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 afore-mentioned 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 (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 (Ch. 1947), affirmed 141 N.J. Eq. 310 (E. & A. 1948); cf. Merchants Indemnity Corp. v. Eggleston, 37 N.J. 114, 121 (1962); Heake v. Atlantic Casualty Ins. Co., 15 N.J. 475 (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).
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) 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 ...