October 9, 2012
JACQUELINE NELSON, DEFENDANT, AND ERNESTO MARTINO, DEFENDANT-RESPONDENT.
On appeal from the Superior Court of New Jersey, Law Division, Gloucester County, Docket No. L-1456-09.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted September 19, 2012
Before Judges Graves and Guadagno.
Plaintiff GEICO (Government Employees Insurance Company) appeals from an order that granted summary judgment to defendants and denied its motion for summary judgment. The order compelled GEICO to pay defendant Martino's medical expenses and counsel fees. We reverse.
Ernesto Martino and Jacqueline Nelson have lived together in a domestic relationship for over sixteen years. They have one child, Anthony, and although they never married, they have been together since 1993 when Anthony was born. They purchased a three-bedroom home together in 1997. Both parties' names were on the mortgage and they shared household expenses with Martino paying the mortgage, cell phone and occasionally the electric bills, while Nelson paid the other expenses.
On December 14, 2006, Martino was involved in an automobile accident while driving a 1998 Lexus owned and registered to Nelson. He sustained injuries to his back and neck and incurred medical expenses exceeding $11,000.
Nelson was the sole named insured on a policy issued by GEICO. In August 2005, Nelson completed a GEICO questionnaire to renew coverage for two cars she owned at the time, a 1993 Pontiac and the Lexus. The section titled "Driver Information" required a listing of all drivers of the vehicles. Nelson identified only herself. To the question, "Are there any residents (15 or older) who will not be listed as drivers," Nelson checked "No." On another section of the form, the Lexus and Pontiac were listed and the insured was asked to "indicate which driver operates which vehicle the most." Nelson listed herself as the driver of both cars. Nelson also checked "None" to the following question:
If not previously reported to us, please provide the following information. Include any license suspension or revocation, convictions for traffic citations (other than parking) and accidents which have occurred within the past 9 years by any operator of your auto. By signing this questionnaire, you authorize us to confirm the driving records of all drivers and household members through the Department of Motor Vehicles.
Similar policy renewal questionnaires were submitted by Nelson on October 12, 2005, July 29, 2006, and October 12, 2006. Martino was not identified as a driver of any of Nelson's vehicles or a resident of the household in any of the completed questionnaires.
On December 10, 2008, Martino served a demand for no-fault arbitration on GEICO and Liberty Mutual Insurance Company*fn1 with the National Arbitration Forum.
On September 2, 2009, GEICO filed a complaint against Martino and Nelson, seeking to rescind and declare Nelson's auto policy void ab initio based on fraud and misrepresentation. GEICO also sought to preclude Martino from receiving personal injury protection (PIP) benefits under Nelson's policy.
In 2010 Martino filed an answer and counterclaim, seeking to compel payment of his medical expenses from GEICO. On January 31, 2011, Martino filed a motion seeking summary judgment. After hearing oral argument, the motion judge held a plenary hearing during which Martino and Robin Lubow, a GEICO underwriter, testified.
Martino testified that he and Nelson became engaged before their son was born in 1993. They purchased the home on Aldeberan Drive in 1997. He worked for a car dealership and painted cars for another auto body shop. He had access to cars through those jobs and frequently used "dealer plates" when driving those cars. When he didn't have access to a car through his employment, Martino "borrowed" one of Nelson's cars but always asked her permission. On the day of the accident, he was driving Anthony to a doctor appointment. Martino had access to a car from his job but Anthony wanted to go in the Lexus.
Martino was aware that Nelson had auto insurance for her two vehicles and he "looked at the insurance card once or twice." He knew that Nelson paid the premiums on the policy and was required to have insurance because she had a car loan, and "the bank would have notified somebody or something . . . so she had to have insurance." Martino had no insurance at the time of the accident but did have a motorcycle policy in 1992-93. When asked why he obtained an insurance policy after he purchased the motorcycle, Martino replied, "It's a no-brainer, man."
Robin Lubow, a Senior Underwriter for GEICO, testified that after the accident, GEICO added Martino to Nelson's policy as a driver, based on their determination that Martino and Nelson lived in the same household and Martino drove her cars. In setting the premium, GEICO's underwriters examined Martino's driving record for the past ten years and learned that he had a violation of "improper display/fictitious plates" in November 2005 and an "unsafe operation of a motor vehicle" violation in January 2004. Prior to the addition of Martino to her policy, Nelson's bi-annual premium was $838.70. With Martino, the premium initially increased to $1,117.90, an annual increase of $558.40. When Nelson's policy came up for renewal, GEICO reassessed the risk and, because of Martino's driving record, the policy was transferred from GEICO Indemnity to GEICO Casualty, GEICO's non-standard risk company. This resulted in an increase of the bi-annual premium to $2,369.20. Nelson defaulted on the payments and GEICO cancelled the policy.
In a written decision, the motion judge granted Martino's motion for summary judgment and compelled GEICO to pay his medical expenses and counsel fees.
On appeal, GEICO argues the motion judge erred in granting judgment because the judge misconstrued the concept of material misrepresentation and misapplied the two controlling Supreme Court cases.
It is well-established that our review of a trial judge's conclusions of law is de novo. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995). Consequently, we review a grant of summary judgment de novo, applying the same standard governing the trial court under Rule 4:46-2(c). Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 539-40 (1995); Chance v. McCann, 405 N.J. Super. 547, 563 (App. Div. 2009) (citing Liberty Surplus Ins. Corp. v. Nowell Amoroso, P.A., 189 N.J. 436, 445-46 (2007)).
In addressing a motion for summary judgment, a court must "consider whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party." Brill, supra, 142 N.J. at 540; see also R. 4:46-2(c). Because the trial judge granted summary judgment to Martino, we must construe the facts in the light most favorable to GEICO. Liberty Surplus, supra, 189 N.J. at 445.
Our no-fault system of first-party recovery for injuries sustained in automobile accidents encourages the prompt distribution of PIP benefits to accident victims. See Amiano v. Ohio Cas. Ins. Co., 85 N.J. 85, 90 (1981). The no-fault legislation is designed to "provide a minimum amount of protection to the public for injuries caused by . . . automobile[s]." Newcomb Hosp. v. Fountain, 141 N.J. Super. 291, 294 (Law Div. 1976).
Two main coverage classes for PIP benefits exist under the statute: the named insured and family members residing in the household; and other persons who sustain bodily injury while occupying, entering into, alighting from or using the vehicle of the named insured with that person's permission. N.J.S.A. 39:6A-4. "The protection of innocent third parties is a primary concern of [New Jersey's] personal injury no-fault system." Proformance Ins. Co. v. Jones, 185 N.J. 406, 420 (2005).
When the named insured makes affirmative misrepresentations or material omissions in an application for insurance coverage, the insurer has the right to void an automobile insurance policy ab initio. Rutgers Cas. Ins. Co. v. LaCroix, 194 N.J. 515, 527-29 (2008). When the conduct of the named insured results in the voiding of an automobile insurance policy, courts have employed the equitable remedy of rescission to deny that insured the right to claim PIP benefits under the void policy. See, e.g., Remsden v. Dependable Ins. Co., 71 N.J. 587, 589 (1976); see also Tucker v. Allstate Ins. Co., 195 N.J. Super. 230, 233-34 (App. Div. 1984).
In Tucker, the plaintiff sustained injuries while operating a motor vehicle not covered under the plaintiff's existing automobile insurance policy. Id. at 232-33. After the plaintiff recovered PIP benefits as an additional insured covered under his mother's automobile insurance policy, the plaintiff's mother's insurer sought contribution from the insurance company that provided coverage for the plaintiff's personal vehicle. Id. at 233. We held that the plaintiff's insurer "had a right to declare the [plaintiff's] policy a nullity" upon receiving notice that the plaintiff issued a bad check to cover the premium deposit. Ibid. Because the plaintiff's insurer had the right to rescind the policy as to the plaintiff, and because the right of the plaintiff's mother's insurer to seek contribution was derivative of the plaintiff's right to assert claims under that policy, no contribution for the PIP benefits paid was warranted. Id. at 234.
Even when a policy is rescinded for an insured's material misrepresentations, PIP benefits may nevertheless remain payable to innocent third parties. See Fisher v. N.J. Auto. Full Ins. Underwriting Ass'n, 224 N.J. Super. 552, 558-59 (App.Div.1988).
Here, the evidence in the record demonstrates that Nelson's representations in the GEICO questionnaire that no one else drove her cars and no other drivers resided in her household were false. However, an applicant's misrepresentation must be material before the insurer has a right to void the policy ab initio. Longobardi v. Chubb Ins. Co., 121 N.J. 530, 542 (1990). A misrepresentation is material if it "naturally and reasonably influence[d] the judgment of the underwriter in making the contract at all, or in estimating the degree or character of the risk, or in fixing the rate of premium." Mass. Mut. Life Ins. Co. v. Manzo, 122 N.J. 104, 115 (1991) (alteration in original) (quoting Kerpchak v. John Hancock Mut. Ins. Co., 97 N.J.L. 196, 198 (E. & A. 1922)). The insurance policy may be declared void "when the materiality of a misrepresentation strikes at the core of the agreement to insure." LaCroix, supra, 194 N.J. at 528.
The testimony of the GEICO underwriter was unrefuted that Nelson paid a lower premium than she would have paid had she acknowledged that Martino also drove her vehicles. During the hearing, the motion judge acknowledged that this difference was material:
The basic premise, I thought, . . . was that had the information been known, you know, there would have been a significant difference. And, I happen to think 558 a year is significant. I mean, if you want to argue that that's not material, I can tell you that's not going to carry the day with me.
However, the judge's written opinion appeared to retreat from this conclusion. In spite of finding that "Mr. Martino is an incidental beneficiary of the reduced premiums which are a result of Ms. Nelson's failure to list Mr. Martino as a resident of her household, or as an operator of her automobiles," the judge determined:
As part of the testimony of Ms. Lubow, the driving abstract of Mr. Martino was received in evidence without objection. For the five year period preceding the issuance of the policy at issue in this case, Mr. Martino was not convicted of any motor vehicle violations that resulted in any points on his driving record. The abstract did show convictions for non-point violations, including "improper display/fictitious plates," "unsafe operation of a motor vehicle," and "obstructing passage of other vehicle." From her testimony, it was far from clear exactly what would have occurred had Ms. Nelson accurately answered the Auto Insurance Renewal Questionnaire she completed July 29, 2006, approximately four-and-a-half months before the subject accident. At a minimum, Martino likely would have been listed on Ms. Nelson's policy. While an increase in the premium would have been likely, even that was not certain, from Mrs. Lebow's testimony.
This conclusion is unsupported by any evidence in the record. Moreover, it is directly contradicted by Ms. Lubow's testimony.
The issue of whether GEICO increased rates when a driver committed a violation that did not carry any "points," was hotly contested at the plenary hearing. During his cross-examination of Lubow, Martino's counsel repeatedly pressed her on the point that violations carrying no points should not result in an increase of premiums. However, Lubow consistently maintained that GEICO did not rely on points alone in setting premiums:
Q: Ma'am, since that statute [N.J.S.A. 39:3-33 improper display/fictitious plates] has no points and no insurance - -automobile insurance automobile points under our regulatory and statutory scheme, that wouldn't affect the premiums for Mr. Martino and/or Ms Nelson, isn't that true?
A: No, that isn't true.
Q: Okay. Based on what?
A: We use as an underwriting guideline, we have computer-assisted underwriting. But those underwriting guidelines are based on a driving history. Whether or not you have points on your license or were given points on a ticket, we don't look at that. We look at your overall driving record. And that's what we use to assess your company placements and tier rating.
When Martino's counsel questioned Lubow on the specific violations that Martino had incurred, Lubow was unwavering that both violations would have resulted in an increased premium, had Martino been added to Nelson's policy.
Q: Okay. And can you tell us yes or no whether GEICO increases rates for someone who's been convicted of a no point violation, unsafe operation, [N.J.S.A.] 39:4-97.2? Can you say whether or not, yes or no, that that will or will not result in someone having an increased premium from GEICO?
Q: What's the answer?
Q: Okay. All right. So how about the next one, July 28, 2002, Statute No. [N.J.S.A.] 39:4-67, obstructing passage? Are you aware that that's also a no point violation with the DMV and no automobile eligibility insurance points? Are you aware of that?
A: No, I'm not aware of that.
Q: Okay. Is it your testimony that GEICO will increase someone's premiums for such a conviction?
Q: And that's based on what?
A: My familiarity of the underwriting practices of GEICO for GEICO Casualty policies.
Lubow's unrefuted testimony, when considered with the actual increases imposed on Nelson's policy after Martino was added, undermines the judge's conclusion that there was uncertainty as to whether the addition of Martino would have increased Nelson's premium.
The proof of the increased premium alone is sufficient to establish materiality and void the policy, but Lubow also testified that, had Martino been included on Nelson's policy, Martino's driving record would have altered GEICO's risk assessment. The policy would have been reassigned from GEICO's standard-risk company, GEICO Indemnity, to their non-standard risk company, GEICO Casualty. The annual premium charged after this reassignment ($4,738.40) was more than $3,000 more than Nelson had been paying before Martino was added to her policy.
Nelson's false statements in the questionnaires were clearly material and GEICO was entitled to void the policy ab initio.
Notwithstanding the voiding of the underlying policy, GEICO may still be liable to Martino for PIP benefits. See Fisher, supra, 224 N.J. Super. at 558-59. In Fisher, the claimant was a passenger in a vehicle involved in a car accident. Id. at 554. The owner of the vehicle intentionally failed to register it. Ibid. The insurer declared the policy void ab initio as to the insured, but when the injured passenger pressed a third-party claim for PIP benefits under the void policy, we held that the insurer retained an obligation under the policy to innocent third-party members of the public, like the claimant. Id. at 558-59. "To hold otherwise . . . would undermine the legislative purpose of our No-Fault Law." Id. at 559; see also Dillard v. Hertz Claim Mgmt., 277 N.J. Super. 448, 450-52 (App.Div.1994) (awarding PIP benefits to sister of named insured under insured's void policy after passenger-sister sustained injuries in insured's vehicle), aff'd, 144 N.J. 326 (1996).
In Palisades Safety & Insurance Association v. Bastien, 175 N.J. 144 (2003), the insured husband applied for automobile liability insurance. Id. at 146. In filling out the company's application, he falsely represented that he was single and the sole driver of the two vehicles he sought to insure. Ibid. In fact, he was married and resided with his wife who was also a licensed driver. Ibid. The policy expressly excluded coverage for any person misrepresenting a material fact in the application. Ibid.
The insured's wife sought PIP benefits after she was injured driving one of the cars. Palisades, supra, at 147. In response, the insurer filed an action for a declaration that the policy was void due to the husband's material misrepresentations and therefore it had no obligation to pay the wife PIP benefits.
The Court upheld the insurer's position and affirmed a judgment declaring that the policy was void and that the insured's wife was not entitled to PIP benefits even though she was unaware of her husband's misrepresentations. Id. at 149-52. The Court stressed that a claimant must be evaluated as if he or she held the status to which he or she would have been entitled had the named insured completed the application honestly and parties seeking to recover should not be permitted to improve their likelihood of recovery solely on the strength of a misrepresentation. Ibid.
By law, a wife enjoys first-party status under an automobile policy by virtue of being the resident spouse of a named insured. Ibid. (citing N.J.S.A. 39:6A-2(g)). Thus, as the equivalent of a named insured regardless of whether she was identified, the wife would have been entitled to first-party coverage under the policy had it been valid and, conversely, her coverage would have been precluded under the policy had it been voided for any valid reason. Ibid.
After Palisades, the Court decided LaCroix, supra, 194 N.J. 515. In LaCroix, the Court extended PIP coverage, at minimum limits, to the innocent, injured, eighteen-year-old daughter of the named insured who fraudulently omitted her name as a licensed driver in the household. The Court contrasted the holding in Palisades, which was "grounded in considerations of fairness and substantial justice," id. at 529, with the need to "never turn a deaf ear to the equities when plainly innocent parties cry out for relief." Id. at 530.
The motion judge determined that Martino's entitlement to PIP benefits would depend on whether he should be considered Nelson's "spouse" or an "innocent" third party. As the parties never married, Martino did not meet the statutory requirement for an additional "named insured" under N.J.S.A. 39:6A-2(g), and the judge declined to examine the "spouse-like" relationship between Martino and Nelson, finding that such an inquiry would be "impractical" and "time-consuming."
The motion judge then concluded that Martino should be treated as an innocent third party because he had "no involvement in any misrepresentations made by Ms. Nelson to GEICO." However, the wife in Palisades was also innocent of her husband's intentional misrepresentations, and that, standing alone, did not qualify her as an innocent third party. Palisades, supra, at 530. Rather, the Court engaged in a detailed analysis of the couple's relationship and the effect of the misrepresentations on their household. Several similarities to that analysis are apparent here.
The record below established that, as in Palisades, Nelson's material misrepresentations "indisputably affected assessment of the risk and the premium charged," id. at 149, and prevented GEICO from assessing "the underwriting costs of a second driver in the household, as well as the risks associated with the type of driving in which [that driver] would engage." Ibid. Significantly, the misrepresentations also prevented GEICO from considering Martino's driving record and thus denied GEICO "essential information relevant to its concerns and important to its course of action." Ibid.
Martino, like the spouse in Palisades, was "in a unique position to be aware of the other spouse's interactions with the insurer of the household's vehicles," id. at 151, was an "incidental beneficiary of the reduced premiums paid for the deceptively represented risk insured," id. at 152, and along with Nelson, would reap an additional windfall if GEICO were required to provide PIP benefits. Ibid.
It was these factors, not the marital status of the couple, that the Palisades Court relied upon in denying PIP benefits. The Court also reasoned that a contrary holding would have served to encourage insurance fraud. Id. at 152.
As in Palisades, it would be an "incongruous result" to place Martino in the same position as that of an innocent, injured third party seeking coverage under Nelson's void policy. Also, Martino's position bears no resemblance to the innocent teenager in LaCroix who occupied a "subordinate status in her family's hierarchy." LaCroix, supra, at 531.
Reversed and remanded to the trial court for entry of an order (1) vacating summary judgment in favor of defendants; (2) vacating the award of counsel fees; (3) voiding the policy ab initio as to Jacqueline Nelson; and (4) dismissing the complaint seeking PIP benefits for Ernesto Martino.