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State Farm Mutual Automobile Insurance Co. v. Zurich American Insurance Co.

Decided: January 22, 1973.


For reversal as to State Farm Mutual and Zurich American -- Chief Justice Weintraub, Justices Jacobs and Proctor, and Judge Sullivan. For affirmance as to State Farm Mutual, reversal as to Zurich American -- Justice Hall, and Judge Conford. For affirmance -- Justice Mountain. The opinion of the Court was delivered by Conford, P.J.A.D., Temporarily Assigned. Weintraub, C.J. (concurring in part). Mountain, J. (concurring in part and dissenting in part).


This appeal originated in an action for declaratory judgment tried in the Law Division without a jury. Implicated in the issues framed by the complaint and the cross-claim of the defendant insurance carrier are the coverage clauses of two automobile liability policies in relation to an accident occurring March 16, 1969 wherein an automobile owned by one Thomas Busby III ("Busby") and driven by defendant Steven Johns ("Johns") collided with one driven by defendant Deskin T. Knoll as a result of which the latter, Johns, and defendant A. Rodman Kay ("Kay") sustained personal injuries. Plaintiff ("State Farm") had issued a policy on the Busby car and defendant Zurich American Insurance Company ("Zurich") one on a car owned by defendant Joseph W. Johns, father of Steven Johns. Actions for damages against Johns by the Knolls and Kay are pending.

The Law Division found that neither insurance policy covered Johns as an insured and entered judgment accordingly. The Appellate Division, 118 N.J. Super. 84, affirmed that judgment. On petition for certification by the Johnses, joined in by the Knolls, this court granted certification. 60 N.J. 468 (1972). The Notice of Petition for certification had recited that it would request review of "the Final Judgment of the Appellate Division". The petition itself, however, expressly avers that it "is directed only toward the interpretation that the Court has given to the language contained in the Zurich policy". Consequently, although State Farm had been served with a copy of the Notice of Petition, a dispute arose at the argument as to whether the liability of both insurers was properly before this court or only that of Zurich. We directed that the meritorious issues relating to both policies be argued, reserving judgment on the dispute subject to consideration of supplementary memoranda on the point to be submitted. We have decided that the liability of both insurers should be determined, but our reasons

will be better understood if we first outline the general nature of the meritorious issues presented.

Preliminarily, we briefly delineate the basic fact pattern, reserving fuller detail for later development. Busby and Johns were friends and high school classmates, Busby 17 and Johns 16 1/2 years of age. Johns was not licensed to drive. On the day of the accident they had spent some time together at the Busby farm, and Busby was to drive Johns home in Busby's Thunderbird. They decided first to stop at a "7-11" shop for a soda, and on the way they met Kay, aged 17, a member of the same high school class, who was driving his own Pontiac. Kay decided to join them at the 7-11 shop. They arrived at the shop together and parked their cars alongside each other. Busby asked Kay whether he might drive the latter's car and Kay assented. Shortly after Busby drove off, leaving his own car parked with the keys in the ignition, Johns and Kay entered the Busby car, Johns in the driver's seat. After a short discussion concerning the Busby car Johns started the car and drove off with Kay riding as a passenger. A few minutes later the accident took place.

The State Farm policy (covering the Busby car) recited that with respect to an owned automobile the word "insured" included:

"(4) Any other person while using the owned automobile, provided the operation and the actual use of such automobile are with the permission of the named insured or such spouse and are within the scope of such permission * * *."

The Zurich policy (covering Johns' father's car) included as an insured, with respect to a nonowned automobile:

"(2) Any relative, * * * provided his actual operation or (if he is not operating) the actual use thereof is with the permission, or reasonably believed to be with the permission, of the owner and is within the scope of such permission * * *."

After taking testimony and receiving in evidence certain depositions the Law Division judge concluded, as a matter

of fact, that Johns had neither express nor implied permission from Busby to drive the Busby car and that therefore the State Farm policy did not cover Johns as an insured. In so finding the judge recognized that under Selected Risks Insurance Co. v. Zullo, 48 N.J. 362, 373 (1966), any motor vehicle liability policy submitted by a New Jersey owner in order to register the vehicle as an insured one must be construed as affording coverage of users of the car at least as broad as the requirement of N.J.S.A. 39:6-46(a), i.e., to "the insured named therein and any other person using or responsible for the use of any such motor vehicle with the express or implied consent of the insured * * *".

In dealing with the Zurich policy, the trial judge did not allude to that part of its covering language which reads: "* * * provided his actual operation or [actual use] is with the permission, * * * of the owner", probably for the reason that it was implicit that his finding of absence of express or implied consent of the insured (owner) in relation to the State Farm policy was also applicable to the just mentioned language of the Zurich policy. The judge did, however, construe the added Zurich covering language, "or reasonably believed to be with the permission of the owner", and as to it he held that it "should probably be accorded the same effect" (as the State Farm policy) "that is, providing coverage where the use is with the implied consent of the owner". He went on to say, "coverage, it would seem, should not depend solely on someone's state of mind. Rather, the question should be whether when considering all the circumstances, a reasonable man could believe he had the owner's consent". Finding that criterion not satisfied, the judge concluded that Johns was equally not an insured under the Zurich policy.

The Appellate Division held that the Law Division fact-finding of absence of implied permission from Busby to Johns was supportable under the facts and the law and that the holding as to the State Farm policy should therefore be affirmed. 118 N.J. Super., at 92. As to the Zurich policy,

the Appellate Division concluded that the "reasonably believed" language therein did not differ materially from the notion of "implied consent" in the context of a case where, as here, the driver had had dealings only with the owner of the vehicle. It did think that the language might be effective to broaden coverage in relation to sub-permittees in a jurisdiction entertaining narrower concepts than those of our own courts as to the incidents of the "initial permission rule". Id., at 94. (See Odolecki v. Hartford Accident & Indemnity Co., 55 N.J. 542, 549-550 (1970)). It therefore found no prejudice to Johns resulting from the trial court's having equated the legal effect of the pertinent clauses of the two policies. It felt that Johns "could have had no ground reasonably to believe that he had permission to operate the car on the highway". 118 N.J. Super., at 95.


We deal first with the question whether the issue of State Farm's liability is properly before us, that party asserting it is not. It relies upon the fact that, as noted above, the petition for certification expressly purports to be directed only to the Zurich policy and that the argument set forth therein is limited to an attack upon the construction by the Law Division and the Appellate Division of the "reasonably believed" clause in the Zurich policy defining coverage as to nonowned automobiles. The Johnses accede to that contention, disclaiming any intent at this posture of the cause to seek a ruling for coverage under the State Farm policy.

The Knolls, who joined in the petition (although not signing the Notice of Petition), however, as well as Zurich and the Unsatisfied Claim and Judgment Fund Board, rely upon the facts that the Notice of Petition for Certification is addressed to the whole of the Appellate Division judgment and that the order granting certification was unqualified. They cite R. 2:12-3 which provides that where certification is sought to review a final judgment of the Appellate

Division the notice of petition shall in civil actions "designate the judgment or part thereof sought to be reviewed", no such requirement being specified for the petition itself; and also R. 2:12-11, providing that "[i]f certification is granted, * * * the petitioner's entire case shall be before the Supreme Court for review unless the Supreme Court otherwise orders * * *". The Knolls argue, further, that the restrictive statement in the petition recited above was intended only to "focus" upon the special issue thought particularly to warrant certification and not to abandon the claim as against State Farm.

Putting to one side the status of the Unsatisfied Claim and Judgment Fund Board in this case, the position of the Knolls and of Zurich seems to us to have sufficient color of merit to warrant our taking the issue of State Farm's liability in the interests of a fair resolution of the entire controversy projected below. From what has been said above, moreover, it is apparent that one of the issues in relation to Zurich's liability is identical with that involved under the State Farm policy, i.e., whether Johns' use of the car was with the permission of Busby, express or implied. State Farm is not prejudiced as it was served with the Notice and Petition for Certification and has been afforded full opportunity to be heard on the merits.


We turn next to the question we have just ruled we will decide -- whether the trial court determination that Johns' use of the Busby car was not with the implied "permission" of Busby, within the coverage of others' use of the insured car under the State Farm policy, should be sustained. (Disposition of this issue will automatically also settle the question of coverage under the Zurich policy insofar as it extends, in reference to nonowned automobiles, to use by a relative of the insured with the "permission" of the owner).

We first refer to, and incorporate herein by reference, the findings of fact made by the trial court and set forth in full in the Appellate Division opinion at 118 N.J. Super., at 89-90. These findings were based upon testimony given at the trial by Busby and Johns and depositions taken before trial, and admitted into evidence without objection, from Johns and Kay. So as to afford the most complete picture of the facts for purposes both at the present point of this opinion and that which follows, concerning the "reasonably believed" clause of the Zurich policy, we supplement the trial findings with the following references to the proofs not specifically alluded to therein.

Both Johns and Busby testified that the Busby car -- a 1956 Thunderbird -- was considered a "classic" or "collector's item". It was a type which excited the admiration and interest of youths. Johns said he had worked on it with Busby, including the day of the accident (which Busby denied). He and Busby were "very close friends -- we did a lot of things together", although he was less emphatic about this on deposition. He felt it would be "all right" to drive the car; that Busby would have no objection because they were close friends. He had helped Busby clear burned timber from the Busby farm earlier that day. Although he knew he had no legal right to drive the car without a license, "it was just the custom * * * I went along with what everyone else did". He said: "* * * friends, within my crowd * * * on occasion they drove each other's cars". Kay testified that it was customary between him and his friends to drive each other's cars. He had previously let Johns drive his own car (although Johns had no car). But Kay said he did not know Johns' age. He also said that during the drive Johns told him he had driven the car before with Busby's permission. But Johns admitted he had not driven the car before on a highway; he had been in it only twice before the day of the accident. Kay testified he had never seen or been in Busby's car before.

Kay testified he had known Busby previously (Johns had a contrary impression). Johns may have gotten into the car first, while Kay was having a soda. In any case, they were sitting in the car together discussing the motor of the vehicle when Johns turned on the ignition, apparently without a word between them relative to using the car, and drove off. Kay said this was entirely Johns' idea, not his. Johns testified he merely wanted to "take it for a spin", intending to meet Busby on the latter's way back from his ride in Kay's car.

There is a broad consensus of legal authority as to the basic meaning of "implied permission" (or "consent") of an insured owner of an automobile or his authorized agent to another user of the vehicle, for purposes of omnibus clause coverage, at least in the situation of a first permittee. Generally speaking, it is said to mean "an inferential permission, in which a presumption is raised from a course of conduct or relationship between the parties in which there is mutual acquiescence or lack of objection signifying consent". 7 Appleman, Insurance Law and Practice, § 4365, p. 303 (1942). See also 7 Am. Jur. 2d, Automobile Insurance, § 113, pp. 425-27 (1963); 45 C.J.S. Insurance § 829, pp. 896-898 (1946); Penza v. The Century Indemnity Co., 119 N.J.L. 446, 449 (E. & A. 1938). We are not here concerned with doctrinal disputes as to when implied permission can be inferred as between the named insured and a second or later permittee, as to which there is a plenitude of diverse authority elsewhere. Annot., 4 A.L.R. 3d 10 (1965). That area is concluded by our own holdings that if the first user in fact has permission from the named insured, lack of permission, express or implied, of such named insured for use by a later permittee is irrelevant to coverage, short of theft or the like. Odolecki v. Hartford Accident & Indemnity Co., supra.

A good capsule definition of "implied permission", for present purposes, is that stated in American Universal Insurance Company v. Dykhouse, 219 F. Supp. 62, 66 (N.D. Iowa 1963), aff'd 326 F.2d 694 (8 Cir. 1964): "Implied

permission is actual permission circumstantially proven." Accord: Traders & General Ins. Co. v. Powell, 177 F.2d 660, 666 (8 Cir. 1949). The essence of the concept is that from all the surrounding circumstances a fact-finder could reasonably conclude that the use by the putative permittee was not contrary to the intent or will of the alleged permitter. The strong public policy of this State for liberal construction of liability insurance to effect the broadest range of protection to users of the highways, see Matits v. Nationwide Mutual Ins. Co., 33 N.J. 488 (1960), would require allowance of a finding of implied permission notwithstanding that, as here, the occasion of the use by the alleged permittee was one of first instance, providing the totality of the attendant ...

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