December 21, 2009
SUSANA TRAVERSO, PLAINTIFF-RESPONDENT,
NEIL GUTHAIM AND ELIZABETH GUTHAIM, DEFENDANTS/THIRD-PARTY PLAINTIFFS-RESPONDENTS,
CHARLES F. HEIDT, INC., THIRD-PARTY DEFENDANT-APPELLANT, AND ENCOMPASS INSURANCE CO., THIRD-PARTY DEFENDANT-RESPONDENT.
On appeal from Superior Court of New Jersey, Law Division, Passaic County, Docket No. L-5404-04.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued December 9, 2008
Before Judges Graves and Grall.
This is an insurance coverage case involving a dispute between Charles F. Heidt, Inc. (Heidt), an insurance agency, and Encompass Insurance Company (Encompass). Pursuant to the terms of an Agency Agreement, Encompass authorized Heidt to bind certain kinds of insurance contracts issued by Encompass. The only issue to be determined at trial was whether Heidt had authority to bind coverage on a three-family, tenant-occupied dwelling in Paterson, New Jersey, which was purchased by Neil and Elizabeth Guthaim (the Guthaims) in May 2003.
The trial began on October 1, 2007. At the close of all the evidence, the court granted Encompass' motion for a directed verdict. The court determined there were no factual disputes for the jury to resolve; Heidt's authority to bind coverage was clearly and unambiguously limited by the Agency Agreement and the underwriting guidelines issued by Encompass; and Heidt exceeded its authority when it attempted to add the three-family house to Guthaims' existing homeowner's policy.
The primary issue on appeal is whether the court erred in granting a directed verdict. Heidt contends the court "usurped the role of the jury [by] making factual determinations about [the] ambiguously worded Encompass underwriting guidelines, deciding the credibility of witnesses, and weighing evidence in dispute, all of which are the proper functions of a jury." After reviewing the record and applicable law in light of the arguments advanced on appeal, we affirm.
This case arises from a personal injury action filed by plaintiff, Susana Traverso, for injuries sustained in a fall that occurred on the Guthaims' three-family property in Paterson on October 29, 2003. In response to plaintiff's complaint, the Guthaims filed an answer and third-party complaint asserting they relied on their insurance agency, Heidt, to procure insurance coverage for the three-family house they purchased. The Guthaims also alleged that if there was no insurance in effect when plaintiff was injured then it was due to the negligence of either Heidt, Encompass, or both. Heidt stated in its answer to the Guthaims' third-party complaint that it had submitted a policy change form to Encompass on May 1, 2003, requesting to add the three-family house to the Guthaims' existing homeowner's policy.*fn1 In addition, Heidt's answer contained a cross-claim against Encompass seeking indemnification and contribution pursuant to the terms of the Agency Agreement.
Heidt's answer to Guthaims' third-party complaint was filed on April 24, 2006, prior to an arbitration hearing on May 5, 2006. Consequently, Heidt was represented by counsel at the arbitration hearing. Encompass was not represented at the hearing, however, because its time for answering the third-party complaint had not yet expired. In its answer filed on May 12, 2005, Encompass acknowledged that it had issued a homeowner's policy to the Guthaims prior to plaintiff's accident, but denied that the policy provided any coverage for the property in Paterson where plaintiff was injured. In addition, Encompass asserted a cross-claim against Heidt for indemnification.
At the arbitration hearing, the arbitrator awarded plaintiff $199,000, which included $49,000 for outstanding medical bills and $150,000 for pain and suffering. The arbitrator apportioned liability as follows: 100 percent to the Guthaims, zero percent to Heidt, and zero percent to plaintiff Traverso. The arbitrator also noted the following: "Encompass has not answered and default has not yet been entered. However, based on evidence presented it is clear that there is coverage on [the] Guthaim property and [Encompass has a] duty to defend and indemnify."
There was no request for a trial de novo, and plaintiff filed a motion to enforce the arbitration award. The Guthaims opposed plaintiff's motion and filed a cross-motion to extend the time to file a demand for a trial de novo, or in the alternative, to set aside the arbitration award. In addition, the Guthaims filed a motion for summary judgment against Heidt and Encompass.
Following oral argument on October 18, 2006, the court affirmed plaintiff's arbitration award against the Guthaims, but vacated the part of the arbitration award that found Heidt had no liability. The court also granted the Guthaims' summary judgment motion, reasoning that "either Encompass or Heidt or some combination thereof" would ultimately be responsible for payment of plaintiff's arbitration award. Accordingly, the coverage dispute was the only issue to be litigated and only Heidt and Encompass participated in the trial.
During the trial, Stephen Puntasecca*fn2 testified he was licensed as an insurance agent in 1979 and owned Heidt, an insurance agency, since 1990. He explained that Heidt had obtained coverage for the Guthaims' automobiles and their home in Hawthorne, New Jersey, through Encompass. That coverage was effective from November 29, 2002, through November 29, 2003, which included the date of plaintiff's accident on October 29, 2003.
Puntasecca also testified that in 2003, the Guthaims asked Heidt to obtain liability insurance for the three-family house they planned to purchase in Paterson. In an effort to obtain coverage, Puntasecca faxed a policy change request form to Encompass on May 1, 2003, requesting that the Paterson property be added to Guthaims' existing policy. Although the policy change request was never approved by Encompass, Puntasecca testified that he "probably" gave the Guthaims a written binder for the property because they "needed a policy for closing." When Puntasecca was asked why he thought he was authorized to bind coverage on the three-family house, he testified:
Well as I started to say before they never disapproved the request. They... never told us that they wouldn't bind it. And my... position on it is... that if you send them something and you tell them to do it, unless they tell you otherwise, you have to make certain assumptions that it's in processing, it's not being done, or whatever the case may be. And it was never formally disapproved.
Q: So your understanding was in May of 2003 there'd [be] coverage. Right?
A: Per the request, yes sir.
Puntasecca acknowledged that the Agency Agreement stated his authority to bind insurance coverage for Encompass was subject to underwriting guidelines issued by Encompass from time to time. He further acknowledged that Encompass had issued guidelines with an effective date of December 15, 2002, prohibiting Heidt from binding coverage on any three-family residence. Nevertheless, Puntasecca testified he "believed" that the new guidelines did not apply to the Guthaims' existing policy, which was in effect until November 29, 2003. However, that interpretation of the guidelines was disputed by Carol Rollins, a senior underwriter for Encompass, who testified that the three-family house "was a new exposure. And a new exposure is subject to the conditions of the guidelines in effect at the time it is added."
After both sides rested, Encompass argued it was entitled to a directed verdict because it was clear from the evidence that Heidt had exceeded its limited authority, as set forth in the Agency Agreement and the guidelines. The trial court agreed, reasoning as follows:
In terms of procedure here, it seems that if we had thought this out a little more clearly... we would come to the same conclusion that I've come to now, that this is really a question of law for the court --what does the contract provide?
The things that we thought were disputed are not dispositive. The sending or non-sending of the fax would seem to be a controlling event.
As it turns out, in hindsight, [it] is really not a controlling event. The insurance company indicates that even if we had received it, our position would be the same and it's supported by the agreement between the parties. That's their position.
Viewing it in that light and giving every reasonable inference to... [Heidt], I think that the matter is right for [a] decision by the Court as a matter of law and I... disagree that there are any other salient facts which would [a]ffect the obligations and rights of the parties.
The authority of the agent was specified in... the [A]gency [A]greement. It said you have authority to bind us in certain circumstances. And it also made reference to the guidelines that would be issued from time to time.
I think that document is very clear. I don't think it's ambiguous with regard to the circumstances that confronted the parties in this particular case.
On the face of... [the guidelines], it indicates these terms were... effective in December of '02 which is previous to the attempt by [Heidt] to bind the insurance company.
On the face of them, that's when they applied. They do not attempt to change the terms of any existing policies. They don't affect the rights of... the insured in any way.
Insofar as this case is concerned and the facts herein, they talked about restricting the right of the agent to bind the company to additional coverages and they were very specific... three-family and four-family homes would not [be] bindable.
I don't think there's any real question, and I don't think that a reasonable fact finder could look at those documents together and believe that the December revisions did not apply to the circumstances of this case. Clearly, they did.
Clearly, the agent in this case... had no authority according to the contract between the parties. The company cannot be bound under these circumstances.
I find that there was no effective binding by the agent of the company. The company issued no policy and has no obligation in that regard.
On appeal, Heidt presents the following arguments:
IT WAS ERROR TO VACATE THE UNAPPEALED ARBITRAL AWARD IN FAVOR OF APPELLANT HEIDT.
IT WAS ERROR FOR THE HONORABLE TRIAL COURT TO USURP THE ROLE OF THE JURY WHERE DISPUTED ISSUES OF MATERIAL FACT REGARDING THE EXISTENCE OF COVERAGE EXISTED FOR THE JURY TO DETERMINE.
A. WHETHER APPELLANT HEIDT HAD APPARENT OR REAL AUTHORITY TO BIND ITS PRINCIPAL, ENCOMPASS, TO MODIFICATION OF TERMS OF AN EXISTING RECENTLY RENEWED INSURANCE POLICY WAS FOR A JURY TO DETERMINE.
B. AS A MATTER OF LONGSTANDING NEW JERSEY DECISIONAL CASE LAW AUTHORITY, IT WAS REVERSIBLE ERROR FOR THE HONORABLE TRIAL COURT TO ENTER A DIRECTED VERDICT AGAINST APPELLANT HEIDT AND IN FAVOR OF APPELLEE ENCOMPASS, BECAUSE, WHEN AN INSURANCE POLICY CONTAINS INADEQUATE COVERAGE DUE TO THE NEGLIGENCE OF THE INSURER'S AGENT, AS ALLEGED BY ENCOMPASS, THE INSURER ITSELF IS HELD RESPONSIBLE AND REFORMATION IS THE APPROPRIATE REMEDY.
THE MARCH 2, 2007 ORDER DENYING APPELLANT HEIDT'S MOTION FOR SUMMARY JUDGMENT MUST BE REVERSED AND SUMMARY JUDGMENT ENTERED IN FAVOR OF APPELLANT.
We are satisfied from our study of the record and the arguments presented that the trial court properly entered judgment in favor of Encompass and that all of the issues raised by Heidt are clearly without merit. R. 2:11-3(e)(1)(E). We therefore affirm with the following comments.
In its first point, Heidt contends the arbitration award on May 5, 2006, "should have been granted preclusive effect," even though Encompass was not a party to the arbitration. We do not agree. Encompass did not participate in the arbitration hearing because its time to answer Guthaims' third-party complaint had not expired and, therefore, the arbitrator was without authority to determine the question of liability as between Heidt and Encompass. See Ravelo v. Campbell, 360 N.J. Super. 511, 519 (App. Div. 2003) (noting that it would be "unjust" to allow an arbitration award to stand where the defendant had not filed an answer and was not present at the arbitration hearing); see also Doe v. Poritz, 142 N.J. 1, 106 (1995) ("Fundamentally, due process requires an opportunity to be heard at a meaningful time and in a meaningful manner.").
Heidt also contends the jury should have determined whether it had "apparent or real authority" to bind Encompass. With respect to Heidt's apparent authority claim, this court has noted that "[l]iability will be imposed upon the principal in cases involving apparent authority where the actions of a principal have misled a third party into believing that a relationship of authority existed and where the third party has relied upon this belief to his or her detriment." Rodriquez v. Hudson County Collision Co., 296 N.J. Super. 213, 221 (App. Div. 1997). However, in this case, the trial court properly determined that apparent authority was not an issue because the trial involved only the principal and its agent and there was no evidence that Encompass had misled the Guthaims into believing Heidt was authorized to bind coverage on their three-family home.
With respect to Heidt's "real authority" claim, the Agency Agreement specified it was subject to "underwriting rules and regulations" issued by Encompass. And the guidelines clearly stated on every page "Effective: 12/15/02." Therefore, the court concluded that the interpretation and construction of the parties' agreement was a matter of law for the court to decide. See Cedar Ridge Trailer Sales, Inc. v. Nat'l Cmty. Bank of N.J., 312 N.J. Super. 51, 62-63 (App. Div. 1998) ("When the terms of the contract are not ambiguous, the construction and effect of that agreement is a matter of law which must be resolved by the court and not the jury."). Moreover, when the terms of an agreement "are clear and unambiguous there is no room for interpretation or construction and the courts must enforce those terms as written." Karl's Sales & Serv., Inc. v. Gimbel Bros., Inc., 249 N.J. Super. 487, 493 (App. Div.), certif. denied, 127 N.J. 548 (1991). "[I]t is not the function of the court to make a better contract for the parties, or to supply terms that have not been agreed upon." Graziano v. Grant, 326 N.J. Super. 328, 342 (App. Div. 1999).
In the present matter, the court correctly applied these controlling contract principles. Consequently, we affirm the judgment in favor of Encompass substantially for the reasons stated by Judge Graziano in his oral decision on October 3, 2007.