Olivio v. Government Emp. Ins. Co. of Washington, D. C.

• Decision Date: 13 January 1975
• Citation: 362 N.Y.S.2d 873,46 A.D.2d 437
• Parties: Elsa OLIVIO et al., Respondents, v. GOVERNMENT EMPLOYEES INSURANCE COMPANY OF WASHINGTON, D.C., Appellant, et al., Defendants.
• Court: New York Supreme Court — Appellate Division

Page 873

362 N.Y.S.2d 873

46 A.D.2d 437

Elsa OLIVIO et al., Respondents, v. GOVERNMENT EMPLOYEES INSURANCE COMPANY OF WASHINGTON, D.C. Appellant, et al., Defendants.

Supreme Court, Appellate Division, Second Department.

Jan. 13, 1975.

Pizzitola & DiBlasi, Brooklyn (Michael M. Wolpinsky, Union City, N.J., and Vincent A. DiBlasi, New York City, of cousel), for appellant

Stanley Gould, New York City, for respondents Edwin Rodriguez and Lydia Olivio.

Halpern & Brown, Brooklyn (Isidore Halpern and John A. Darienzo, Jr., Brooklyn, of counsel), for respondents Elsa Olivio and Loretta Olivio.

Before SHAPIRO, Acting P.J., and COHALAN, CHRIST, BRENNAN and MUNDER, JJ.

SHAPIRO, Acting Presiding Justice.

On this appeal defendant Government Employees Insurance Company of Washington, D.C. (GEICO) seeks reversal of portions of an order of the Special Term in Kings County which, among other things, ¹ determined and adjudged that GEICO is liable under the automobile liability insurance policy which it had issued to the codefendant, Loretta Cadogan, up to the maximum coverage of $20,000/40,000 stated in the policy, for the accident in which the four plaintiffs were injured. We affirm.

THE FACTS

The plaintiffs were passengers in the motor vehicle owned and driven by GEICO's insured, codefendant Cadogan. The vehicle was insured for $20,000/40,000 under a liability policy issued to Miss Cadogan by GEICO on November 16, 1972. The policy also contained medical payments, extraterritorial uninsured motorist, and collision coverages. Prior to the issuance of the policy, and at the request of GEICO, Miss Cadogan filled out an application in which she represented, in response to question 6, that she held a valid unrestricted operator's license or permit; in response to queston 8, that she had not had any automobile driver's license, permit or privilege suspended, revoked, or refused; and, in response to question 12, that neither she nor any member of her family had been convicted of or forfeited bail, or paid any fines, for driving violations or citations, other than parking, in the three years preceding the date of the application.

The policy was in effect on July 4, 1973 when the insured's car was involved in a head-on crash with a second vehicle driven and owned by one Edward N. Cluess. ² On July 17, 1973, the plaintiffs' attorney in On October 12, 1973 GEICO ascertained that Miss Cadogan had lied in her application for the policy when she responded to questions 6, 8 and 12 as above mentioned. Thereafter, by two letters, dated November 8, 1973 and November 12, 1973, respectively, GEICO informed its insured, and counsel for the plaintiffs, that it would undertake defense of the personal injury suit brought against her by the plaintiffs 'since the laws of the State of New York prohibit a recision (sic) of your policy from the date of inception,' but that it would indemnify her 'for resulting loss to the extent of $10,000 for each person with a maximum of $20,000, for the occurrence.' In the November 8th letter GEICO also stated that it intended to reform the policy to reflect a reduction of its bodily injury limits coverage to $10,000/20,000 and to delete the medical payments, extraterritorial uninsured motorist, and collision coverages.

this action notified GEICO by letter that he represented the plaintiffs on their claims for damages for the personal injuries they sustained in the July 4 accident. On July 30, 1973 he instituted an action on behalf of the plaintiffs against both Cadogan and Cluess, the respective drivers of the automobiles involved in the accident.

The plaintiffs thereupon instituted this action and simultaneously moved for judgment declaring, in effect, that the defendant is obligated to pay up to $20,000/40,000 under its policy on account of any judgments recovered by the plaintiffs against the defendant's insured in the plaintiff's action to recover damages for the injuries sustained by them.

In opposition to the plaintiffs' motion, GEICO admitted its issuance of its policy with $20,000/40,000 coverage to Miss Cadogan prior to the accident, but claimed that it did so in reliance on her assertions that she possessed a valid New York operator's license which had not been suspended and that she had not been guilty or previous motor vehicle violations; that these assertions were false; and that it had therefore disclaimed coverage beyond the minimum of $10,000/20,000 required by statute, GEICO further stated that it had brought its own action for reformation and rescission of the policy, viz., thus to reduce the amounts of the coverage and to eliminate certain coverage entirely, i.e., medical payments, etc. GEICO also said that it had interposed an answer on behalf of miss Cadogan in the negligence action.

THE ISSUE

Although this case is here as an appeal from portions of an order (1) denying GEICO's cross motion to open its default in answering the complaint and (2) adjudging GEICO obligated under its policy up to the monetary limits designated in its policy ($20,000/40,000), GEICO's right to have its default opened turns on whether it has in its

affidavits in support of its motion established that it has a valid legal basis for its effort to limit its liability under its policy to Miss Cadogan to the minimum liability coverage of $10,000/20,000 specifically required by statute (Vehicle and Traffic Law, § 345, subd. (b), par. 1) in view of the false assertions made by her in her application as set forth above. In essence the issue on this appeal is whether GEICO's affidavits in support of its cross motion established that it has a meritorious partial defense to the complaint consisting of a right to reformation of its policy of insurance to limit its liability thereunder to the minimum required by statute ($10,000/20,000).

THE RIGHT TO REFORMATION

Section 313 of the Vehicle and Traffic Law provides that '(n)o contract of insurance * * * for which a certificate of insurance has been filed with the commissioner shall be terminated by cancellation by the insurer * * * until at least twenty days after mailing to the named insured at the address shown in the policy a notice of termination.' It is now settled law in this State that since section 313 abrogated the previously existing common-law right of rescission Ab initio, such a right of termination operates prospectively only (Teeter v. Allstate Ins. Co., 9 A.D.2d 176, 192 N.Y.S.2d 610, affd., 9 N.Y.2d 655, 212 N.Y.S.2d 71, 173 N.E.2d 47). In that case, the court said (9 A.D.2d p. 182, 192 N.Y.S.2d p. 617):

'Once an insurer issues a binder or insurance policy and given the insured a certificate of insurance for filing with the Bureau of Motor Vehicles, it is barred from asserting that the insurance coverage failed to attach on the date of issuance or that it failed to continue in force thereafter, during the period during which the certificate of insurance remained uncanceled. A certificate of insurance constitutes a representation by the insurance company to the public and to the State authorities that valid insurance coverage is in effect. The whole scheme of the statute would be frustrated if the insurance company were allowed, because of a hidden infirmity in the policy, to nullify it retroactively with respect to a period during which the company had led the public and the authorities to believe that insurance coverage was in effect (cf. Shuba v. Greendonner, 271 N.Y. 189, 2 N.E.2d 536; Reese v. Reamore, 292 N.Y. 292, 55 N.E.2d 35.).'

The court also said (p. 182, 192 N.Y.S.2d p. 617):

'If the insurer wishes to avoid or minimize the risk of being held liable on a policy, obtained by fraud, for a period running from the date of its issuance to a date 10 days after mailing of notice of termination, it must make its investigation of the applicant's record and the truthfulness of his representations prior to issuing a binder or an insurance policy and the accompanying certificate of insurance.'

It is relevant also that the court, in rejecting the insurer's contention that the statute did not do away with the common-law right to rescind Ab initio for fraud, said (p. 180, 192 N.Y.S.2d p. 615):

'It is impossible to reconcile the existence of a right to rescind Ab initio with the general scheme of the compulsory insurance law. The purpose of the statute is to assure, so far as possible, that there will be no certificate of registration outstanding without concurrent and continuous liability insurance coverage.'

Teeter and its progeny (see, for example, State Farm Mut. Auto. Ins. Co. v. Carrion, 41 A.D.2d 708, 341 N.Y.S.2d 456) do not, however, dispose of the question posed here, since we are here faced with an appeal which seeks a determination of whether an insurer may legally seek to reform, not rescind, its policy where the policy was obtained through fraud. Thus, it has been said,

'The decisions in Aetna Cas. & Sur. Co. v. O'Connor, 8 N.Y.2d 359, 207 N.Y.S.2d 679, 170 N.E.2d 681, and Teeter v. Allstate Ins. Co., 9 A.D.2d 176, 192 N.Y.S.2d 610, do not preclude, as a matter of law, reformation of a policy under the Assigned Risk Plan. They do hold that the Legislature abrogated the common-law right of insurance companies to rescind policies issued under the Plan and limited their remedy for fraud to cancellation. But while 'cancellation was intended to be the sole means of terminating such contracts of insurance' (Aetna Cas. & Sur. Co. v. O'Connor, Supra, 8 N.Y.2d p. 364, 207 N.Y.S.2d at page 683, 170 N.E.2d at page 684), the statute did not deprive a court of equity of its power to declare the 'true agreement between the parties.' (River Theatre Corp. v. Fidelity & Deposit Co., Sup., 90 N.Y.S.2d 514, McNally, J., affd. 277 App.Div. 770, 97 N.Y.S.2d 550.)' (Liberty Mut. Ins. Co. v. Murer, 28 A.D.2d 263, 265, 284 N.Y.S.2d 492, 494).

But in Reliance Ins. Cos. v. Daly, 67 Misc.2d 23, 322 N.Y.S.2d 881, mod. in other respects by this court, 38...