Merchants Indem. Corp. v. Eggleston, No. A--71

• Court: United States State Supreme Court (New Jersey)
• Writing for the Court: WEINTRAUB
• Citation: 179 A.2d 505,37 N.J. 114
• Parties: MERCHANTS INDEMNITY CORP. of New York, etc., Plaintiff-Appellant, v. Edward L. EGGLESTON et al., Defendants-Respondents.
• Docket Number: No. A--71
• Decision Date: 19 March 1962

Page 114

37 N.J. 114 179 A.2d 505 MERCHANTS INDEMNITY CORP. of New York, etc., Plaintiff-Appellant,
v.
Edward L. EGGLESTON et al., Defendants-Respondents. No. A--71. Supreme Court of New Jersey. Argued Jan. 22, 1962.
Decided March 19, 1962.

Page 119

[179 A.2d 507] Raymond L. Cunneen, Newark, for plaintiff-appellant (Hugh J. O'Gorman, Newark, on the brief).

Warren Brody, Linden, for defendants-respondents (Winetsky & Brody, Linden, attorneys for defendants-respondents Eggleston and Tussel. Jack J. Camillo, Westfield, attorney for defendant-respondent (Krebs).

The opinion of the court was delivered by

WEINTRAUB, C.J.

Merchants Indemnity Corporation of New York (herein 'Merchants') seeks a judgment declaring it is not obligated under its policy of automobile liability insurance to defend and to pay any judgment which may be obtained in a pending action against its insureds for injuries and death. The trial court found Merchants is so obligated, and the Appellate Division affirmed, 68 N.J.Super. 235, 172 A.2d 206 (1961). We granted certification, 36 N.J. 132, 174 A.2d 921 (1961).

The 'Family Automobile Policy' was issued to Edward L. Eggleston and initially covered only his Chrysler automobile. Later, by endorsement, coverage was added with respect to a Lincoln owned by his wife, Jean, and she was included as a 'named insured.' By further endorsement a Thunderbird was substituted for the Lincoln. The Thunderbird, while driven by Jean's brother, Jacob F. Tussel, Jr., was involved in a serious accident, from which emerged the law suit mentioned above.

The Thunderbird was registered in the name of Jean. Merchants asserts Jacob was the true owner, and seeks to be

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relieved because of an alleged misrepresentation as to ownership.

The trial court found a material misrepresentation, but held Merchants had waived its right to disclaim by reason of its assumption of the defense of the law suit. The Appellate Division held there was no misrepresentation; that, to prevail, Merchants had to prove concealment with intent to defraud; and, finally, that it need not decide whether Merchants had met that burden since it agreed with the trial court that Merchants had waived its right to deny liability.

I.

Jacob, age 19, lived with his parents at their home. Jean and her husband lived in [179 A.2d 508] a trailer located upon the same parcel of land. The Lincoln was Jean's car. It is conceded that Merchants knew Jacob was to drive the Lincoln. For that reason the endorsement read 'This Lincoln is added at Class 2A rates.' The classification plan attached to the policy provided:

'CLASS 2A * * * MEANS--the operators of the automobile under 25 years of age are male and are not owners or principal operators of the automobile, or

the owners or principal operators of the automobile under 25 years of age are male and are married.'

Jean drove the Lincoln to her work daily while Jacob used it after his working hours. The driving arrangement with respect to the Thunderbird appears to habe been precisely the same. The cost of the Thunderbird was $2,700, of which Jacob furnished $700, the balance coming from the parents of Jacob and Jean. Jacob signed the purchase order but the bill of sale went to Jean, who simultaneously disposed of the Lincoln. Jean paid the registration fee and the cost of insurance on the Thunderbird. The agent of Merchants knew Jacob was to drive the Thunderbird, and Class 2A rate, ascribed to the Lincoln, continued as to the substituted car.

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The policy begins with a recital that insurance is provided 'in reliance upon the statements in the declarations.' It closes with the usual provision:

'By acceptance of this policy, the insured named in Item 1 of the declarations agrees that the statements in the declarations are his agreements and representations, that this policy is issued in reliance upon the truth of such representations * * *.'

The 'declarations' contain no representation as to ownership.

The provision upon which Merchants relies appears in the endorsement which added the Lincoln and in the endorsement which substituted the Thunderbird. The format of the pertinent provision is significant and hence it is reproduced:

----------------------------------------------------------------------
                 The Automobile is fully paid for and the Insured is the sole and
                 unconditional owner thereof, except as follows:
                ----------------------------------------------------------------------
                 Installment Payments
                 --------------------------------- due Date of Final
                 Encumbrances Number Amount Each Installment is
                ----------------------------------------------------------------------
                $ $
                ----------------------------------------------------------------------
                

Merchants contends that, by accepting the endorsements, the insured adopted the 'representation' as to sole ownership contained therein. Citizens Casualty Co. v. Zambrano Trucking Co., Inc., 140 N.J.Eq. 378, 380, 54 A.2d 721 (Ch.1947), affirmed, 141 N.J.Eq. 310, 57 A.2d 17 (E. & A. 1948).

In general, an insured is chargeable with knowledge of the contents of a policy, in the absence of fraud or unconscionable conduct on the part of the carrier. Heake v. Atlantic Casualty Co., 15 N.J. 475, 483, 105 A.2d 526 (1954). This rule does not reflect a judicial belief that the average purchaser of insurance reads the contract in full or understands all that he reads. Rather the rule rests upon business utility.

A rule which thus rests upon the necessities of the business scene should not be applied when there is no need for it. So, it being thoroughly feasible for the carrier to alert

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an assured with respect to changes in [179 A.2d 509] a renewal policy, we held it must do so. Bauman v. Royal Indemnity Co., 36 N.J. 12, 174 A.2d 585 (1961).

Beneath all this is the concept that good faith is the essence of insurance contracts, Gallagher v. New England Mutual Life Ins. Co. of Boston, 19 N.J. 14, 20, 114 A.2d 857 (1955), and this means that good faith is required of the insurer as well as of the insured. Good faith demands that the insurer deal with laymen as laymen and not as experts in the subtleties of law and underwriting. The insurer knows what it deems to be material to the risks. It should ask for the information in understandable terms, and if it seeks to rely upon what it incorporates in the contract as a 'representation,' the language it employs should be revealing to the ordinary man with whom it thus does business. Henningsen v. Bloomfield Motors, Inc., 32 N.J. 358, 402, 161 A.2d 69, 75 A.L.R.2d 1 (1960).

If we assume Jean read the portion of the endorsements which we reproduced above, the question becomes whether she knew to be false the representation which she 'adopted.' Since she held record title, an assertion that she was the owner could not be said to be untrue. Whether her ownership was 'sole' need be considered only if she represented it to be of that quality. A fair reading of the provision would suggest to the average layman that Merchants was interested only in whether the automobile was subject to encumbrances. The phrase 'the sole and unconditional owner' is preceded by 'The automobile is fully paid for' and is followed by 'except as follows,' after which there is space only for the details of encumbrances. It would be too much to expect a layman to lift the word 'sole' from that text and to conclude it relates to something distinct from what appears both before and after it. As we read the testimony of Merchants' agent, he too understood the provision to relate solely to encumbrances. Indeed, he must have, since the endorsements list both Jean and her husband as 'Insured.' The agent knew the husband had no interest in the Thunderbird, and hence if the agent understood the

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provision in question related to title, he would not have attributed ownership to both insureds. Since the car was not encumbered, it follows there was no misrepresentation even if the quoted provision be deemed a 'representation.'

This makes it unnecessary to consider whether a representation as to 'sole ownership' would be untrue under the facts of this case. Nonetheless it would be well to comment upon the problem generated by such terminology.

The word 'owner' is quite imprecise. It is especially so when applied to an automobile in a State, such as ours, in which title can be transferred only in accordance with statutory provisions. N.J.S.A. 39:10--1 et seq.; National City Bank of New York v. Del Sordo, 16 N.J. 530, 538, 109 A.2d 631 (1954); Turpin v. Standard Reliance Ins. Co., 169 Neb. 233, 99 N.W.2d 26 (Sup.Ct.1959); Kietlinski v. Interstate Transportation Lines, 3 Wis.2d 451, 88 N.W.2d 739 (Sup.Ct.1958).

There has been much litigation with respect to 'ownership' provisions in automobile liability policies. Norris v. Allstate Insurance Co., 34 N.J. 437, 170 A.2d 33 (1961); Eggerding v. Bicknell, 20 N.J. 106, 118 A.2d 820 (1955); Ambrose v. Indemnity Insurance Co. of North America, 124 N.J.L. 438, 12 A.2d 693 (E. & A. 1940); Hudson Casualty Ins. Co. v. Garfinkel, 111 N.J.Eq. 70, 161 A. 195 (E. & A. 1932); United States Casualty Co. v. Timmerman, 118 N.J.Eq. 563, 180 A. 629 (Ch.1935); Century Indemnity Co. v. Simon, 77 F.Supp. 221 (D.N.J.1948); Annotation, 33 A.L.R.2d (1954), 948; 2 Richards, Insurance (5th ed. 1952), § 357, p. 1177. Insurance carriers A statement as to 'ownership' may, as here, A statement as to 'ownership' may, as here, be but conclusion or opinion upon a factual complex. Alamo Cas. Co. v. William Reeves & Co., 258 S.W.2d 211, 214 (Tex.Civ.App.1953). Representations with respect[179 A.2d 510] to matters of opinion certify to the truthfulness with which the opinion is held rather than to the validity of the opinion itself. See Shapiro v. Metropolitan Life Ins. Co., 114 N.J.Eq. 378, 381, 168 A. 637 (E. & A. 1933). It is not difficult to frame questions which will elicit such

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facts concerning the...