Miller v. New Jersey Ins. Underwriting Ass'n

• Decision Date: 03 June 1980
• Parties: Alfonso R. MILLER and Jerome Rosenberg, Plaintiffs-Appellants, v. NEW JERSEY INSURANCE UNDERWRITING ASSOCIATION, Defendant-Respondent, Elijah NORWOOD and Thelma Norwood, Lillian Gilbert and Maurice Gilbert, Plaintiffs-Appellants, v. NEW JERSEY INSURANCE UNDERWRITING ASSOCIATION, Defendant-Respondent.
• Court: New Jersey Supreme Court

Page 594

82 N.J. 594

414 A.2d 1322

Alfonso R. MILLER and Jerome Rosenberg, Plaintiffs-Appellants, v. NEW JERSEY INSURANCE UNDERWRITING ASSOCIATION, Defendant-Respondent, Elijah NORWOOD and Thelma Norwood, Lillian Gilbert and Maurice Gilbert, Plaintiffs-Appellants, v. NEW JERSEY INSURANCE UNDERWRITING ASSOCIATION, Defendant-Respondent.

Supreme Court of New Jersey.

Argued Jan. 7, 1980.

Decided June 3, 1980.

Abraham I. Mayer, Newark, for plaintiffs-appellants (Mayer & Mayer, Newark, attorneys).

Peter M. Burke, Newark, for defendant-respondent (Young, Rose & Millspaugh, Newark, attorneys; Frederick W. Rose, Newark, on the brief).

The opinion of the court was delivered by

POLLOCK, J.

The issue presented on these consolidated appeals is whether an in rem judgment of foreclosure for unpaid real estate taxes deprives the former owners and mortgagees of an insurable interest in the real estate, so that an insurer need not pay under a fire insurance policy when a structure on the real estate is damaged. The trial court granted summary judgment in favor of the insurer, and the Appellate Division affirmed in an unreported opinion, with one judge dissenting. We now reverse and remand for a trial in accordance with this opinion.

These matters involve separate properties in the City of Newark that were damaged by fire after Newark foreclosed real estate tax sale certificates affecting the properties. The New Jersey Insurance Underwriting Association (NJIUA) is an association created by statute to provide fire insurance, particularly in central city areas, to persons who cannot obtain insurance in the normal insurance market. N.J.S.A. 17:37A-1 et seq.

The material facts pertaining to the two properties are substantially identical. With respect to the property at 226 Springfield Avenue, Newark purchased a tax sale certificate on December 4, 1972, which was recorded on April 10, 1973. On June 1, 1973, Alphonso R. Miller purchased from Jerome and Della Rosenberg the stock of Harmitch Corporation, the record owner of the property. Under the terms of the sale, Miller agreed to issue to Della Rosenberg a note and second mortgage on his home in Newark. In the contract, Miller assumed the responsibility for paying taxes on the property. The contract provided that a second property formerly owned by Harmitch Corporation was "owned by, or in the process of having title thereto taken by, the City of Newark." There was no similar reference to the property at 226 Springfield Avenue. Before the purchase, Miller, as a tenant of the Rosenbergs, conducted a furniture and appliance business; after the closing, he continued that business and collected rent from some tenants of the premises.

Miller applied to NJIUA for fire insurance on December 2, 1974. Miller listed himself as owner (although the owner apparently was Harmitch Corporation) and plaintiff Jerome Rosenberg as mortgagee (although nothing in the record, other than the insurance application, indicates he held a mortgage on 226 Springfield Avenue). However, the casual, even careless, business practices of the parties are not relevant on this appeal.

The right to redeem the property from the tax sale certificate expired on December 4, 1974, two years after the date of the tax sale. The period for redemption has since been reduced from two years to six months. N.J.S.A. 54:5-54. On December 10, 1974, NJIUA issued a fire policy for $30,000 insuring Miller as owner and Rosenberg as mortgagee.

On September 30, 1975, Newark obtained a judgment foreclosing the tax sale certificate. About three weeks later, on October 21, 1975, fire seriously damaged the building. As title holder, Miller submitted a proof of loss in the amount of $18,323.50, an amount that NJIUA subsequently agreed represented the damage to the property. On December 31, 1975, NJIUA advised Miller that it had just learned of the entry of the judgment of foreclosure and that it would not make payment because Miller had no insurable interest.

Miller and Rosenberg claim that they did not receive notice of the proceedings before entry of the judgment of foreclosure, and that their first notice was NJIUA's letter denying payment. At oral argument, NJIUA contended that, on remand, it could prove that Newark had mailed actual notice of the foreclosure to Miller. After the foreclosure, Newark wrote to Miller stating that it would vacate the judgment in exchange for payment in full or by installments of unpaid real estate taxes.

The other appeal concerns property located at 584 Springfield Avenue in Newark. Plaintiffs Elijah and Thelma Norwood acquired title to the property on May 11, 1973. Newark purchased a tax sale certificate for the property on December 19, 1974. The redemption period expired on June 19, 1975, under N.J.S.A. 54:5-54, as amended. NJIUA issued a fire policy on July 25, 1976, showing the Norwoods as insureds, plaintiffs Lillian and Maurice Gilbert as mortgagees, and others not parties to this proceeding as having an interest in the property. On September 29, 1976, Newark recorded its judgment of foreclosure. Thereafter, on May 30, 1977, the premises were destroyed by fire. Norwood and Gilbert assert they did not receive notice of the foreclosure and claim the amount of the policy, $20,000.

As with the Miller property, NJIUA has refused to pay under the policy because of the entry of the judgment of foreclosure before the fire. Except for the judgments of foreclosure, NJIUA acknowledges that plaintiffs would have had insurable interests in their properties. NJIUA does not dispute that plaintiffs had insurable interests at the time of the issuance of the policies. Furthermore, NJIUA does not claim that plaintiffs are guilty of bad faith or fraud. Newark is not a party and makes no claim for any part of the proceeds of the insurance concerning either the Miller or Norwood properties.

Since these appeals are before us on NJIUA's motions for summary judgment, we must resolve all reasonable inferences in favor of plaintiffs. Judson v. Peoples Bank & Trust Co. of Westfield, 17 N.J. 67, 75, 110 A.2d 24 (1954). Therefore, for the purposes of this decision, we assume that plaintiffs did not receive actual notice of the foreclosure proceedings.

Our initial inquiry concerns the impact on this case of our decision in Township of Montville v. Block 69, Lot 10, 74 N.J. 1, 376 A.2d 909 (1977). In Montville, this Court held that where a municipality has a landowner's name and address notice by publication only in an in rem tax foreclosure proceeding violates the due process provisions of the United States and New Jersey Constitutions. 74 N.J. at 15-19, 376 A.2d 909. To avoid upsetting established titles, the Court held further that the Montville decision should be applied prospectively. That is, except for tax foreclosure proceedings completed before the Montville decision, a municipality must mail notice to an owner before his right of redemption may be barred. 74 N.J. at 20, 376 A.2d 909.

NJIUA contends that, since the foreclosure proceedings in this case were completed before the decision in Montville, the owners may not challenge Newark's title to the insured premises.

The trial court found that plaintiffs had no insurable interest and granted summary judgment for NJIUA. The majority of the Appellate Division affirmed, applying Montville prospectively. The majority reasoned that at the time of the fires legal title to both properties was in Newark and, therefore, plaintiffs did not have insurable interests.

The dissent began by recognizing that the prospective operation of Montville prevented Miller and Norwood from attacking Newark's previously acquired title to their properties. Nonetheless, by recourse to that part of Montville declaring tax foreclosures without actual notice to be unconstitutional, the dissent stated Miller and Norwood retained title as against NJIUA. Having made that finding, the dissent concluded plaintiffs had insurable interests in their properties. We do not agree that it is necessary to find title in Miller and Norwood to find that they had insurable interests. We hold that Miller and Norwood retained insurable interests in their properties although they had lost title to their properties. We conclude that, as a matter of law, an owner who lost title to real estate in an in rem tax sale foreclosure before Montville is not necessarily deprived of an insurable interest in that property.

To sustain recovery, an insured under a fire insurance policy must have an insurable interest in the property at the time of the loss. R. Keeton, Insurance Law § 3.3(c) (1971); 4 J. Appleman, Insurance Law and Practice § 2122 (1969). See, e. g., Hyman v. Sun Ins. Co., 70 N.J.Super. 96, 99, 175 A.2d 247 (App.Div.1961) (assignee of mortgage payment has insurable interest in mortgagee's property in the amount of the payment due). The justification for this rule is the discouragement of illicit uses of insurance, such as wagering, and the destruction of insured property. See generally Keeton, supra at §§ 3.3(a), 3.4(b); Appleman, supra at § 2121. The recurring problem is determining when an insurable interest exists. Nearly a century ago, the Court of Errors and Appeals in Trade Ins. Co. v. Barracliff, 45 N.J.L. 543, 546 (E. & A.1883), declared, "What constitutes an insurable interest is a subject which has received a great deal of judicial consideration, and which some text writers say is incapable of exact definition." The problem of defining an insurable interest continues and is the central issue in this case.

With respect to real estate, an insurable interest need not rise to the level of legal or equitable title. In the past, New Jersey courts have recognized that an insured retains an insurable interest as long as he has a reasonable expectation of deriving pecuniary benefit from the preservation of the property or would suffer a direct pecuniary loss from its destruction. See Barracliff...