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Bell v. Merchants and Businessmen''s Mutual Insurance Co.

Decided: June 14, 1990.


On appeal from Superior Court of New Jersey, Law Division, Mercer County.

King, Baime and Keefe. The opinion of the court was rendered by Baime, J.A.D.


This appeal presents a choice-of-law question relating to the interpretation of a contractual limitations provision contained in a "special multi-peril" policy of insurance. The policy was issued by defendant Merchants and Businessmen's Mutual Insurance Company, a carrier licensed by the Commonwealth of Pennsylvania, to plaintiffs William and Sylvia Bell, residents of that state, and, among other things, covered property in New Jersey which was later seriously damaged by fire. In accordance with both New Jersey and Pennsylvania statutes, the policy provided that no suit or action is sustainable "unless commenced within twelve months next after inception of the loss." In Pennsylvania, the limitations period has been held to begin running from the date of the casualty. Lardas v. Underwriters Insurance Company, 426 Pa. 47, 51, 231 A.2d 740, 741-742 (Pa.1967). However, in Peloso v. Hartford Fire Insurance Co., 56 N.J. 514, 267 A.2d 498 (1970), our Supreme Court held that the period of limitations is tolled from the time an insured provides notice until liability is formally declined. Finding that Pennsylvania had the greatest interest in governing the issue, the Law Division judge granted defendant's motion for summary judgment on the basis that the limitations period had expired. We disagree and reverse.


The facts are not in dispute. On April 15, 1987, defendant issued a "special multi-peril" policy from its office in Harrisburg, insuring eight properties located in Pennsylvania and two in New Jersey. The policy was purchased through a Freeport, Pennsylvania insurance brokerage concern. All negotiations

for the purchase of the policy took place at plaintiffs' offices in Philadelphia.

Pursuant to N.J.S.A. 17:36-5.15 and N.J.S.A. 17:36-5.20, the policy contained separate endorsements with respect to the properties located in New Jersey, encompassing provisions approved by the New Jersey Commissioner of Insurance. The standard form endorsement required that proof of loss be filed within 60 days of the date of the casualty and that payment be made within 60 days thereafter. As we noted previously, the endorsement provided that the insured must institute suit on the policy "within twelve months next after inception of the loss." That language is required by both New Jersey and Pennsylvania statutes. See N.J.S.A. 17:36-5.20 and Pa. Const. Stat.Ann. tit. 40, sec. 636(3). Attached to the policy was a document entitled "Amendatory Endorsement (New Jersey)," which modified the standard form endorsement in various particulars. Among other modifications, the New Jersey amended endorsement required the insurer to make payment "within thirty days of proof of loss." This language paralleled the 1977 amendment to N.J.S.A. 17:36-5.20, which reduced the number of days within which payment must be made from 60 to 30. With respect to the properties located in this state, plaintiffs were requested to pay a "New Jersey surcharge." Also attached to the policy were documents entitled "Pennsylvania Amendatory Endorsement," which modified the provisions contained in the standard form endorsement with respect to the properties located in Pennsylvania. We need not describe these modifications in detail. Suffice it to say, the amended Pennsylvania endorsements were designed to effect changes in the standard form endorsement to make it conform to Pennsylvania law.

One of the two New Jersey properties contained a bulk fuel terminal and an office complex. This property was leased to another named insured, the Bell Fuel Company, a Pennsylvania corporation. This property was damaged by fire set by vandals on May 27 and July 10, 1987. The resulting damage was

substantial. Plaintiffs were required by New Jersey fire officials to raze what remained of the structure and to remove a 250,000 gallon oil storage tank. Notices of the fires were given promptly as required by the policy.

There followed an extensive series of communications between plaintiffs and defendant. We need not recount their mutual efforts to settle the resulting claims. We note that plaintiff William Bell apparently cooperated fully in the investigation and ultimately provided substantial deposition testimony on January 11, 1988. Although defendant repeatedly advised plaintiffs that their claims were the subject of "continuing investigation," the insurer cautioned them that its protracted efforts "in no way constituted a waiver" of its defenses under the policy.

Ultimately, defendant denied coverage on September 26, 1988, claiming "numerous policy violations" including plaintiffs' "failure to institute suit within one year" as required by the limitations provision. On December 1, 1988, plaintiffs brought this action, seeking recovery of the proceeds of the policy. The summary ...

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