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National Continental Insurance Co. v. J. Spinelli & Sons

August 25, 2010


On appeal from the Superior Court of New Jersey, Law Division, Salem County, Docket No. L-274-07.

Per curiam.


Argued February 22, 2010

Before Judges R. B. Coleman, Baxter and Alvarez.

This is an appeal by plaintiff National Continental Insurance Company (National) of an August 11, 2009 order denying National's motion for reconsideration of a June 23, 2009 order dismissing National's claims for unpaid insurance premiums and entering judgment in favor of defendant J. Spinelli & Sons, Inc. (Spinelli) on its counterclaim for overpaid premiums.

At trial, National was prohibited from presenting evidence of a statutorily mandated transfer of paid premiums to Spinelli's prior unpaid insurance policy because National had failed to disclose during discovery any information regarding such transfer or its obligation to make such transfer. National now argues that this discovery sanction was an abuse of discretion because it was based on a mistaken understanding of law and was unduly prejudicial. After considering the record and briefs of the parties, we are satisfied that the trial judge understood the law and that the imposition of the sanction was an appropriate exercise of discretion in light of National's complete failure to disclose in discovery the information barred by the court at trial. Accordingly, we affirm.

On May 14, 2004, Spinelli completed a New Jersey Commercial Automobile Insurance Plan (CAIP) application to obtain insurance for a fleet of trucks. CAIP is a plan which "provide[s] for the apportionment of insurance coverage for qualified applicants who are in good faith entitled to but are unable to procure the same, through the voluntary market[.]" N.J.A.C. 11:3-1.1(a)(2). National is a participant in CAIP. Because Spinelli had previously been assigned to National, the 2004 application was also assigned to it. An assignment letter and check for $100,000 was sent to National. The check was deposited into an account for Spinelli. While no policy was issued at that time, a policy number was assigned. After it received the assignment, National performed a search, which revealed that Spinelli's prior CAIP policy for the term January 7, 2002 to January 7, 2003, had an outstanding premium balance of $79,214.*fn1

National therefore moved a portion of the deposited $100,000 to satisfy Spinelli's outstanding balance on the 2002 policy, and the sum of $20,768 was applied to Spinelli's new policy with coverage dates of May 16, 2004 to May 16, 2005. National contends that this was reflected in a premium notice it sent to Spinelli on June 10, 2004. That notice listed the original premiums as $489,714, special charges as $4,897, and payments as $20,786. This left Spinelli's outstanding balance at $473,829. Spinelli retained First Insurance Funding Corp. to finance the balance of the policy premium.

Throughout the new policy period, National sent numerous endorsements to Spinelli reflecting changes in the premium because of Spinelli's additions and deletions of insured vehicles to its policy. Those endorsements are reflected in the balance sheet for Spinelli's account. According to the endorsements, the total accrued policy premium was $519,583. Spinelli's payments, which totaled $566,996, less the $79,214 applied to his prior policy, stood at $485,277. This left an unpaid balance of $34,306 for which National filed a complaint on September 10, 2007 in Salem County. Attached to the complaint was the balance sheet containing credits and debits to Spinelli's account, including a debit of $79,214 described as "Posting reversal - cash incorrectly applied to account." Spinelli filed its answer on October 29, 2007, denying all counts of National's complaint.

As the parties prepared for trial, a conversation occurred between counsel for Spinelli and National, in which National indicated it would be producing an unnamed witness at trial who would be bringing documents not previously produced in discovery. In response, at the start of the bench trial before Judge Timothy G. Farrell, Spinelli moved in limine seeking to exclude any written documents that National had not provided to Spinelli in discovery. The court initially adjourned the matter so that the parties could compare the documents in their possession to see what had not been provided.

As the matter proceeded, National presented as its witness an underwriter, Dean D'Aquilla, who testified that Spinelli came to National as a CAIP policy with an assignment page and a $100,000 check. D'Aquila then testified, as noted above, that National performed a check on Spinelli, found its previous policy with National and the unpaid balance, and then, in accordance with the New Jersey Automobile Insurance Plan manual, applied the $100,000 check first to Spinelli's prior balance.

Spinelli objected to this testimony as no information had been provided in discovery concerning the allocation of Spinelli's check to a prior balance. National acknowledged that information on this argument was "never a part of discovery." National asserted that was because "[it] was never asked." Judge Farrell ruled on this issue, stating:

Unless [National] can prove that it was [Spinelli's] intent when [Spinelli] sent the $100,000 check that we're talking about through a broker or initiator, which eventually ends up at National Continental, unless [National] can establish that it was Spinelli's intent that that money be used to pay any unpaid balances, okay, I am going to bar in this proceeding any claim that the $100,000 should be not [sic] credited to this policy, because [National] until today has never claimed such a setoff.

I disagree with [National's counsel's] argument that the $100,000 wasn't intended to go with this policy unless he can prove it. It doesn't make any sense to me. The facts as presented so far to me establish that Spinelli needed an insurance policy for . . . [May] 16, '04 to [May] 15, '05.

I recognize that . . . the purpose of the check was the new policy. I recognize that National Continental under the statutory scheme may have had the right to pay outstanding balances, but when it sued Spinelli and when Spinelli disputes the claim and when we go through discovery, National Continental has an obligation to put Spinelli on notice that the seventy-nine plus or minus thousand of the [$]100,000 of the initial premium check was used to pay what National Continental says was an outstanding balance from another policy for a different period.

It has not done that. It didn't . . . do it in the complaint. . . . [A]nd it may not have had to do it in the complaint, . . . but in discovery, [National] clearly has an obligation . . . once Spinelli shows all the payments, has an obligation to put Spinelli on notice of what its defense is, . . . [O]ne of the defenses to the counterclaim is, is of the first $100,000 you paid us for the time frame 5/16/04 to 5/15/05, pursuant to some statute under the insurance chapter here in New Jersey, under the CAIP procedure, we are permitted and I believe this witness has testified required to pay any outstanding balances, which is what we did.

That has never been done until today.

So I'm going to bar that claim unless . . . National can prove in these proceedings, . . . that it was Spinelli's intent that the $100,000 check was for the prior premium or all or part of it.

National's position was that "nowhere in the counterclaim, the discovery, or anything was that $100,000 mentioned by [Spinelli]" and that National therefore did not consider the $100,000 check as part of Spinelli's counterclaim.

Ultimately, D'Aquilla testified that the total payments from Spinelli to National, including the initial $100,000 check, totaled $566,696 and that the total premium due was $519,583.

Consistent with that proof and with the ruling that he would not consider the $79,214 transfer that National applied to Spinelli's previous account, but did not disclose during discovery, the judge found that there was a resulting overpayment of $47,413. As such, National's claim for unpaid premiums was dismissed and judgment was entered for Spinelli in ...

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