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Hanover Insurance Co. v. Guan

March 5, 2009


On appeal from the Superior Court of New Jersey, Law Division, Cumberland County, Docket No. L-457-06.

Per curiam.


Argued February 9, 2009

Before Judges Lisa and Reisner.

On September 7, 2004, Jill Sorensen was injured in an automobile accident caused by the driver of another vehicle, Yu Guan, who was driving a vehicle owned by his employer, S.H. Restaurant Equipment, Inc. (S.H.). Prior to the accident, S.H. procured insurance on its vehicle through the Mulligan Insurance Agency (Mulligan) with National Continental/Progressive Insurance Company (National). However, National cancelled the policy prior to the accident. Sorensen had an automobile policy at the time of the accident with Hanover Insurance Company (Hanover). Hanover paid Sorensen benefits totaling $193,711.23, consisting of $12,764.52 for property damage, $420 for vehicle rental, $95,526.71 for personal injury protection (PIP) benefits, and $85,000 for uninsured motorist (UM) benefits.

Hanover sued Guan and S.H. in an effort to recover these sums. However, Guan could not be found and S.H. was out of business. Hanover amended its complaint to sue Mulligan and National to recover the benefits paid. Its theory was that it could step into the shoes of S.H., as a subrogee or third-party beneficiary, and assert a claim that National's cancellation of the policy was improper and that Mulligan was professionally negligent in allowing S.H.'s policy to be cancelled.

Judge Michael Brooke Fisher found that Hanover lacked standing to assert its claims against Mulligan and National. He granted summary judgment to Mulligan by order of September 20, 2007, and denied Hanover's reconsideration motion as to that order on January 4, 2008. The judge granted summary judgment to National by an order of January 4, 2008. On February 11, 2008, a default judgment was entered in favor of Hanover against Guan and S.H. for $193,711.23. This appeal followed. Hanover's arguments before us are the same as those presented in the trial court. We reject those arguments and affirm.

The relevant facts are not in dispute. Mulligan secured a policy for S.H.'s commercial vehicles through the New Jersey Commercial Automobile Insurance Plan (CAIP) with National for the policy period of March 25, 2004 to March 25, 2005. S.H.'s place of business at the inception of the policy was 50 Washington Avenue in Milltown. On April 5, 2004, S.H. notified National by fax that it was changing its address from the Milltown location to 135 Bowery Street in New York, New York. Under the CAIP, the insured must maintain its operating headquarters in New Jersey. N.J.A.C. 11:3-1.2. Thus, upon receipt of the fax, National engaged the services of an independent contractor to conduct an investigation and inspection of S.H.'s premises in Milltown. The contractor wrote two letters and made three telephone calls to S.H. and visited the Milltown location, concluding that S.H. had vacated the premises. Based upon this information, National concluded that S.H. no longer maintained a headquarters in New Jersey.

On June 16, 2004, National mailed a notice of cancellation to S.H. at its New York address and to Mulligan, canceling the policy effective July 18, 2004. The record contained unrefuted proof that the notice was mailed to the correct address for S.H. in New York, and Mulligan acknowledged receiving a copy. The notice advised S.H. that its policy was being canceled "in accordance with the terms and conditions of the . . . policy, and in accordance with law." The notice advised S.H. that because the "policy was obtained through the New Jersey Automobile Insurance Plan, . . . [it had] the right to appeal to the Governing Committee of the Plan," the address of which was furnished. The notice specified as the reason for cancellation: "Violation of contract terms -- failure to comply with Physical Inspection."

Upon cancellation of the policy, National issued a check on August 3, 2004 to S.H. for the return of unearned premiums in the amount of $664.16. S.H. cashed the check on August 11, 2004.

Judge Fisher found it very significant that, in addition to receiving notice of cancellation, S.H. received and cashed the return of premium check about one month before the accident underlying this litigation. The judge found it unnecessary to address the substantive arguments regarding the adequacy of National's notice to S.H. and whether Mulligan was negligent in fulfilling its duty to S.H. with respect to the cancellation. He concluded that those were arguments that could be made by S.H., but there was no basis to confer standing on Hanover to assert those claims against National or Mulligan.

No material facts were in dispute before the trial court, and the matter was ripe for summary judgment. R. 4:46-2(c); Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995). In reviewing the grant of summary judgment, we employ the same standard used by the trial court, and our review is de novo. Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998).

We first address Hanover's claim against National. To be a "qualified applicant" under the CAIP, the applicant "must have its operating headquarters in New Jersey." N.J.A.C. 11:3-1.2.

In New Jersey, insurance policy cancellation is controlled by the Commissioner of the Department of Banking and Insurance. Piermount Iron Works, Inc. v. Evanston Ins. Co., ___ N.J. ___, ___ (2009) (slip op. at 9). "Notice allows the consumer to take protective action." Id. at ___ (slip op. at 11). Under the CAIP regulations, the Commissioner of the New Jersey Department of Banking and Insurance must approve a plan of operation for the program. N.J.A.C. 11:3-1.6(c). The plan is required to contain provisions for the cancellation or non-renewal of policies. N.J.A.C. ...

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