On appeal from the Superior Court of New Jersey, Law Division, Hudson County, L-5735-03.
Before Judges Wecker, S.L. Reisner and Graves.
The opinion of the court was delivered by: Wecker, J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
The issue raised by this appeal is an insurance company's right to rescind a settlement agreement when it discovers that it was mistaken about the limits of its policy.
Plaintiff, Stephanie Villanueva, was injured as a result of a February 1, 2002 motor vehicle accident. The driver and the owner of the other vehicle were insured by defendant, Amica Mutual Insurance Co. On February 11, 2003, Amica offered to settle Villanueva's claim against Amica's insureds for the sum of $35,000, based upon its review of liability and damages and its erroneous belief that it had issued a liability policy with a $35,000 limit of coverage. Villanueva accepted the offer and signed a release which she returned on February 24, 2003. Amica discovered shortly thereafter that it had made a mistake about its own policy limit, and that it actually issued a"limited" policy that provided liability coverage of only $10,000.*fn1 Amica promptly communicated its error to plaintiff's counsel, as evidenced in a letter dated March 11, 2003. It declined to comply with the original settlement agreement and instead offered $10,000 to settle Villanueva's claim against Amica's insured.
Villanueva filed suit against Amica, accurately alleging the procedural history and seeking to enforce the settlement agreement. Amica's answer included these defenses:
3. The Defendant acted under a mistaken belief of facts regarding the actual amount of policy limits.
4. The relief sought by the plaintiff would amount to unjust enrichment and is not enforceable.....
6. The policy of insurance issued by this Defendant represents the full extent of all liability.
7. Plaintiff has failed to show justifiable reliance on the mistaken offer of policy limits.....
9. In offering the full and actual limits of its policy to the plaintiff, this party has fully performed its obligation under the policy of insurance.
After a hearing on the return date of plaintiff's Order to Show Cause, the Law Division judge issued judgment against Amica, holding that Dobbs v. New Amsterdam Cas. Co., 101 N.J.L. 176 (E. & A. 1925), was"controlling" and required enforcement of the settlement. We reverse.
We are convinced that the governing principle is to be found not in Dobbs, but in Young v. State Farm Mut. Auto. Ins. Co., 80 N.J. Super. 582 (App. Div. 1963), and Hamel v. Allstate Ins. ...