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Restaurant Enterprises Inc. v. Sussex Mutual Insurance Co.

Decided: July 10, 1967.


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


[96 NJSuper Page 28] This action, tried before a jury, was brought on a purported binder for a fire insurance policy to recover the amount of the alleged coverage for fire loss, and also against an insurance agent for negligence

in effecting the insurance should the policy be held not to have been in existence when the loss took place. Defendants cross-claimed against each other. The jury returned a verdict of no cause of action against plaintiff and in favor of both defendants, and did not determine the cross-claims. Plaintiff appeals.

The real property involved consisted of a building housing a cold storage unit, an office and a cocktail lounge. In 1962 plaintiff decided to acquire insurance with a mutual company upon the expiration of policies issued by stock insurance companies. Defendant Paggi, trading as the Page Agency, was accordingly instructed by plaintiff to obtain mutual insurance company coverage on the building. Paggi was an insurance broker empowered to place insurance with several different companies. By agreement dated August 31, 1962 and terminated in mid-January 1963 Paggi became an agent of defendant insurance company (Sussex, post) authorized to receive proposals for all insurance which that company issued. The agency agreement limited the agent's binding authority to $40,000 on a single risk and stated that "the company must be notified within 48 hours in writing of any risk on which it is bound." Paggi was a "small" stockholder and former officer in plaintiff company.

Plaintiff submitted evidence that in directing Paggi to effectuate a change to mutual insurance it left the company, amount and type of coverage up to him. It introduced in evidence a binder, dated October 14, 1962 and effective the same date, covering the building for $32,000 under a Sussex fire policy. The binder's printed duration of effectiveness was crossed out and the remark "Pending MSO rates" was substituted. The loss in question occurred December 30, 1962.

N.J.S.A. 17:36-5.16, pertaining to fire insurance binders, provides: "Binders or other contracts for temporary insurance may be made orally for a period which shall not exceed ten days or in writing for a period which shall not exceed 60 days."

"MSO rates" are rates issued by the Mutual Service Office, to which Sussex subscribed, for the use of its subscribers. MSO puts out a manual which contains rates for various types of structures. Paggi had a copy of it. For a structure with multiple uses, as here, an agent could calculate a rate by applying the highest of the rates for a component use. According to the proofs, however, the MSO rate, if requested, would not necessarily be that of the highest component and would often be lower. Paggi admitted he could have issued the policy at the highest component rate and adjusted the premium after the MSO special rate was received. Paggi requested rates on plaintiff's property from MSO on September 27, 1962. Although the request cited National Grange Mutual Insurance Co. as the prospective insurer, Paggi testified that he intended to place the insurance with Sussex and that the designation of National Grange did not obligate him to place it with the latter company.

Sussex claimed never to have received the binder or been aware of its existence until January 3, 1963, several days after the fire loss, when it received a notice of loss. It submitted testimony that there was no evidence in its records that a binder had been received by it at any time prior to the loss. Paggi testified he issued the binder at some time prior to its effective date; that the original was mailed to the Boardwalk National Bank, the loss payee on the policy and mortgagee of the property; that a copy without transmittal letter was mailed to Sussex, a copy retained by Paggi and a third copy delivered to plaintiff. Paggi's secretary corroborated this testimony. A representative of plaintiff testified to receipt of its copy of the binder but could not state when it was received. There was no testimony from the mortgagee as to when it received the binder.

Between October 14, 1962 and the end of that year Paggi did not communicate with Sussex regarding the policy. On several occasions, subsequent to inquiries from the mortgagee, plaintiff inquired of Paggi concerning the policy but was told the latter was still awaiting an MSO schedule of

rates. At no time did Paggi intimate there was a lack of coverage. Paggi testified that on December 27, 1962 he received a telephone call from a Mrs. Flint of the mortgagee bank inquiring when the policy would be issued. He told her the risk was still bound and "upon receipt of the necessary papers we would issue the policy." Mrs. Flint testified, generally confirming such a conversation. Over objection Paggi answered a question as to whether this assurance constituted an oral binder in the affirmative. The special rate for plaintiff was published January 2, 1963, effective December 7, 1962, and was received by Paggi on or after January 2.

A manual prepared by MSO contained the text of N.J.S.A. 17:36-5.16, supra. Paggi acknowledged he had a manual, although he could not be certain it was the same edition as that introduced at trial. He testified he was not aware of any statutory 60-day limitation on binders. There was evidence that he had placed other binders for Sussex for periods exceeding 60 days.

As noted, the binder was for $32,000. The building was a total loss. Plaintiff recovered on a $20,000 insurance policy placed on the building with another company and $7,500 on a policy insuring contents. Plaintiff's expert testified it would cost $70,200 to replace the building. Plaintiff purchased the building in 1962 from a related corporation for $60,000.

The evidence as to the fire itself is set out below where appropriate.

Plaintiff's first briefed ground of appeal is that the jurors were confused by the charge as a whole, as evidenced by their failure to pass upon the cross-claims. This point was prudently abandoned by plaintiff at oral argument. It is patently without merit, since once the jury decided in favor of both ...

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