State Farm Mut. Auto. Ins. Co. v. Wall

• Decision Date: 05 July 1966
• Docket Number: No. A--1150,A--1150
• Citation: 92 N.J.Super. 92,222 A.2d 282
• Parties: STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, etc., Plaintiff-Appellant, v. Lawrence WALL et al., Defendants-Respondents. Ralph P. PHILLIPS et al., Plaintiffs-Respondents, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant-Appellant, and Lawrence Wall, Defendant-Respondent.
• Court: New Jersey Superior Court — Appellate Division

Page 92

92 N.J.Super. 92

222 A.2d 282

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, etc., Plaintiff-Appellant, v. Lawrence WALL et al., Defendants-Respondents.

Ralph P. PHILLIPS et al., Plaintiffs-Respondents, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant-Appellant, and Lawrence Wall, Defendant-Respondent.

No. A--1150.

Superior Court of New Jersey Appellate Division.

Argued May 9, 1966.

Decided July 5, 1966.

Nicholas R. Rapuano, Paterson, for appellant, State Farm Mut. Auto. Ins. Co. (Gelman & Gelman, Paterson, attorneys, Ervan F. Kushner, Paterson of counsel).

H. Curtis Meanor, Jersey City, for respondents Ralph P. Phillips and others and Lawrence Wall (Lamb, Blake, Hutchinson & Dunne, Jersey City, attorneys, for Ralph P. Phillips and others, Slingland, Bernstein & van Hartogh, Pompton Lakes, attorneys, for Lawrence Wall).

Before Judges GAULKIN, LABRECQUE and BROWN.

GAULKIN, S.J.A.D.

State Farm brought an action against its assured, Lawrence Wall, for rescission of an automobile liability insurance policy because of Wall's allegedly false and fraudulent misrepresentations. Phillips, Simmons and Washington were injured in an accident for which Wall is allegedly liable. They brought a declaratory judgment action against State Farm and Wall to determine their rights in the aforementioned policy. The two actions were consolidated for trial. The trial court denied rescission and held that the injured parties were entitled to the coverage of Wall's policy.

The facts are fully stated in the trial court's comprehensive opinion, 87 N.J.Super. 543, 210 A.2d 109 (Law Div.1965). For the purposes of this opinion it is sufficient to say that State Farm's agent, Voelkner, solicited Wall's insurance business. Wall agreed to insure with State Farm when his existing policy expired. On March 3, 1962 Voelkner went to Wall's home and asked him questions contained in two application blanks, one for a Chevrolet truck and the other for a passenger car owned by Wall. He wrote in the answers as Wall gave them to him, and Wall signed the applications.

We quote from the trial court's opinion 'Among the questions on each application were the following:

(a) '(6) Has any insurer cancelled or refused to issue or renew, or given notice that it intends to cancel or refuse automobile insurance or any other insurance similar to that applied for, to the applicant or any member of his household within the past three years?'

(b) '(7) Has license to drive or registration been suspended, revoked or refused for the applicant or any member of his household within the past five years?'

(c) 'Dates of accidents--unless none give details.'

(d) 'Driver citations last 3 years'

The answers appearing on the application to each of these questions is 'No' or 'None,' except that the application relating to the Chevrolet pickup truck refers to an accident of February 13, 1962, in which the truck had skidded into a telephone pole, causing damage to the truck's headlight of 'under $175' which Wall was 'in the process of getting repaired.'

The 'Declarations' in the State Farm policies contain similar representations, viz.: 'No insurer has cancelled automobile insurance issued to the named insured or any member of his household within the past three years,' and 'no license to drive or registration has been suspended, revoked or refused for the named insured or any member of his household within the past five years.' The acceptance of the policies by Wall without protest or correction constituted an adoption of these representations. Citizens Casualty Co. (of New York) v. Zambrano Trucking Co., Inc., 140 N.J.Eq. 378, 54 A.2d 721 (Ch.1947), affirmed 141 N.J.Eq. 310, 57 A.2d 17 (E. & A. 1948); cf. Merchants Indemnity Corp. v. Eggleston, 37 N.J. 114, 121, 179 A.2d 505 (1962); Heake v. Atlantic Casualty Ins. Co., 15 N.J. 475, 105 A.2d 526 (1954).

The answers which denied that any insurance company had cancelled or refused to issue automobile insurance were true. But the other answers were not true. A 'Certified Abstract of Operating Record' of Lawrence Wall, dated October 10, 1962, obtained by State Farm from the New Jersey Division of Motor Vehicles reveals--and these are the misrepresentations on which State Farm bases its claimed right of rescission--that (1) on June 21, 1961 Wall had been convicted in the Wayne Municipal Court of speeding, fined $25 and had his license revoked for one month; (2) on August 19, 1961 he had been involved in an accident, and for his failure to deposit security in connection with that accident had had his driving and registration privileges suspended from November 29, 1961 until December 8, 1961, when they were restored, and (3) on February 6, 1962 he was fined $15 in the Wayne Municipal Court for careless driving (Wall testified that this last involved the accident in which his truck had skidded into the telephone pole).' (at pp. 550--551, 210 A.2d at p. 112)

State Farm ordered an investigation of the proposed risk by Service Review, Inc., a firm which makes confidential investigations for insurance companies. In ordering the investigation, State Farm did not request a 'Certified Abstract of Operating Record' (hereinafter MVR), although Service Review could have obtained this information from the public records in Trenton for $1. N.J.S.A. 39:6--42. If an MVR had been ordered, it would have revealed Wall's record.

Because Service Review's report showed Wall was single, State Farm caused a second investigation to be made 'to ascertain what 'use Wall made of his spare time,' a practice which (State Farm) 'generally' followed in case of applicants who were single.' (at p. 553, 210 A.2d at p. 114) However, once again an MVR was not requested. Thereafter State Farm issued the policies applied for, one of which covered the passenger car to the extent of $25,000 per person and $50,000 for each occurrence, and $5,000 property damage, and for collision damage and medical payments.

On August 23, 1962 Wall, in attempting to pass a truck on Route 23 in Wayne, collided head-on with an automobile containing plaintiffs Phillips, Simmons and Washington. Both cars were total losses, and the three plaintiffs suffered severe injuries. State Farm honored Wall's claim of $2,550.11 for his collision loss and $19 for his medical expenses. However, it received $535 as the salvage value of the car, making the net cost of the payment to Wall as a result of this loss $2,034.11.

During State Farm's investigation of the accident its investigator, Palladino, learned that Wall had had 'considerable beers' prior to the collision. State Farm claims that this led it to check on Wall's driving record. Upon learning of this record State Farm returned to Wall the premium he had paid and informed him that it regarded the policy as void Ab initio because of his fraud and misrepresentation.

Officers of State Farm testified that while many insurance companies obtain MVRs on all risks as a matter of course, State Farm's practice is to rely on the representations of the assured. They also stated that had they known of Wall's record they never would have agreed to insure him.

I

The trial court found 'the evidence * * * insufficient to relieve Wall of the representations contained in the writings which he signed and in the policies which he accepted,' and that the misrepresentations were cause for cancellation if State Farm did 'in fact rely on the truth of the representations in issuing the policy * * *.' (at p. 552, 210 A.2d at p. 113). With this we agree. However, the court found there was no such reliance. With this conclusion we are compelled to disagree.

The trial court rejected Wall's argument that State Farm was precluded from relying upon the misrepresentations because it had made its own investigation, and his alternative contention that the alleged reliance was unreasonable. But it held that it did not believe the testimony of State Farm's officers that the company relied on the representations. It reasoned thus:

'State Farm, which had reached out to obtain the insurance business which Wall had theretofore given to another company, is not naive or uninformed. It is an automobile insurance company fully cognizant of the law of insurance, and familiar with what driving records are available in the Division of Motor Vehicles and the manner and nominal cost involved in obtaining an abstract thereof. Yet, in ordering and obtaining from a private investigating agency a detailed report about Wall, his activities and his automobile, it deliberately and purposely refrained from authorizing the expenditure of an additional $1 for a Division of Motor Vehicle abstract of Wall's driving record. Why, if in fact it was concerned with the truth as to Wall's driving record? Other representations in the application were made the subject of part of the investigation--even those whose verification could not be obtained as simply as could a verification of the driving record.

The inference is compelling that State Farm did not then want to know, nor was it concerned with, whether or not Wall's representations as to his driving record were true, preferring rather to be in a position in which at some later date, if it served its interest to do so, it could seek rescission of the policy if the representations were untrue.

'This is not reliance upon the truth of the representations; it is reliance on the expectation that relief will be afforded if the representations are untrue. As such, it is not sufficient to warrant rescission, just as it would not be sufficient reliance to warrant recovery of damages in an action for fraud and deceit. 3 Restatement, Torts, § 548 (1938). As the Restatement phrases it:

'The maker of a fraudulent misrepresentation is not liable to one who does not rely upon its truth but upon the expectation that the maker will be held liable in damages for its falsity." (at pp. 556--7, 210 A.2d at p. 116).

We are aware of the respect ...