Teeter v. Allstate Ins. Co.

• Decision Date: 11 November 1959
• Parties: Raymond F. TEETER, Jr., Plaintiff-Appellant, v. ALLSTATE INSURANCE COMPANY, Defendant-Respondent.
• Court: New York Supreme Court — Appellate Division

Page 610

192 N.Y.S.2d 610

9 A.D.2d 176

Raymond F. TEETER, Jr., Plaintiff-Appellant, v. ALLSTATE INSURANCE COMPANY, Defendant-Respondent.

Supreme Court, Appellate Division, Fourth Department.

Nov. 11, 1959.

Maas, Weinstein & Hutchings, Rochester, for plaintiff-appellant. (Leonard E. Maas, Rochester, of counsel).

Brown, Zurett, Sullivan, Smith & Gough, Rochester, for defendant-respondent. (William V. Gough, Rochester, of counsel).

Before KIMBALL, J. P., and WILLIAMS, BASTOW, GOLDMAN and HALPERN, JJ.

HALPERN, Justice.

This case presents the question of whether an insurance company has the right to rescind ab initio, on account of the fraud of the insured, an automobile liability insurance policy which was issued after the taking effect of the Motor Vehicle Financial Security Act (Vehicle and Traffic Law, §§ 93 to 93-k, added by L.1956, Ch. 655), ¹ commonly known as the compulsory insurance law.

On August 15, 1957, the defendant insurance company, through its agent at a Sears, Roebuck store, issued to the plaintiff a binder for a liability insurance policy covering his automobile. At the same time, it gave the plaintiff a certificate of insurance, pursuant to section 93-b of the Vehicle and Traffic Law, certifying that it had issued to the plaintiff 'a policy complying with Financial Security Act'. This certificate (FS-1) was made out on a printed form prescribed by the Commissioner of Motor Vehicles. Section 93-b of the Vehicle and Traffic Law provides that no motor vehicle may be registered 'unless the application for such registration is accompanied by proof of financial security which shall be evidenced by a certificate of insurance'. The plaintiff filed the certificate of insurance with the Bureau of Motor Vehicles and, on the basis thereof, obtained a certificate of registration.

In procuring the binder, the plaintiff had represented to the defendant that he had not had any accident within the preceding two years and also that no prior policy of insurance issued to him had ever been cancelled. Both statements were concededly false. It is now admitted by the plaintiff that a prior policy of insurance issued to him by this very defendant had previously been cancelled and also that he had had an accident within the two-year period. After the binder and the certificate had been issued by the defendant's agent, the plaintiff's application was referred for processing to the regional office of the defendant and defendant's employees in that office quickly discovered the falsity of the plaintiff's representations. Thereupon, on August 23, 1957, the defendant wrote a letter to the plaintiff, notifying him that 'the insurance extended under the binder' was thereby 'cancelled and declared void from its inception' and enclosing the defendant's check in the amount of $13.05 in full refund of the portion of the premium which the plaintiff had paid.

Section 93-c of the Vehicle and Traffic Law, as it read in 1957 (L.1956, ch. 655) provided so far as here relevant: 'No contract of insurance or renewal thereof for which a certificate of insurance has been filed with the commissioner shall be terminated by cancellation or failure to renew by the insurer until at least ten days after mailing to the named insured at the address shown on the policy a notice of termination. Time of the effective date and hour of termination stated in the notice shall become the end of the policy period. Every such notice of termination for any cause whatsoever sent to the insured shall include in type of which the face shall not be smaller than twelve point a statement that proof of financial security is required to be maintained continuously throughout the registration period and that failure to maintain such proof of financial security is a misdemeanor'. The statute was amended in 1958 to provide for 20 days' notice of termination except in case of nonpayment of premium in which case a 10-day notice would suffice. L.1958, Ch. 661.

The letter of August 23, purporting to cancel the binder 'from its inception' concededly did not comply with Section 90-c since it did not give the plaintiff a notice of termination to take effect ten days thereafter.

A few days after sending the letter to the plaintiff the defendant sent to the Motor Vehicle Bureau a 'Notice of Termination' on the printed form prescribed by the Bureau (FS-4). The defendant did not advise the Bureau that the insurance coverage had been cancelled 'from its inception'. The notice merely stated that the insurance coverage had been terminated 'effective 8-15-57' and that the date of the notice to the insured was '8-23-57'. The Commissioner apparently overlooked or disregarded this discrepancy and issued a revocation order, revoking the plaintiff's certificate of registration because of lapse of insurance coverage and directing him to surrender his certificate of registration and number plates immediately and further advising him that he could not obtain a new registration 'for this or any other vehicle' for a period of 30 days from the date of surrender.

In the meantime, immediately upon receipt of the letter of cancellation from the defendant, the plaintiff had obtained insurance from another insurance company and had forwarded a new FS-1 certificate of insurance to the Bureau of Motor Vehicles. This certificate was rejected by the bureau on the ground that there had been a 'lapse of insurance coverage from 8-15-57, the date of termination of insurance coverage by Allstate Insurance Company' to August 27, 1957, the effective date of the new policy and that there had been 'no voluntary surrender of your registration certificate and plates during that period'. The bureau advised the plaintiff that a new application for registration could not be submitted until 30 days after the surrender of 'the revoked items'. This letter and the order of revocation were apparently issued by the bureau in reliance upon the defendant's certification that the insurance coverage had been effectively terminated as of August 15, 1957. Under the statute, it was the plaintiff's duty to surrender his certificate of registration and plates prior to the date upon which the termination became effective unless he obtained other insurance coverage before that date (§ 93-b, subd. 1). Since, according to the bureau's records, the plaintiff had failed to surrender his certificate and plates prior to August 15, 1957, the date of termination, and had not obtained new insurance before that date, the imposition of a 30-day suspension was mandatory under the statute (§ 93-h, subd. 1[b]).

The plaintiff thereupon brought a proceeding under Article 78 of the Civil Practice Act against the Commissioner to annul the revocation of his certificate of registration and the 30-day suspension. That proceeding was dismissed upon the ground that the Commissioner was not required to investigate the facts with respect to a termination of insurance certified to him, and that therefore the revocation order was proper. We are informed that an appeal is pending in this court from the dismissal.

The plaintiff also brought the present action for a declaratory judgment, seeking a declaration that the termination by the defendant was not effective as of August 15, 1957, that it could not be effective under the statute until September 2, 1957, and that therefore there had been no lapse in insurance coverage.

The complaint also contains a second cause of action for money damages for the cost of conducting the Article 78 proceeding.

Although the defendant used the word 'cancelled' in its letter of August 23, and although it filed with the Commissioner a notice of termination in the form prescribed by the Commissioner pursuant to section 93-c, the defendant maintained upon the trial of this action and maintains here that section 93-c has no application to this case at all. The defendant maintains that it had not cancelled the policy but had rescinded the policy ab initio in the exercise of its common-law right to rescind the policy because of fraud.

This contention presents sharply the question, upon which no appellate court of this State has as yet passed, whether the common-law right of rescission ab initio for fraud survived the adoption of the statute or whether the statutory method of terminating coverage on notice, prescribed scribed in section 93-c, is the sole and exclusive method by which insurance coverage, for which a certificate of insurance has been issued under section 93-b, can be terminated. We think that the latter alternative is the correct one.

It is to be noted, first of all, that the language of section 93-c is comprehensive and all-embracing. It refers to 'termination for any cause whatsoever'. This language, we believe, necessarily includes rescission for fraud. The provision of the section for a 10-day notice of termination makes it impossible to have ab initio rescission. While the provision does not take away the right to rescind for fraud, it restricts its operative effect. The rescission cannot be made effective retroactively as it could be at common law; it can be made effective only prospectively, as of a date not less than 10 days after the service of the prescribed notice.

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. In the first instance, a certificate of registration will not be issued unless there is submitted with the application proof of financial security by a certificate of insurance issued by an insurance company or its equivalent (§ 93-b). If, after the certificate of insurance is issued, the insurance company decides to terminate the coverage for any reason, it must give 10 days' notice to the insured and he...