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Pawlick v. New Jersey Auto. Full Ins. Underwriting Ass'n

October 30, 1995


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

Approved For Publication October 30, 1995.

Before Judges Pressler, Keefe and Rodriguez. The opinion of the court was delivered by Keefe, J.A.D.

The opinion of the court was delivered by: Keefe

The opinion of the court was delivered by KEEFE, J.A.D.

Defendant Progressive Insurance Company ("Progressive") and fourth party plaintiff Fidelcor Services Inc., ("Fidelcor") appeal from the entry of summary judgment in favor of fourth party defendant Motorclub of America Insurance Co., ("MCA"). The summary judgment determined that MCA was not obligated to furnish coverage to the lessee of an automobile owned by Fidelcor in an underlying automobile liability suit. The effect of that decision was to require Progressive to furnish coverage to the lessee. The dispute on appeal is essentially between two insurance companies, Progressive and MCA. *fn1 Progressive contends that MCA's cancellation of its policy covering the lessee was invalid. Alternatively, Progressive contends that the Law Division Judge misconstrued the language of an endorsement in the MCA policy naming Fidelcor as an additional insured, as well as the public policy of this State with respect to omnibus clause coverage. We disagree and affirm.

The essential facts necessary to frame the issues on appeal are as follows. Louise Provence leased an automobile through a dealer. The lease was assigned to Fidelcor who also became the title owner of the vehicle. The lease required Provence to obtain liability insurance naming herself as "the insured and Fidelcor Services Inc., as lessor, as an additional insured and loss-payee." Provence obtained the necessary insurance from MCA. The MCA policy provided primary indemnity coverage for the leased vehicle and contained an endorsement naming Fidelcor as an "additional insured". Pursuant to N.J.S.A. 45:21-3, Fidelcor obtained a lessor's liability policy issued by Progressive. The Progressive policy insured Fidelcor and any lessee of Fidelcor's vehicles.

On September 22, 1989, MCA sent a notice of cancellation to Provence for failure to pay premiums. The cancellation was to take effect on October 8, 1989. MCA neglected to send notice of cancellation to Fidelcor.

On October 10, 1989, the leased vehicle operated by Provence was involved in an accident with plaintiff Nancy Pawlick. Thereafter, Pawlick filed an action against Provence and Fidelcor for personal injuries resulting from the accident. Provence filed an answer and counterclaim through her personal counsel. Fidelcor answered the complaint through counsel designated by MCA. Fidelcor then moved for summary judgment on the ground that Provence was not operating its vehicle as an agent, servant or employee of Fidelcor. Summary judgment was granted in favor of Fidelcor.

Pawlick then instituted this suit against the New Jersey Automobile Full Insurance Underwriting Association ("JUA"), seeking uninsured motorist benefits from her own policy serviced by Allstate Insurance Company. JUA then filed a third party complaint against Fidelcor seeking a declaration that Fidelcor was required to provide coverage for Provence pursuant to N.J.S.A. 45:29-3. Fidelcor in turn filed a fourth party complaint against MCA seeking a declaration that MCA was the insurer of the vehicle operated by Provence. Subsequently, Pawlick amended her complaint to add Progressive as a defendant.

MCA filed a motion for summary judgment, contending that it was not obligated to furnish coverage to Provence in view of its cancellation. The Law Division Judge advised the parties that he would treat the scheduled summary judgment hearing as though cross motions for summary judgment were made by JUA, Fidelcor, and Progressive. JUA was granted summary judgment on the ground that Provence was entitled to coverage either under the MCA policy or the Progressive policy. As such, Pawlick was found not qualified to receive uninsured motorist benefits under the JUA policy. There is no appeal from that determination.

In the final judgment from which this appeal is taken, the Law Division Judge held that: 1) MCA validly canceled its policy covering Provence; 2) Fidelcor, however, remained covered under the MCA policy as an additional insured; 3) Fidelcor's coverage, as an additional insured, was restricted to the terms of the endorsement and did not enable Fidelcor to create coverage for Provence as a permissive user of the leased vehicle; and 4) the Progressive policy specifically provided coverage to Provence as a lessee of the vehicle and was the only coverage available to her.


Progressive presents two separate arguments with respect to the cancellation issue. First, it contends that MCA did not comply with the procedural requirements of N.J.S.A. 17:29C-10 as to Provence, and, secondly, that failure to give notice to Fidelcor as the "additional insured" rendered the cancellation as to Provence ineffective. The trial court opinion does not specifically address these arguments. However, we hold that it correctly concluded that MCA validly canceled Provence's coverage.

The provisions of N.J.S.A. 17:29C-10 are designed to insure that named insureds receive appropriate notice of cancellation. Subsequent to the 1980 amendment to the statute, an insurer could obtain summary judgment as a matter of law on that issue if the insurer could show strict compliance with the statutory requirements. Celino v. General Acc. Ins., 211 N.J. Super. 538, 542-43, 512 A.2d 496 (App. Div. 1986). An insurer's proof of compliance with the requirements of the statute is necessary "in the face of an insured's denial of receipt . . ." of the notice of cancellation. Id. at 542. However, where the insured has not denied receipt of the cancellation notice, strict compliance with the statute is not required unless the insured can show that prejudice resulted from the insurer's noncompliance. Lilly v. Allstate Ins. Co., 218 N.J. Super. 313, 325, 527 A.2d 903 (App. Div. 1987). There is no allegation ...

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