Eastwood, Jayne and Francis. The opinion of the court was delivered by Eastwood, S.j.a.d.
[28 NJSuper Page 83] This action raises an issue of novel impression in this State. The trial court held that the defendant Interstate Insurance Company (hereinafter referred to as "Interstate") was not liable to the plaintiff Atlantic Casualty Insurance Company (hereinafter referred to as "Atlantic") for one-half of the property damage claim paid by Atlantic, on the ground that at the time of the accident there was an undisclosed lien in breach of a provision of the policy issued by Interstate.
The appeal is submitted on a stipulation of facts which, summarized, discloses that a policy of automobile collision insurance was issued by Interstate to one Charles I. Cooper, with loss payable to Fritchey & Waddell who, by virtue of a conditional bill of sale, held a lien on the insured vehicle in the sum of $1,109.40. The motor vehicle was subsequently refinanced by Mr. Cooper through the Passaic-Clifton National Bank and Trust Company, by means of a chattel mortgage in the sum of $795, from the proceeds of which the balance of $635.37, then due Fritchey & Waddell, was paid. The lien of Fritchey & Waddell was cancelled simultaneously with the execution of the mortgage to the bank. The new lien was not reported to Interstate. At the time of refinancing, a new automobile collision insurance policy was issued by Atlantic, on which the lien of the bank was noted.
Mr. Cooper's automobile was involved in an accident on November 1, 1951, and Atlantic assumed and paid the property loss amounting to $660. Upon Interstate's refusal to share the loss, Atlantic instituted this action to recover one-half thereof, predicated upon the provisions of the Interstate policy and the subrogation and assignment of the rights of Mr. Cooper to Atlantic. Interstate defended the action on the ground that the replacement loan to the bank was a violation of the terms of its policy, in that defendant had failed to notify Interstate of the new loan.
The provision of Interstate's policy upon which it relies for refusal to share the loss reads as follows:
"This policy does not apply:
(b) under any of the coverages, while the automobile is subject to any bailment lease, conditional sale, mortgage or other encumbrance not specifically declared and described in this policy; * * *."
Atlantic contends that: (1) payment of the loss may not be avoided by reason of an immaterial technical breach of its policy, and (2) defendant is estopped from denying liability under its contract of insurance.
Broadly speaking, it has always been considered that policies of insurance are contracts of the utmost good faith, and the applicant therefor is bound to deal fairly with the insurer in the disclosure of facts material to the risk. 29 Am. Jur., Insurance, sec. 540, p. 436. The function of the court is not to make contracts, but to enforce them and to give effect to the intention of the parties. Corn Exchange Nat. Bank & Trust Co., Philadelphia v. Taubel , 113 N.J.L. 605, 608 (E. & A. 1934); Basic Iron Ore Co. v. Dahlke , 103 N.J.L. 635, 638 (E. & A. 1927); Steelman v. Camden Trust Co. , 22 N.J. Misc. 384, 386 (Sup. Ct. 1944); Verhagen v. Platt , 1 N.J. 85, 88 (1948). The generally accepted rule of construction is that where in written instruments the words or other manifestations of intent bear more than one reasonable meaning, they are interpreted more strongly against the party from whom they originated, unless their use by him is prescribed by law. Vailsburg Motor Corp. v. Fidelity & Casualty Co. , 110 N.J.L. 209 (E. & A. 1933); Rockmiss v. N.J. Mfrs., &c., Co. , 112 N.J.L. 136 (E. & A. 1934); Clott v. Prudential Ins. Co. of America , 114 N.J.L. 18 (Sup. Ct. 1934), affirmed 115 N.J.L. 114 (E. & A. 1935); Moscowitz v. Middlesex Borough Bldg. & Loan Ass'n. , 14 N.J. Super. 515 (Law Div. 1951); Schneider v. New Amsterdam Cas. Co. , 22 N.J. Super. 238 (App. Div. 1952). It is stated in Kindervater v. Motorists Casualty Ins. Co. , 120 N.J.L. 373, 376 (E. & A. 1938):
"* * * Where the language employed to express the common intention is clear and unambiguous, giving to the words their ordinary significance and taking into consideration the general design and purpose, there is no occasion for the application of the canons of construction. As in the case of other contracts, the judicial function is limited to the effectuation of the plainly expressed intention of the parties to the contract."
Cf. Serafino v. U.S. Fidelity & Guaranty Co. , 122 N.J.L. 294, 299 (Sup. Ct. 1939); Cronan v. Travelers Indemnity Co. , 126 N.J.L. 56, 58 (E. & A. 1941); James v. ...