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Muller Fuel Oil Co. v. Insurance Co.

Decided: June 29, 1967.

MULLER FUEL OIL COMPANY, A CORPORATION OF THE STATE OF NEW JERSEY, DONALD BRENNER, AND JEROME L. BRENNER, PLAINTIFFS-APPELLANTS,
v.
INSURANCE COMPANY OF NORTH AMERICA, A CORPORATION OF THE STATE OF PENNSYLVANIA AND AUTHORIZED TO DO BUSINESS IN THE STATE OF NEW JERSEY, R.K. HUGHES, INC., A CORPORATION OF THE STATE OF NEW JERSEY, DEFENDANTS-RESPONDENTS



Goldmann, Kilkenny and Collester. The opinion of the court was delivered by Kilkenny, J.A.D.

Kilkenny

Plaintiffs appeal from a final judgment of the Law Division denying all of their claims for relief and dismissing their complaint.

In the first count of their complaint, plaintiffs sought a declaratory judgment that a comprehensive liability policy, with extended coverage as to malicious prosecution and false arrest claims, inter alia, issued by defendant insurance company on December 1, 1962 in favor of Muller Fuel Oil Company as the named insured, covered plaintiffs as to a malicious prosecution and false arrest suit instituted against them by one Thomas Policastro on March 19, 1963 and still pending. Policastro had been acquitted on March 7, 1963 upon trial of an indictment for issuing a worthless check.

Defendant insurance company had denied coverage on the ground that the criminal complaint in the municipal court made by or on behalf of plaintiffs had been filed on November 13, 1961, Policastro had been arrested on the following

day and, after a preliminary hearing, had been held for the action of the grand jury and subsequently indicted on May 11, 1962 -- all of which occurrences antedated the issuance of the policy. But plaintiffs alleged that they had told defendant insurance agent about the Policastro incident prior to obtaining the policy and had been assured that the policy would cover a suit by Policastro so long as he had not yet commenced an action.

In the second count of the complaint, plaintiffs charged in substance that defendants committed legal fraud, in that representations made by defendant insurance agency, R.K. Hughes, Inc., that the December 1, 1962 policy gave them coverage against a potential suit by Policastro, were false and "were known by said defendants to be false at the time of their making and plaintiffs did, in fact, rely upon said representations to their detriment." On this count they demanded a judgment against defendants for all sums they shall become obligated to pay as damages in the Policastro action, for such other and further relief as the court might deem just, and costs.

After both defendants had served and filed their respective answers, which included denials that any misrepresentations had been made, plaintiffs filed separate motions for summary judgment, relying upon affidavits by the individual plaintiffs which had been annexed to the complaint. Although neither defendant filed any answering affidavit, summary judgment was denied.

During the argument of these motions, plaintiffs' attorney stated:

"* * * by virtue of the fact that no opposing affidavits were filed, we do not have a situation which would warrant summary judgment against the defendant Hughes."

Thereupon, the attorney for R.K. Hughes, Inc., informed the court that he understood that the motion against his client had been withdrawn. Plaintiff's attorney responded:

"I submit we have not made out a case against R.K. Hughes."

The trial court then inquired as to whether the motion was "abandoned and withdrawn." To this plaintiffs' attorney replied: "Yes."

Obviously, this concession by plaintiffs, that they had no right to summary judgment against defendant insurance agent, R.K. Hughes, Inc., which had been named only in the second count, wherein legal fraud was charged against the agent, carried with it the consequence that they had no right to summary judgment on this second count against defendant insurance company. The company was being sued on the theory of vicarious liability for the alleged fraud of its agent. Therefore, if the facts did not warrant summary judgment against the agent, those same facts did not warrant summary judgment against the principal.

At first blush one would wonder why plaintiffs so readily admitted that "by virtue of the fact that no opposing affidavits were filed, we do not have a situation which would warrant summary judgment against the defendant Hughes." One would have expected them to argue that the absence of opposing affidavits entitled them to summary judgment. But the admission of no right to summary judgment was no slip of the tongue. They reiterated, as noted above: "I submit we have not made out a case against R.K. Hughes."

Our examination of the supporting affidavits confirms that plaintiffs were not entitled to a summary judgment against defendant Hughes. We must remember that the allegations of fraudulent representations in the complaint had been denied in each answer. In the supporting affidavits of plaintiffs there were allegations that Hughes had represented that the new policy of December 1, 1962 would cover a potential suit by Policastro as to the occurrences which had preceded issuance of the policy, so long as suit had not yet been commenced. But at no place in their affidavits did plaintiffs recite that those representations were "false," or that they were "known" by Hughes to be false when he

made them, or that they were "intentionally" made for any deceitful purpose. In fact, in their first count plaintiffs were arguing inconsistently, as they still maintain, that the representations, which they allege Hughes made, were true and the policy provision does give them coverage as to the Policastro claim.

The necessary constituents of an action for legal fraud are: "a false representation, knowledge or belief by the defendant of the falsity, an intention that the plaintiff act thereon, reasonable reliance in acting thereon by plaintiff, and resultant damage." Louis Schlesinger Co. v. Wilson, 22 N.J. 576, 585-586 (1956). See, too, Dover Shopping Center, Inc. v. Cushman's Sons, Inc., 63 N.J. Super. 384, 391 (App. Div. 1960). Scienter is one of the five essential elements of legal fraud. The failure of plaintiffs to allege it, or even to aver the falsity of the representations in their supporting affidavits, was fatal to their motion for summary judgment. Not having alleged these essentials in their affidavits, it was not necessary for defendants to file an answering affidavit to preclude summary judgment on the second count.

In denying summary judgment on the first count the trial court assumed the correctness of the "factual situation" for the purpose of the motion. It then ruled:

"Although the right to institute suit arose during the policy period, the tort was completed before the subject policy was issued."

It held that plaintiffs' contention, that the cause of action for malicious prosecution accrued when Policastro was acquitted in 1963 after issuance of the policy, was "not tenable." The trial court did not rule upon the legal effect of the alleged ...


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