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Young v. State Farm Mutual Automobile Insurance Co.

Decided: October 18, 1963.


Conford, Freund and Sullivan. The opinion of the court was delivered by Conford, S.j.a.d.


Defendant appeals from a summary judgment in favor of plaintiff in the amount of an agreed settlement by the defendant insurance company of a claim for damages sustained in an automobile accident.

On May 2, 1962 plaintiff was involved in an automobile accident with a car operated by John Anderson, who, at least until April 26, 1962, was insured for liability under a policy issued by defendant. After instituting suit against Anderson plaintiff negotiated a settlement of the claim with the defendant company for $2,455.55, and exchanged a release and stipulation for dismissal of the action for the defendant company's check in the stated sum. Before bank clearance of the check, however, defendant stopped payment on it and rescinded the settlement on the ground that Anderson's coverage under the policy had expired April 26, 1962 for non-payment of renewal premium, the company having assertedly acted under a mistake of fact as to the continued subsistence of

the coverage as of the time of the accident when it settled the claim with plaintiff's attorney.

Not all of the foregoing facts were technically before the court on plaintiff's motion for summary judgment, defendant having failed (unjustifiably) to file an answering affidavit setting forth the facts of mistake. However, the trial court appears to have grounded its action primarily upon a conclusion that the defendant was legally bound by its agreement of settlement even if the facts as to mistake, stated as above summarized in the course of defendant's argument in opposition to the motion, were true. The court relied upon its interpretation of our opinion in Great American Ins. Co. v. Yellen , 58 N.J. Super. 240 (App. Div. 1959). We think it fair to conclude that if the trial court had deemed the asserted facts as to mistake legally efficacious to absolve defendant of liability, it would have directed it to supply proof of the facts by an answering affidavit, in the interests of arriving at a legally correct determination. Defendant offered to supply such an affidavit when the motion was argued.

Before coming to the conclusion arrived at herein we required the defendant to file with us an affidavit of the alleged facts concerning expiration of coverage and mistake. The affidavit submitted to us indicates that the factual foundation of the defendant's legal position is more than colorable.

The additional fact should be noted that plaintiff, in addition to instituting the accident suit against Anderson, also filed a timely notice of intention with the Unsatisfied Claim and Judgment Fund Board pursuant to N.J.S.A. 39:6-65, and that, according to a letter from the manager of the Fund submitted to the trial court before decision on the motion, the settlement here negotiated "would be one that could be approved by the * * * Fund Board if it is not paid from other sources."

In Great American Ins. Co. v. Yellen, supra , we held that where a fire insurance company, by inadvertent clerical error inside the company's administrative organization, issued a

check in full payment of a fire claim which the company's authorized agent had already rejected as without merit, under circumstances importing knowledge of such error to the insured, the payment was recoverable by the company as having been made under a mistake of fact, no prejudice to the payee appearing to have attended the restitution. The annotation in 167 A.L.R. 470 (1947), cited in Yellen (58 N.J. Super. , at p. 245), summarizes the cases on the point with the observation (at p. 471): "Generally speaking, if payments were made because of a serious mistake of fact by the insurer, it is entitled to restitution unless it has agreed to assume the risk of mistake or there is some reason which makes it inequitable or inexpedient for restitution to be granted." This rule thus stated is merely a counterpart of the general rule of restitution for mistake stated at page 244 of the Yellen opinion.

In principle, the same considerations governing relief for mistake should apply where the payment has not yet been made, but has been agreed upon, and the mistaken party seeks rescission of the agreement. 17A C.J.S. Contracts ยง 418(2), p. 512.

In rejecting defendant's argument below, the trial judge expressed the view that relief to the insurer was barred by the following language in the ...

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