This is a declaratory judgment action in which the insured, Seabrook Farms, Inc. (hereinafter Seabrook), seeks a determination that the insurer, Commercial Insurance Company of Newark, N.J. (hereinafter Commercial) was not legally justified in cancelling Seabrook's insurance policy because of alleged nonpayment of premiums where, in fact, Commercial's agent failed to remit such premiums. By its counterclaim Commercial seeks payment of $25,000, which it claims is the portion of the premium chargeable to Seabrook.
Based on the evidence presented at trial I find the relevant facts to be the following: From 1960 to 1966 Parkwood Company (hereinafter Parkwood), an insurance brokerage company incorporated in New Jersey, was authorized by Seabrook to secure virtually all types of its insurance coverage. John Apgar, the president and chief stockholder of Parkwood, handled Seabrook's insurance matters with the carriers through Donald G. McAllister, the general manager of Seabrook. It also appears from the testimony that at various times during the 15-year period prior to 1960 Apgar's relationship with the Seabrook enterprise had been
that of insurance advisor, insurance broker, executive, and even assistant to the president.
In April 1966 Apgar and McAllister held discussions regarding the expiration on May 1, 1966 of a three-year comprehensive business insurance policy held by Transamerica Insurance Company and which had been procured by Apgar. At this time McAllister instructed Apgar to secure proper insurance coverage in a company other than Transamerica. Soon thereafter Apgar informed McAllister that it would be necessary to have a check for $15,000 as an advance on premiums because some of the prospective insurers wanted some security in light of the financial difficulties one of the Seabrook subsidiaries was experiencing. Thus, on April 28, 1966 Seabrook issued to Apgar a check for $15,000 payable to Parkwood for "Advance on Policies -- Dwellings, Liability, and Fire." In this regard Apgar contacted several insurance carriers who declined to insure Seabrook; however, he did manage to get Selected Risks to assume temporary coverage from May 1, 1966 to June 10, 1966.
On June 2, 1966 Seabrook sent a second check to Apgar in the amount of $10,000, also payable to Parkwood as an advance on premiums. I have concluded from the evidence that it was on or about June 7, 1966 that Commercial had its first indirect contact with either Parkwood or Seabrook. At that time Commercial, through one of its agents other than Parkwood, agreed to accept the coverage of Seabrook subject to the approval of the underwriting committee. On June 10, 1966 Commercial issued a temporary binder, and on the same date Apgar was designated as an authorized agent for Commercial (as evidenced by a certificate to this effect filed with the New Jersey Commissioner of Banking and Insurance). Commercial extended its binder until December 5, 1966, at which time it issued the comprehensive business policy which is the subject of this suit. Commercial sent the policy to Apgar by mail, and he hand delivered the policy to McAllister on December 7, 1966, together with an invoice for $60,000, the total premiums for three years.
McAllister drew a check payable to Parkwood Company in the amount of $35,000 which, added to the $25,000 already advanced by Seabrook, constituted payment in full of the premium due. Apgar gave a receipted bill to McAllister.
None of the check payments made by Seabrook to Parkwood was transmitted to Commercial. Consequently, on June 27, 1967 Commercial notified Seabrook that the policy was being cancelled for nonpayment of premiums. Several days later Commercial reinstated the policy on a mutual agreement between Seabrook and it, but it has continued to hold Seabrook liable for $25,000 of the premiums while recognizing that it would be responsible for $35,000 of them.
Seabrook takes the position that Parkwood, through its agent John Apgar, was either the agent or broker of Commercial; that as such Parkwood was authorized by Commercial to deliver the business insurance policy to Seabrook; that the delivery of the policy gave Parkwood the authority to collect the premium; that Seabrook did in fact make three premium payments to Parkwood in checks in the amount of $15,000, $10,000 and $35,000, respectively, and that therefore Commercial received full payment of the premium. As support for this proposition Seabrook relies on decisions in several jurisdictions and on N.J.S.A. 17:22-6.2a, which deal with the authorization entitling an agent or broker to receive insurance premiums on behalf of an insurer.
Defendant Commercial, on the other hand, concedes liability with respect to the premium payment made to Parkwood on December 7, 1966, but it argues that the two previous payments of April 28 and June 2, 1966 should not be charged to it because no principal-agent or insurer-broker relationship existed at those times. Commercial maintains its position, whether Parkwood is determined to be an agent or a broker. See N.J.S.A. 17:22-6.1 and 17:22-6.2.
Under common-law principles of agency, when an insurer entrusts an insurance policy to an agent for the purpose of delivering the policy ...