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Heake v. Atlantic Casualty Insurance Co.

Decided: January 14, 1954.


Eastwood, Jayne and Francis. The opinion of the court was delivered by Francis, J.A.D. Jayne, J.A.D. (dissenting).


The primary question for determination on this appeal is whether or not, under the circumstances presented, failure of the assured to read his policy of automobile liability insurance and thus to discover certain alleged limitations on the coverage provided, relieves the carrier of liability thereunder.

The record discloses that on January 14, 1952 the infant, Edward Gargano, then age 17 years, while driving his Ford convertible automobile, became involved in a collision with another car operated by one Cohen. As a result, John H. Heake, Jr., was killed and his executrix sued Gargano and the other driver. The trial resulted in a verdict of $15,000 against both drivers. $5,000 was paid thereon by Cohen, leaving a balance of $10,000 for which recovery is sought in this action.

It appears that on April 2, 1951 Gargano, who was 17 years of age, obtained his first driver's license; it was stamped "Initial." Thereafter, in June 1951, he purchased the Ford. Apparently, after some conversation with his father on the subject, he undertook to obtain insurance coverage for it.

The exact circumstances leading up to the visit of defendant's agent to the Gargano home for the purpose of writing the insurance do not appear, except in the affidavits submitted on the motion for summary judgment. It is plain, however, that George D. Preiksat, defendant carrier's agent for the purpose of soliciting insurance and obtaining written

applications therefor, was a stranger to the Garganos prior to his appearance in their home in early July 1951.

The testimony as to what took place at this meeting is uncontradicted and undisputed. Defendants did not call Preiksat as a witness at the trial.

In any event, Preiksat announced that the purpose of his mission was to write insurance on the car. He made inquiries as to the make, type and age of the vehicle, whether it was encumbered, the amount of coverage desired, and as to a number of other matters which he deemed relevant. Among other things, he inquired as to Gargano's age and the length of time he had been driving. In answer, the young man said his age was 17 years and that he had been driving since March. In addition, he produced his driver's license, which bore the notation "Initial," and his registration certificate and handed them to Preiksat.

During the questioning Preiksat was seated with a large pad on his knee on which he made notes as the oral and documentary information was given to him. Then he produced a blank application and requested Gargano to sign at an indicated place. This was done and the agent left after telling the young man in the presence of some members of his family not to worry, that he was covered.

A short time thereafter, the automobile liability insurance contract of the appellant, Atlantic Casualty Insurance Company, and the service contract of the appellant, Automobile Association of New Jersey, arrived in the mail. Gargano's mother received them. She handed them to her son that evening on his return from work. He just looked at the first page, which contains the declarations, then returned them to her and she put them in the safe, where they remained until after the accident.

It should be noted at this point that the declarations accurately reflect the agreement of the parties with respect to the coverage, namely, "Bodily Injury Liability: $10,000 each person, $20,000 each accident; property damage liability: $5,000 each accident; and medical payments: $500 each person." Also, they set forth truly Gargano's name,

address, occupation, employer, a description of the car, the fact that it was financed, that no insurer had cancelled or declined to write any automobile insurance during the previous year and that neither his operator's license nor registration had been revoked or suspended.

Under the policy, the insurer agreed with Gargano, the "insured named in the declarations made a part hereof, in consideration of the payment of the premium and in reliance upon the statements in the declarations and subject to the limits of liability, exclusions, conditions and other terms of the policy * * * to pay" on his behalf "all sums which" he "shall become legally obligated to pay as damages because of bodily injury * * * including death, at any time resulting therefrom, sustained by any person, caused by accident and arising out of the ownership, maintenance or use of the automobile."

The last paragraph provides:

"25. Declarations: By acceptance of this policy the named insured agrees that the statements in the declarations are his agreements and representations, that this policy is issued in reliance upon the truth of such representations and that this policy embodies all agreements existing between himself and the company or any of its agents relating to this insurance."

The service contract issued by appellant Automobile Association for a separate premium, contains an agreement to furnish certain services to Gargano in connection with accidents and other difficulties arising out of the operation of the car by him or by others with his consent, such as "emergency repair and towing service, law suit defense, motor vehicle and traffic violation defense and bail bond service." This agreement contains no reference to any application for insurance or to any representations made in applying therefor.

When the accident occurred out of which the judgment arose, Gargano reported it to the insurer. Shortly thereafter, he was notified that the company disclaimed liability because, in the application for the insurance, he had stated he was "23 years of age and that no driver licensed less

than one year would operate said motor vehicle." The disclaimer letter said further:

"Relying on said application, we issued policy of insurance #CAP 608644 in the Atlantic Casualty Insurance Company and membership certificate #483875 in Automobile Association of New Jersey for the period from July 5, 1951 to July 5, 1952.

As a result of an accident which occurred on January 14, 1952, we made an investigation which disclosed that you were not 23 years of age as represented but were only 17 and, furthermore, that you had not been driving a vehicle for a year or more at the time you applied to us, but had been operating a vehicle for approximately three months.

Policy of insurance and membership were issued relying on the truth of the representations made by you. Had we known the true facts, we would not have issued policy of insurance and membership without a full and complete investigation.

In view of the fact that said representations were not true, we are cancelling said policy of insurance and membership contract as of date of inception and enclose check of Automobile Association in the sum of $50 representing entire amount paid by you."

At a later date, when the damage action was instituted, the company provided a defense without cost to Gargano, but under an agreement that such conduct would not be deemed a waiver of the disclaimer of liability.

Subsequent to the trial of the damage action, Gargano and the judgment creditor instituted these actions, the creditor on the policy and Gargano on both the policy and the service contract. The suits made claims of breach of contract and estoppel to deny liability, and each one sought reformation. The answers and pretrial order asserted absence of liability: (1) because of alleged false representations with respect to age and the length of time Gargano held a driver's license when he applied for the insurance, and (2) because of two endorsements which were attached to the policy. The latter provided:

"Limitation of use -- named drivers.

It is agreed that such insurance as is afforded by the policy does not apply when said automobile is being driven by a person under the age of twenty-five (25) except

1. Edward Gargano Age 23

Limitation of Use.

This endorsement effective July 5, 1951, 7:00 PM forms part of Policy No. 608644 issued to Edward Gargano by Atlantic Casualty Insurance Company and terminates with the policy.

It is agreed that such insurance as is afforded by the policy does not apply whenever automobile described in the policy is operated by any person licensed to operate an automobile for less than one year.

Newly licensed drivers may be added on with the written permission of the insurance company.

This endorsement does not apply in the event of an urgent emergency.

Nothing herein contained shall be held to waive, alter, vary or extend any of the declarations, agreements, exclusions or conditions of this policy, except as stated herein."

At the trial in the Law Division, the facts outlined above as to the events and conversations which took place at the Gargano home when the insurance was applied for, were established without contradiction. The completed application, which had been blank when signed, was received in evidence. We note that this application was not attached to or made part of the policy, or in anywise referred to therein. Nor is it suggested that the insured ever saw it in completed form until after the disclaimer of liability by the insurance company. The application contains the following questions and ink-written answers, which were presumably filled in by Preiksat:

"Is car used for business, except going to and from place of employment?


How many drivers?


If any driver licensed less than one year state name and length of time driving?


Has applicant or any driver been convicted ...

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