that he produces insurance "[s]olely for Allstate." According to an Allstate customer service representative, Allstate agents are not permitted to accept less than 25% of the premium on such a policy although the $160 paid by plaintiff on February 11, 1984 constituted less than 25% of the quoted annual premium. Despite the underpayment, Allstate issued plaintiff a policy with an effective date of February 12, 1984.

On March 6, 1984 Allstate mailed plaintiff a notice of cancellation for nonpayment of premium, reflecting an amount past due of $26, and informing plaintiff that the insurance would stop at 12:01 a.m. on March 26, 1984. The notice stated: "If you desire to continue your insurance protection, return this part of the notice with your payment for the amount shown as past due. It must reach us prior to the date shown below."

Plaintiff alleged that he received the notice on or about the 26th of March. Within a day or two plaintiff went to Beuttel's office and paid the additional $26 to a secretary. The secretary allegedly told Beuttel that when she received the payment and cancellation notice, she called Allstate to find out if she could accept the money and was told by an Allstate representative that it would be all right. Therefore, she took the payment and told plaintiff he was covered. Allstate posted the cancellation on March 31, 1984, not having received the money from Beuttel by that date. Allstate denied coverage when plaintiff was involved in an automobile accident on April 4, 1984, about two months after plaintiff procured the policy.

Plaintiff contends that since he paid approximately 21% of the policy premium, the policy should be deemed in effect for that portion of the year, providing coverage until late April 1984, after the accident. Plaintiff relies on Weathers v. Hartford Ins. Group, 77 N.J. 228, 390 A.2d 548 (1978), rev'g 153 N.J.Super. 563, 380 A.2d 724 (App.Div.1977). Allstate points out that the section of Weathers that plaintiff relies upon represented the views of only two members of the Court.

In Weathers the insured elected to pay the policy premium in three installments. The policy commenced on October 30, 1973. By May 1974 plaintiff had paid 70% of the premium. The insurer allegedly sent notice cancelling the policy as of May 22, 1974 if plaintiff did not pay the third installment. The insured paid that installment to the broker on May 23, 1974. 77 N.J. at 230-231, 390 A.2d 548. An accident occurred the next day and the insurer refused to accept the payment and denied coverage.

Before the trial court Weathers made two arguments: (1) the notice of cancellation was ineffective because it was never received and (2) by statute, payment of the premium to the broker the day before the accident amounted to payment to the insurer. The trial court rejected the former argument, reasoning that the insurer's proof of mailing was sufficient, but agreed with plaintiff's second contention. On appeal we disagreed with the trial court and held that the statute did not permit the broker to bind the insurer by accepting payment. 153 N.J.Super. at 569-570, 380 A.2d 724. Our Supreme Court reversed holding unanimously that plaintiff raised a fact question concerning whether the insurer followed the proper cancellation procedures. 77 N.J. at 234, 390 A.2d 548. However, Chief Justice Hughes and Justice Pashman thought it unconscionable that the insurer could cancel the policy as of May 22, 1974 when plaintiff had paid 70% of the premium. Id. at 237-245, 390 A.2d 548. They felt coverage should not expire until the prorated premium had been earned. Id. at 244, 390 A.2d 548. The two Justices urged the Commissioner of Insurance to consider the rule they advocated. Id. at 245, 390 A.2d 548.

In 1979 the Commissioner of Insurance proposed a rule generally adopting the recommendations of the two Justices. See 11 N.J.R. 142 (Mar. 8, 1979). That rule, which was adopted on April 19, 1979, 11 N.J.R. 250-251 (May 10, 1979) (formerly codified at N.J.A.C. 11:3-7.8(b)), stated:

The effective date of the cancellation of a policy for nonpayment of premium shall not be earlier than 10 days prior to the last full day for which premium received by the company prior to the date of preparation of the cancellation notice, would pay for coverage on a pro rata basis, in calculating the effective date of the cancellations as provided in this section, the premium applicable to the coverages provided by the policy and the premium received by the company at the time cancellation notice was prepared shall be the premium used for the calculation and determination of such effective date.

However, the proposed regulation had the specific exception that "[t]his rule shall not apply to deposits accompanying New Jersey automobile insurance plan applicants which are insufficient under approved plan rules." N.J.A.C. 11:3-7.8(e). These rules were subsequently re-codified. 17 N.J.R. 708-709 (Mar. 18, 1985) (codified at N.J.A.C. 11:3-7.5(b) & (e)).

If plaintiff had made an initial deposit of $186, rather than $160, he would normally have been covered for 25% of the year. N.J.A.C. 11:3-7.6(b). However, since the rule does "not apply to deposits accompanying New Jersey Automobile Insurance Plan applications which are insufficient under Plan Rules ...," N.J.A.C. 11:3-7.6(e), plaintiff is not entitled under the regulation to have his premium prorated. In the absence of an attack upon the validity of the exception to the regulation requiring prorating, we do not pass upon the issue of its validity.

Plaintiff contends that Allstate is liable for Beuttel's negligence, since Beuttel was an Allstate agent. Plaintiff reasons that Allstate permitted Beuttel to advertise as its agent and that Allstate represented Beuttel to be reasonably competent, and therefore it should be liable for his negligence. Alternatively, he argues that Allstate clothed Beuttel with apparent authority to act as its agent and should be estopped from denying that Beuttel was its agent. Allstate argues that Beuttel was not its agent for purposes of this policy because it was written pursuant to the New Jersey Automobile Full Insurance Availability Act, N.J.S.A. 17:30E-1 et seq., under which Allstate was compelled to issue a policy. Allstate notes that the application form states that Beuttel will not be deemed "... an agent of any company for the purpose of this insurance."

The motion judge relied on Pearson v. Selected Risks Ins. Company, 154 N.J.Super. 240, 381 A.2d 91 (Law Div.1977), which held that "[w]here an insurer involuntarily undertakes to insure an assigned risk, the licensed broker who produces the business that is assigned to the insurer does not become the agent of the insurer for the purpose of writing additional business for the assigned risk by the insurer and the broker does not speak for the insurer in its relationship with the assigned risk." Id. at 245, 381 A.2d 93. (footnote omitted). Our Supreme...