Baime, J.d.c. (temporarily assigned).
[176 NJSuper Page 349] The question presented here is one of first impression. At issue is the extent to which an insurance carrier is bound to pay
a default judgment entered against its insured where it had no notice of the underlying negligence action. More specifically, the principal question concerns the liability of a carrier with respect to a judgment entered against its insured where there has been a breach of the notice provision of the policy.
Plaintiff instituted this action to recover the proceeds of an automobile insurance policy. Plaintiff seeks to ascribe liability to defendant based upon a default judgment entered against the latter's insured. Both parties have filed motions for summary judgment. Additionally, defendant seeks to vacate the default judgment entered previously against its insured.
This action stems from an automobile accident which occurred on May 12, 1978. Defendant insured an automobile owned by William Hardin which allegedly struck plaintiff's vehicle while operated by Donald Chesley. Plaintiff instituted suit against Hardin and Chesley on August 22, 1978. Personal service was effected upon both defendants. A default judgment was subsequently entered in June 1979 when the defendants failed to plead or otherwise defend. An ex parte hearing was conducted pursuant to R. 4:43-2(b), and another judge ultimately found Hardin and Chesley jointly and severally liable for negligence. Judgment was entered in the sum of $19,303.50. It would appear that neither Hardin nor plaintiff's attorney notified defendant of the pendency of the case prior to entry of the default judgment. Plaintiff has not recovered any portion of the judgment.
No argument is advanced here that defendant should be bound by the default judgment on the basis of res judicata principles. Although there is a split of authority, it would appear to be unfair to hold that a carrier is bound by a judgment against its insured where it was not a party to the original action. See 20 Appleman, Insurance Law and Practice , § 11521 at 378-379 (1947). See, also, Scaglione v. St. Paul-Mercury Indem. Co. , 28 N.J. 88, 104 (1958). Rather, plaintiff in this case seeks judgment against defendant as a third-party beneficiary of the insurance contract. See Odolecki v. Hartford Acc.
and Indem. Co. , 55 N.J. 542, 549 (1970). While acknowledging that defendant did not receive timely notice, plaintiff claims that the carrier remains liable since there has been no showing of appreciable prejudice.
Defendant contends that it is entitled to summary judgment due to the fact that the notice provision of the insurance policy was breached. Defendant claims it was prejudiced in that it was denied an opportunity to investigate the accident, the reason for Chesley's leaving the scene and the possibility that plaintiff was totally or partially responsible. Additionally, defendant's argument is grounded upon the contention that it lacked an opportunity to determine whether plaintiff had previous accidents; it was not afforded the right to cross-examine the parties as to the measure of damages claimed and did not have the ability to settle the case before trial. In the alternative, defendant moves to vacate the default of June 1979 should summary judgment not be granted. Examination of the competing arguments compels denial of all three motions.
The principles applicable to this case were first enunciated by our Supreme Court in a somewhat related context in Cooper v. GEICO Ins. Co. , 51 N.J. 86 (1968). Cooper was a declaratory judgment action commenced by an insured against his automobile insurance carrier to establish the latter's liability to provide coverage under the policy. Id. at 88. The insured was involved in an automobile accident in August 1962. The carrier was not notified of the accident for almost two years because the insured believed that no claim would emerge. Id. at 89. In holding that the carrier must provide coverage to the insured, the Supreme Court stated that in order for an insurance company to escape liability, there must be proof that the notice provision of its policy was breached, and that it was appreciably prejudiced thereby. Id. at 94. The burden of proof of such prejudice is on the carrier. Id. In determining whether appreciable prejudice exists, each case must turn on its own facts.