Small v. Schuncke

• Decision Date: 01 June 1964
• Docket Number: No. A--113,A--113
• Citation: 42 N.J. 407,201 A.2d 56
• Parties: Peter SMALL, Plaintiff, v. Martin M. SCHUNCKE et al., Defendants. Martin M. SCHUNCKE, Defendant and Third-Party Plaintiff-Appellant, v. PENNSYLVANIA THRESHERMEN & FARMERS' MUTUAL CASUALTY INSURANCE COMPANY, Third-Party Defendant-Respondent.
• Court: New Jersey Supreme Court

Page 407

42 N.J. 407

201 A.2d 56

Peter SMALL, Plaintiff, v. Martin M. SCHUNCKE et al., Defendants.

Martin M. SCHUNCKE, Defendant and Third-Party Plaintiff-Appellant, v. PENNSYLVANIA THRESHERMEN & FARMERS' MUTUAL CASUALTY

INSURANCE COMPANY, Third-Party Defendant-Respondent.

No. A--113.

Supreme Court of New Jersey.

Argued April 21, 1964.

Decided June 1, 1964.

John R. Kingsland, East Orange, for third-party plaintiff-appellant (John W. Taylor, East Orange, attorney).

Edward M. Gurry, Newark, for third-party defendant-respondent (Gurry & Conlan, Newark, attorneys, Edward M. Gurry, Newark, on the brief).

The opinion of the court was delivered by

PROCTOR, J.

This case concerns coverage under the omnibus clause of an automobile liability insurance policy. The policy was issued by the third-party defendant, Pennsylvania Threshermen & Farmers' Mutual Casualty Insurance Company (Pennsylvania), to Herbert B. Weidel of Baltimore, Maryland, and covered his automobile, which was involved in a collision on June 8, 1957. The omnibus clause was of standard form and provided in pertinent part that coverage under the policy was extended to the named insured, his spouse, and 'any person while using the automobile * * *, provided the actual use of the automobile is by the named insured or such spouse or with the permission of either.'

The facts are not in material dispute. Weidel entered a hospital in Baltimore on June 2, 1957, for treatment of poison ivy. A day or two later, he requested his nephew, Michael Wagner, also of Baltimore, who was home on leave from the Navy, to use his car to take Mrs. Weidel to and from the hospital to visit him, to take her shopping and to do other errands for him. Wagner agreed and Weidel gave him the keys to the car. Wagner did not ask whether he could use the car for his own purposes, nor did Weidel tell him not to. In short, the matter was not discussed. Wagner used the car for several days to do the errands requested of him and parked it each evening in front of his home. On Friday night, June 7, after driving Mrs. Weidel from the hospital to her home, he picked up a friend, Martin Schuncke, the third-party plaintiff herein, and the two spent several hours together drinking coffee and later a few beers. They decided to drive to New York for the week end and En route they picked up five hitchhikers. Along the way Schuncke took over the driving. Early the next morning they were involved in a collision with a truck near Newark on the New Jersey Turnpike, which resulted in the death of one of the passengers and injuries to others.

Actions in negligence were instituted against Weidel, Schuncke, and the owner and driver of the truck. Pennsylvania notified Schuncke that it was not extending coverage to him under Weidel's policy or defending him because he was not using the car with the permission of the named insured. Liberty Mutual Insurance Company (Liberty), which had issued a policy on a vehicle owned by Schuncke's father, defended the action for Schuncke and obtained an order joining Pennsylvania as a third-party defendant in the consolidated negligence actions. The third-party action, now before this Court, was severed from the negligence actions which came on for trial in November 1958. After several days of trial the negligence actions were settled. Liberty and Pennsylvania, although disagreeing on the question of which carrier should extend coverage, had agreed in advance of the settlement that the $20,000 limit under either policy should be contributed on behalf of defendant Schuncke toward the settlement of the negligence actions. Liberty agreed to pay the $20,000 required by the settlement. No discussion was had at that time as to the payment of interest on the sum in the event that the third-party action was determined against Pennsylvania. Liberty paid $20,000 to the plaintiffs on December 16, 1958. Though Schuncke is denominated the third-party plaintiff, of course, Liberty is the real party in interest.

On February 27, 1962 the Superior Court, Law Division, granted summary judgment for Schuncke in the third-party action, directing that Pennsylvania was obligated to extend the coverage of the Weidel policy to Schuncke. On motion to settle the form of judgment, an order was entered on July 19, 1962, which required Pennsylvania to pay to Liberty the sum of $20,000 plus 6% Interest and costs, interest to run from December 16, 1958. On Pennsylvania's appeal to the Appellate Division, the judgment of the Law Division was reversed on the ground that Schuncke was not covered by the omnibus clause in the Pennsylvania policy. 80 N.J.Super. 97, 193 A.2d 146 (1963). We granted Schuncke's petition for certification. 41 N.J. 199, 195 A.2d 468 (1963).

The parties have briefed and argued the case on the assumption that New Jersey law should be applied to the issues here involved. We accept their position and treat the matter as one arising under New Jersey law. Further, Pennsylvania concedes that if Wagner was a covered permittee under the omnibus clause at the time of the collision, Schuncke also had coverage thereunder as a second permittee.

Pennsylvania contends that the decisions of this Court in Matits v. Nationwide Mutual Ins. Co., 33 N.J. 488, 166 A.2d 345 (1960), and Indemnity Ins. Co. of North America v. Metropolitan Cas. Ins. Co. of N.Y., 33 N.J. 507, 166 A.2d 355 (1960) establish the guidelines to be followed in the resolution of the issue here presented and further contends that those cases were properly applied by the Appellate Division when it held that Schuncke, at the time of the collision, was not using the car with the permission of the named insured.

The Matits case adopted for New Jersey the 'initial permission' rule to be used in determining whether coverage is available to persons other than the named insured under a standard omnibus clause in a liability insurance policy. The rule was stated to be: '(I)f a person is given permission to use a motor vehicle in the first instance, any subsequent use short of theft or the like while it remains in his possession, though not within the contemplation of the parties, is a permissive use within the terms of a standard omnibus clause in an automobile liability insurance policy.' 33 N.J., at p. 496, 166 A.2d, at p. 349. In that case we rejected the 'minor deviation' rule that the permittee is covered under the omnibus clause so long as his deviation from the permissive use is minor in nature. We also rejected the 'conversion' rule that any deviation from the time, place or purpose specified by the person granting permission takes the permittee outside coverage of the clause. Ibid. We pointed out that the rejected rules make coverage turn on the scope of permission in the first instance, render coverage uncertain in many cases, foster litigation as to the existence or extent of deviations, and inhibit achievement of the legislative goal of providing certain and maximum coverage to effectuate the policy of encouraging collectibility of damages wrongfully inflicted in the operation of motor vehicles. Id. 33 N.J., at pp. 495, 496, 166 A.2d 345.

Pennsylvania contends that the opinion in Indemnity Ins. Co., which was decided on the same day as Matits, circumscribes the rule there announced and requires consideration of the purpose for which the permission was given in the first instance and a finding that the use of the vehicle at the time of the accident was reasonably related to the 'actual use' for which permission was initially given. We disagree. The Indemnity Ins. Co. case did not involve an application of the initial permission rule. There was in that case no subsequent use which deviated in any way from the permitted use. The only question presented was whether omnibus coverage extends to a person who is expressly prohibited by the named insured from operating the latter's car where the car is being used at the time with the permission of the named insured. In answering that question affirmatively, we distinguished between permission to operate, immaterial to coverage under the omnibus clause, and permission to use, the controlling factor in such cases. Were we to construe the Indemnity Ins. Co. case as requiring a consideration of the scope of the permitted use as Pennsylvania suggests, we would clearly thwart our expressed purposes for adopting the initial permission rule announced in Matits and destroy the certainty in the law achieved through its adoption.

Under the initial permission rule only two questions must be answered to determine coverage....