This is an action instituted by American Hardware Mutual Insurance Company for a declaratory judgment to determine whether certain provisions of a garage liability policy issued to defendant Ernest Muller, individually, and doing business as Ernie's Auto Sales, extended coverage to an automobile titled in the name of defendant David S. Muller, son of Ernest Muller, and to defendant Donna Lee Muller, his wife and driver of the automobile in question when that automobile became involved in an accident. An injured third party, Carl G. Ladd, a minor, and his father William T. Ladd as guardian ad litem, intervened in this action as additional parties defendant and as cross-claimants against plaintiff and defendant Donna Lee Muller. They seek compensatory damages against defendant Donna Lee Muller as insured under the policy in question and therefore against plaintiff American Hardware Mutual Insurance Co. In the alternative, they seek compensation from plaintiff by way of estoppel.
On November 12, 1964 plaintiff American Hardware Mutual Insurance Company issued a garage liability policy to Ernest Muller, doing business as Ernie's Auto Sales at 410 North 4th Street, Vineland, New Jersey. The policy was issued for a period of one year and was to expire on November 12, 1965. It insured against automobile hazards involving any motor vehicle owned, maintained or used solely for the purpose of garage operations and for the use
for nonbusiness purposes of any automobile owned by or in the charge of the named insured, Ernest Muller or Ernie's Auto Sales, and used principally in garage operations. In its definition of "insured" the policy contained an omnibus clause which provided that it covered not only the named insured, but any person using an automobile to which the insurance applied with the permission of the named insured, providing such person's operation was within the actual scope of that permission.
On December 29, 1964 a 1965 Ford Cortina station wagon was purchased from Ford Motor Company by Ernest Muller, individually, doing business as Ernie's Auto Sales. Ernie's Auto Sales was in the business of selling English Ford automobiles and of doing general automotive repair work. Just prior to the purchase of this station wagon, the regular floor plan arrangement through which Ernie's financed the purchase of new cars to be sold in its business expired. Due to the limited capacity of Ernie's to sell automobiles in any great volume, Hammonton Investment and Mortgage Company of Hammonton, New Jersey, through whom the aforementioned floor plan arrangement had previously been obtained, refused to renew this financing arrangement. Unable to obtain financing for the station wagon either in his own name or in the business name, Muller on January 6, 1965 transferred title to that automobile to his son David S. Muller, who in his own name was able to obtain financing through State Farm Insurance Company. It appeared that this was the sole purpose for the transfer of title, and although title was in David's name, payments and upkeep were made by and control was retained by Ernest Muller. The license plates attached to the car in question were on the date of the accident, as well as on all other dates those registered to Ernie's Auto Service. At the time of this "transfer for convenience" David Muller worked with his father Ernest in the business of Ernie's Auto Sales.
The station wagon in question was used by Ernie's Auto Sales primarily for demonstration, display and advertisement [98 NJSuper Page 123] purposes. Occasionally, however, this vehicle was used for personal reasons by Ernest Muller and, with his permission, by David Muller and by David's wife, Donna Lee. On June 21, 1965 permission was sought by Donna Lee for the use of this car for the purpose of taking a pleasure trip to Ocean City, New Jersey. That permission was granted and Donna Lee proceeded on her pleasure trip in the station wagon. While returning from this trip and traveling in a westerly direction on State Highway 49 in the City of Estell Manor, Atlantic County, New Jersey, Donna Lee lost control of the vehicle. It crossed the eastbound lane and struck a tree. There were four people in the car: the operator, Donna Lee; Laura Lee Muller, age 11 months; William Sheldon, age 15; and Carl Ladd, age 15. All were injured parties. Because the automobile was titled in the name of David S. Muller, and because the named insured under the garage liability policy was Ernest Muller, doing business as Ernie's Auto Sales, plaintiff disclaims liability. Defendants contend that the facts of the case establish that although the station wagon was titled in the name of David, Ernest Muller was the actual owner of the vehicle; that is, the transfer to David was merely one of convenience, with all true incidents of ownership remaining in Ernest. The argument continues that since Ernest was the actual owner and since the vehicle was being used by Donna Lee with his permission at the time of the accident, plaintiff is liable under those provisions of the policy covering use of automobiles owned by the insured and driven by individuals with his permission. It is argued in the alternative that even if actual ownership is not found by this court to be in the insured, that he is sufficiently "in charge of" this automobile to bring it within the terms of the policy. Defendants also contend that the facts of this case are sufficient to establish a partnership between David and Ernest Muller in the business of Ernie's Auto Sales, and that under the applicable law, transfer of insured property used in the partnership business from one partner to the other does not affect the coverage of the
insurance since the change in title is merely nominal and the interested party actually remains the same, i.e., the business itself. Defendants Carl and William Ladd further contend that even if the court finds no liability under the terms of the policy, plaintiff failed to notify them of its disclaimer of liability before the 90-day period for filing with the Unsatisfied Claim and Judgment Fund of the State of New Jersey had expired, and that this conduct is sufficient neglect to estop plaintiff from disclaiming liability against them.
The primary issue for consideration is whether transfer of the legal title of the station wagon by Ernest Muller to his son David for the sole purpose of financing that automobile, is sufficient under the applicable law to preclude Ernest from being the true owner of the automobile and thus bringing it under the insurance policy issued to him by plaintiff insurance company. Plaintiff cites the case of Eggerding v. Bicknell, 20 N.J. 106 (1955), as interpreted by Velkers v. Glens Falls Ins. Co., 93 N.J. Super. 501 (Ch. Div. 1967), for the proposition that it is. The Eggerding case involved the purchase of an automobile where there was an improper assignment of title papers from seller to buyer under the relevant provisions of the Certificate of Ownership Law. While operating the automobile which was the subject of the transfer and which still retained license plates registered to the seller, the buyer was involved in an accident. The injured party sued the seller, who was insured under a garage liability policy parallelling that of the instant case. He claimed that the seller was still the owner of the car; that the buyer was merely driving it with his permission, and that under the policy in question the insurance company was liable. The court agreed.
Similar facts were raised in the Velkers case, where the court was called upon to interpret Eggerding and stated:
"The court there held for purposes of insurance coverage, legal title to an automobile could not be ...