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Bonnet v. Stewart

Decided: September 12, 1975.


For reversal and remandment -- Chief Justice Hughes, Justices Mountain, Sullivan, Pashman and Schreiber and Judge Conford. For affirmance -- None. The opinion of the Court was delivered by Conford, P.J.A.D., Temporarily Assigned.


[68 NJ Page 290] Plaintiff Bonnet was seriously injured while riding a bicycle on October 7, 1972, as a result of a collision with an automobile driven by defendant third-party plaintiff Stewart. The latter brought a third-party claim for a declaratory judgment against National Emblem Insurance Company ("insurance company" or "company") seeking a determination that he was covered for liability on the date of the accident on an automobile policy issued by the company. The coverage case, which was tried to a jury before trial of the negligence action, resulted in a judgment of coverage as a matter of law by the trial court after submission of all the proofs. The present appeal is from that judgment. It was certified by this court while the appeal was pending unheard in the Appellate Division. R. 2:12-1. We have concluded there were material

issues of fact which should have been submitted to the jury, and we therefore reverse.

The company's position is that the policy had been cancelled by it for non-payment of premium prior to the accident. The trial court held for the insured on two grounds: (a) the company received and retained a premium payment from Stewart after the accident, thereby waiving the prior breach of the insurance agreement constituted by the failure to pay the premium on time; (b) the company retained control of the investigation and defense of the accident claim for a substantial time after knowledge of the facts claimed to warrant its denial of coverage. This was another waiver of the defense of non-coverage.

At the time of the accident Stewart was in the third year of coverage by this company, which is a subsidiary of Allstate Insurance Company. The current policy year was January 17, 1972 to January 17, 1973. By agreement of the parties the premium of $603 was payable in three installments, a down payment of $241.70, a second installment of $182.30 on April 17, 1972, and a third and final payment for the balance on July 17, 1972. The first two payments were made by the insured, the second one a month after its due date. The company's practice is to send a notice of payment about 14 days prior to the due dates and also to send a reminder letter about a week after such dates if the payment has not been received. The effective date of cancellation for nonpayment of the July 17 payment was October 1, 1972. The company sent Stewart a notice two weeks prior thereto informing him the policy would be cancelled October 1, 1972 if payment were not received by that date.

The third premium payment was received by the company October 11, 1972. The payment check was dated September 29, 1972. Stewart testified he called the Allstate office on Monday, October 9, 1972 to give notice of the accident and was then informed that he was not insured. Thereafter, he spoke with Mr. Cullen of Allstate who told him his premium payment had not been received, but that the company would

investigate the accident. During a second conversation with Cullen, Stewart was informed that his premium check had been found and that the company would cover the accident. A few days later Cullen telephoned him to say he was not insured at the time of the accident. Stewart then received a $14.40 rebate check dated October 16, 1972 from the company purporting to reflect his non-coverage from October 1 to October 11, 1972, the remainder of his payment being applied to forward coverage. He promptly returned the check, asserting he regarded himself as covered at all times. After receiving the summons and complaint in the negligence action in January 1973 Stewart took the papers to Allstate's office and left them there. On April 3, 1973 he received a letter from Allstate disclaiming coverage and returning the suit papers.

Stewart's wife testified she mailed the third check with the payment notice to Allstate on September 29, 1972. In January 1973, at Cullen's previous request, she brought him other cancelled checks from the check book containing the premium check which he photocopied, but she could not find the one numbered immediately prior to the premium check. (The premium check was numbered No. 197). Photocopies of checks No. 197 and No. 198 were admitted in evidence at the trial. Mrs. Stewart denied that the date and month of check No. 198 had been altered, but she did not know its whereabouts. She identified a copy of check No. 196 dated October 7, 1972, explaining her husband had had it in his pocket a week before using it.

An expert examiner of questioned documents testified on behalf of the company that the date on check No. 197 had been overwritten and that the date on check No. 198 had been altered from October 10, 1972 to September 30, 1972.

Mr. Cullen, a claims supervisor for Allstate, testified that the file on the case contained a notation that coverage was cancelled October 1, 1972. He told Stewart a few days after the report of the accident that the policy had been cancelled for non-payment of the premium. A few days later he informed

Stewart that the premium check had been found. Their next conversation was when the Stewarts brought the refund check to him. He took the check and said he would investigate the situation. Shortly thereafter he requested them to bring in their cancelled checks. Mrs. Stewart at first brought in only check No. 197, (the premium check) but it appeared to Cullen that "September" had been written over. He requested that the Stewarts furnish him the checks preceding and following the premium check. Some, but not all of those checks, were submitted to him on January 24, 1973.

Cullen admitted that the "road work" on the liability investigation of the accident was completed October 17, 1972, but no reservation of rights letter was sent to the Stewarts. As of January 24, 1973 the matter of coverage was still "up in the air" inside the company.

A Mr. Hocking, employed in the accounting department of Allstate, testified it was company policy to deposit all checks on the day of receipt in order to immediately invest the money on the West Coast. Another Allstate employee, Nayman, supervisor in the data processing department, testified there is a company policy to allow a 21 day grace period on renewal policy payments. After a cancellation, however, an insured would have 40 days to make payment to continue the policy in effect, with a lapse in coverage until the premium is received. After the 40 days the policy would be terminated. These company policies are not set forth in the insurance policy. The witness agreed that the prorated rebate in this case should have been $16.50, not $14.40 as tendered by the company. The discrepancy was not explained except for the suggestion of counsel as to deduction of a service charge.


The trial court's first basis for holding the plaintiff and the insured as a matter of law was that the company's retention of Stewart's ...

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