SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
A-3332-97T2
PROGRESSIVE CASUALTY
INSURANCE COMPANY,
Plaintiff-Respondent,
v.
THAER K. HANNA and or
THAER SALIBA,
Defendant-Appellant,
and
ROBERT MIKOLSKI and
PATRICIA MIKOLSKI,
Defendants.
Argued September 15, 1998 - Decided
November 6, 1998
Before Judges Pressler, Brochin, and Kleiner.
On appeal from the Superior Court of
New Jersey, Law Division, Somerset County.
M. Fred Gernand argued the cause for
appellant.
Thomas J. Decker argued the cause for
respondent (Schechner & Decker, attorneys;
Mr. Decker, on the brief).
The opinion of the court was delivered by
KLEINER, J.A.D.
Defendant Thaer K. Hanna and/or Thaer Saliba ("Hanna")
appeals from the grant of summary judgment to plaintiff,
Progressive Casualty Insurance Company ("Progressive") in its
declaratory judgment action which sought to void ab initio a
commercial comprehensive liability insurance policy, wherein
Hanna was the named insured.See footnote 1
The underlying facts raise an issue of first impression.
May an insurer void ab initio an insurance policy for which the
applicant provides full and true answers yet omits facts about
which no inquiry is made when the omitted facts are material to
the insurer's determination whether to accept the insurance risk?
Stated alternatively, does New Jersey recognize the concept of
"concealment" which has been defined as "the designed and
intentional withholding of any fact material to the risk which
the insured in honesty and good faith ought to communicate to the
insurer"?
7 Am. Jur 2d § 65;
43 Am. Jur 2d § 1003. Although
the motion judge did not specifically discuss the concept of
"concealment," he implicitly implied it when he granted summary
judgment to plaintiff. We disagree and reverse. We conclude
that an insurer may not rescind ab initio a policy of
comprehensive liability insurance on the basis of an applicant's
failure to disclose a material fact, when the insurer fails to
ask the insurance applicant questions designed to elicit a
material fact.
Hanna resided with his family in Uniondale, Long Island, as a teenager. When he turned sixteen, Hanna, desirous of entering New York bars, purchased from a private citizen a bogus New York driver's license bearing his photograph and the name "Thaer Saliba,"See footnote 2 and designating his age as twenty-one. The license was not issued by the New York Division of Motor Vehicles.
Hanna stated in his pre-trial discovery deposition that in 1980 or 1981, after moving to New Jersey, he applied for a New Jersey driver's license, using the bogus New York driver's license to establish his entitlement.See footnote 3 A New Jersey driver's license was issued to Hanna under the name "Thaer Saliba." The Division of Motor Vehicles suspended that license in 1982 or 1983 because of his numerous driving infractions and his subsequent failure to pay motor vehicle fines and motor vehicle surcharges. The "Saliba" license was reinstated, but in 1984, it was suspended again.See footnote 4 Hanna testified that between 1984 and 1992 he operated a motor vehicle without a driver's license.See footnote 5
On an undetermined date in 1992, Hanna, using his real name, applied for and was issued a New Jersey driver's license bearing number H0447 73572 08632 and the name "Thaer Hanna."See footnote 6
On October 24, 1994, Hanna completed an application for comprehensive liability insurance at the offices of Hanna's insurance broker, the AAAA Insurance Agency. The broker submitted Hanna's application to the New Jersey Commercial Automobile Insurance Plan ("CAIP"), a program which provides coverage for owners of commercial vehicles unable to procure insurance through the voluntary market. CAIP operates pursuant to N.J.A.C. 17:29D-1 and N.J.A.C. 11:3-1.1 et seq.
Section 3 of the rules promulgated by CAIP provides in pertinent part:
No applicant shall be qualified if the principal operator of the automobile to be insured does not hold a valid driver's license which is valid in this state.
Section 9 of the CAIP rules provides in pertinent part:
A prospective insured . . . shall be considered for assignment upon making application in good faith to the Plan. A prospective insured shall be considered in good faith if he reports all information of a material nature, and does not willfully make incorrect or misleading statements, in the prescribed application form, or does not within any of the prohibitions or exclusions listed below. A prospective insured shall not be entitled to automobile insurance nor shall any Service Carrier be required to afford insurance if any person who usually drives the motor vehicle does not hold or is not eligible to obtain an operator's license. . . .
In his application, Hanna identified himself as both "Applicant" and "Registered Owner," and listed his correct address and occupation. Question 3 in the application asked for "Operator Information, Names of Owners, Employees and Relatives who will operate owned autos." Hanna provided his name - "Thaer Hanna"; his date of birth - "8/5/63"; and his "Driver's License No. & State" as "HO447 73572 08632," the number on his "Hanna" license. The vehicle for which insurance was requested was a 1990 Ford Eco-150 Van. Hanna requested combined single limit insurance coverage of $35,000.
Above Hanna's signature was a preprinted affirmation, providing in pertinent part,
I declare and certify that: . . . (2) To the best of my knowledge and belief that all statements contained in this application are ture [sic] and that these statements are offered as an inducement to the servicing carrier to issue the policy for which I am applying. (3) I realize that any misleading information or failure to disclose required information will be considered lack of good faith on my part and may void the application or cause cancellation of my coverage.
Hanna's insurance application was submitted to CAIP, who assigned it to Progressive as a servicing carrier. A policy of insurance was thereafter issued and was effective on May 31, 1995, when Hanna was involved in an automobile accident injuring Mikolski.See footnote 7 An ensuing police investigationSee footnote 8 revealed that Hanna had previously applied for and was issued a New Jersey driver's license under the name "Thaer Saliba," and that Hanna, without disclosing the revocation of the "Saliba" license, thereafter applied for and received a New Jersey driver's license under the name "Thaer Hanna." On his application to the Division of Motor Vehicles for the "Hanna" license, he responded "no" to the question: "Is your driving privilege now suspended in any state?" In his deposition, Hanna was asked: "Did you ever state verbally or in writing when you applied for your license under the name Thaer Hanna that you had previously possessed a license issued to Thaer Saliba which was suspended?" Hanna responded, "No."
It is apparent from the record that Progressive initially provided Hanna with a defense to an action in the Law Division commenced by Mikolski. When it learned of Hanna's driver's license status, it filed a separate declaratory judgment action to declare its policy void ab initio. In granting summary judgment, the motion judge concluded:
It is undisputed that defendant Hanna possessed a suspended driver's license. Defendant Hanna argues that the insurance agent did not inquire as to whether his driver's license was suspended. Further, this defendant argues that he possessed a valid New Jersey driver's license and this license was not suspended at the time he applied for the liability insurance.
It is irrelevant, however, that Hanna's
New Jersey-issued driver's license was not
suspended at the time of the accident. The
central issue, which Hanna fails to state, is
that the driver's license issued in the name
of "Thaer Saliba" was suspended because of
several driving infractions. These included
citations for driving under the influence of
liquor/drugs and speeding. In fact,
defendant Hanna had received three previous
citations for driving during his suspension
period.
Clearly, defendant Hanna knew that his
driver's license and, thus, his driving
privileges were suspended. In presenting his
second driver's license to the plaintiff,
defendant Hanna willfully misrepresented the
fact that he was a valid New Jersey driver
and as such the policy should be declared
void ab initio.
Based on Fisher v. New Jersey Auto Full Ins.,
224 N.J. Super. 552, 558 (App. Div. 1988), and Marotta v. NJAFIUA,
280 N.J.
Super. 525, 532 (App. Div. 1995), the judge found that
Progressive is obligated to the injured third parties (the
Mikolskis) to the extent of Hanna's mandatory insurance
liability, or $15,000, and that Progressive is entitled to seek
that amount in indemnity from Hanna. The judge added: "Any
claim in excess of the $15,000 is subject to the defense that the
insurance policy was declared void ab initio." Hanna's
subsequent motion for reconsideration was denied.
On appeal, Hanna argues that the motion judge improperly
concluded that his insurance policy with Progressive was void ab
initio because "it is clear from a review of the application and
from defendant's certification and exhibits . . . that [Hanna]
answered all the questions on the application for insurance
completely and truthfully." Hanna contends that when he applied
for insurance with CAIP he was unaware of the CAIP rules and "was
never asked if his driver's license was suspended" or if he was
ever known by a name other than "Thaer Hanna." He also contends
that his New Jersey driver's license under the name "Thaer Hanna"
is indeed valid, regardless of the suspension of his driving
privileges under the name "Thaer Saliba," and "that a person
suspended is not necessarily an ineligible applicant."
We concede that the motion judge's conclusion on first blush
correctly concluded that Hanna should not benefit from his
fraudulent misrepresentation nor should Progressive be required
to insure a risk it would ordinarily have rejected but for the
fraudulent misrepresentation. Although not cited, it is clear
that the judge was influenced by a long-recognized concept that:
Broadly speaking, it has always been
considered that policies of insurance are
contracts of the utmost good faith, and the
applicant therefore is bound to deal fairly
with the disclosure of facts material to the
risk.
[Lociero v. John Hancock Mutual Life Ins.
Co.,
32 N.J. Super. 300, 306 (App. Div. 1954)
(citing Atlantic Casualty Ins. Co. v.
Interstate Ins. Co.,
28 N.J. Super. 81, 85
(App. Div. 1953)).]
The Supreme Court has fully recognized this obligation and
has repeatedly stated in other contexts that "the prospective
insured must not misrepresent or conceal information concerning
risks entailed in coverage under an insurance policy." Sears
Mortgage Corp. v. Rose,
134 N.J. 326, 347 (1993) (citing
Massachusetts Mut. v. Manzo,
122 N.J. 104 (1991); Longobardi v.
Chubb Ins. Co.,
121 N.J. 530 (1990); Appelman, 12A Insurance and
Practice § 7271, at 302 (1981)). Thus the Court has heretofore
recognized the insured's obligation when asked a specific
question in the insurance application, to respond truthfully.
That is not the precise issue here, where we are confronted with
a truthful answer to questions asked on an application that does
not elicit material facts to guide the prospective insurer's
decision to accept or reject the prospective risk.See footnote 9
Although the obligation of a prospective insured to
truthfully answer questions posed by a prospective insurer is
well-recognized, we have had occasion to deviate from this
standard where a prospective insurer fails to ask an insurance
applicant pertinent questions material to its decision to accept
the prospective risk.
In Catton v. Ins. Underwriting Ass'n.,
242 N.J. Super. 5
(App. Div. 1990), we were called upon to determine whether an
insurer could void ab initio an automobile liability policy where
the applicant failed to disclose that the automobile which he
sought to insure was not registered in New Jersey, a prerequisite
to being a "qualified applicant" within the definitional purview
of N.J.S.A. 17:30E-1 et seq., the New Jersey Automobile Full
Insurance Availability Act (commonly referred to as "JUA"), and
specifically N.J.S.A. 17:30E-3(m). The issue in Catton was
presented on a motion pursuant to stipulated facts. Id. at 8.
The issue presented was whether the insurance company may
rescind, rather than cancel, an insurance policy where the
insured was not a qualified applicant. The trial court found no
misrepresentation on the application as to the vehicle's
registration. The parties stipulated that the vehicle was not
registered in New Jersey. Ibid.
We noted:
[I]t is undisputed for the purpose of this
opinion that any and all questions asked of
plaintiffs when applying for the insurance
policy were answered honestly. Moreover,
neither the JUA, State Farm nor JUA's
approved broker, R.S.A. Brokerage, ever
inquired into where the subject automobile
was registered. In addition, the policy
itself does not make any reference to the
statutory definition of qualified applicant.
[Id. at 9 (footnote omitted).]
Our opinion in Catton reviewed the legislative history of
N.J.S.A. 17:30E-1 et seq., and we concluded:
Clearly, the legislative statement and the
statutory provision when read together place
the burden on the JUA, through its servicing
carriers, to ascertain whether the applicant
meets the qualifying provisions of the
statute. Obviously, this can only be done
through the application process. The
servicing carrier, State Farm, failed to make
the necessary inquiry in this case.
[Id. at 10.]
Here, the application for insurance simply asked Hanna for
his name, address, age, and driver's license number. The
application did not ask if the driver's license was valid or
validly obtained. Additionally, it failed to ask whether the
applicant had ever been licensed in this state or any other state
under another name, or whether Hanna's license issued under any
name had ever been suspended or revoked. Any or all of these
questions, if answered honestly, would have revealed facts
material to Progressive in its determination whether to accept
the insurance risk. Moreover, had Hanna answered falsely,
Progressive would have been entitled, based on defendant's
affirmation, supra, to cancel the coverage.See footnote 10 As noted in Harr
v. Allstate Ins. Co.,
54 N.J. 287 (1969), an insurer must obtain
through its representatives all information
pertinent to the risk and the desired
coverage before the contract is issued; and
that it is likewise its obligation to make
policy provisions, especially those related
to coverage, exclusions and vital conditions,
plain, clear and prominent to the laymen.
[Id. at 304].
Although Hanna failed to truthfully answer questions posed
to him by the New Jersey Division of Motor Vehicles when he
obtained his current license, Progressive does not cite any
authority that declares a license issued pursuant to a dishonest
application for licensure as void per se. The question as to the
validity or invalidity of Hanna's current license issued to him
under his legal name is not specifically before us, however, we
note that N.J.S.A. 39:3-37 deems defendant's license voidable and
not void.See footnote 11
We appreciate Progressive's position, that Hanna obtained
insurance coverage by failing to disclose a material fact which
surely would have affected Progressive's decision whether to
accept the insurance risk. However, we conclude that Progressive
incurred the insurance risk because it neglected to ask the
pertinent questions which, if answered truthfully, would have
induced it not to accept the risk or, if answered falsely, would
have relieved it of its obligation to provide a defense and
indemnitySee footnote 12. As we have noted, Progressive never asked Hanna if
the New Jersey driver's license issued to him under his legal
name was a valid license. It merely asked him for the number of
his driver's license. On these facts, the motion judge clearly
erred when he concluded: "In presenting his second driver's
license to the plaintiff, defendant Hanna willfully
misrepresented the fact that he was a valid New Jersey driver and
as such the policy should be declared void ab initio" (emphasis
added). Defendant simply made no representation as to the
validity or invalidity of his driver's license; he was not
questioned about the history of his licensure.
Hanna clearly omitted material facts as to the status of his
license, but did not misrepresent the fact that he was a valid
New Jersey driver. Progressive's failure to gather all material
information pertinent to its decision to accept or reject the
insurance risk should not benefit plaintiff.
This view seems to be recognized in other jurisdictions. As
noted in
43 Am Jur 2d § 1008:
If the insurer propounds questions to
the applicant and he makes full and true
answers, the applicant is not answerable for
an omission to mention the existence of other
facts about which no inquiry is made of him,
although they may turn out to be material for
the insurer to know in taking the risk.See footnote 13
See National Aviation Underwriters, Inc. v. Fisher,
386 F.2d 582
(8th Cir. 1967) ("absent fraud an applicant's failure to disclose
facts about which no questions were asked will not avoid the
policy"); H.B. Singer, Inc. v. Mission National Ins. Co.,
636 N.Y.S.2d 316 (App. Div. 1996) (assuming materiality,
nondisclosure of a fact which was not asked does not ordinarily
void an insurance policy absent intent to defraud); Mulvihill v.
American Annuity Life Ins. Co.,
328 N.W.2d 402 (Mich. Ct. App.
1983) (holding insurance applicant is under no obligation to
disclose health information about the insured because the
insurance company did not request the information).
Our conclusion fully comports with the general principles
that insurance policies are contracts of adhesion, construed
favorably to the insured, and all ambiguities are resolved in
favor of coverage. Princeton Ins. Co. v. Chunmuang,
151 N.J. 80,
87-88 (1997) (citing Sparks v. St. Paul Ins. Co.,
100 N.J. 325,
334-39 (1985)). This seems particularly so where, as here, the
rights of innocent parties who have sustained injuries will be
affected by recision ab initio.
Reversed.
Footnote: 1 Plaintiff's complaint also sought: (a) to disclaim any
responsibility to defend Hanna or provide indemnity for a
personal injury claim then pending in the Law Division, Somerset
County, wherein Robert J. Mikolski and Patricia Mikolski
(collectively "Mikolski"), suing per quod, are plaintiffs and
Hanna is defendant, and also to limit its indemnity
responsibility for any sum awarded Mikolski in excess of $15,000
per person or $30,000 per accident; and (b) to require Hanna to
"reimburse Progressive for any amount paid to [Mikolski] . . . in
settlement or as a result of a jury verdict within 30 days of any
such payment."
Footnote: 2 At his deposition, Hanna indicated that the name "Saliba"
was a family name which was used on his initial immigration
papers and on his green card when he moved to the United States
with his family.
Footnote: 3 Hanna specifically denied being required to take a
driving test in New Jersey and could not recall if he took a
written pre-licensure test.
Footnote: 4 Hanna testified that, although he had resolved all
outstanding summonses issued to him under the "Saliba" license,
that as of the date of his deposition, he was still paying
Division of Motor Vehicle surcharges levied in conjunction with
numerous motor vehicle violations attributable to his use of the
"Saliba" license.
Footnote: 5 The record on appeal would contradict Hanna's assertion.
A certified abstract of the driver's license record of Thaer
Saliba indicates that Hanna, using the "Saliba" license, was
issued a summons on July 26, 1990 for violating N.J.S.A. 39:3-40,
for operating a motor vehicle with a suspended driver's license
and on March 3, 1990 for a violation of N.J.S.A. 39:4-98, for
speeding fifty-four miles per hour in a forty miles per hour
zone. The abstract also lists a multitude of other driving
violations between October 17, 1981 and June 24, 1996.
Footnote: 6 Although Hanna testified that he applied for a New Jersey
driver's license in October 1992, a certified New Jersey Division
of Motor Vehicle's driver's abstract reveals that a summons for
careless driving, N.J.S.A. 39:4-97, and a summons described as
"unlicensed driver" and bearing a reference to N.J.S.A. 39:3-10,
were issued to Hanna on February 23, 1992. Another careless
driving summons was issued to Hanna on October 14, 1992.
Footnote: 7 Although Mikolski entered an appearance in the
declaratory judgment action, he has not participated in this
appeal.
Footnote: 8 The record on appeal does not reflect the reason for this
police investigation.
Footnote: 9 This case also does not involve, as in Longobardi, a
material misrepresentation made by an insured in the context of a
post-loss investigation. 121 N.J. at 543.
Footnote: 10 We need not reach the issue whether plaintiff would have
been entitled to rescission of the policy of insurance, rather
than cancellation. Rescission voids the policy ab initio;
cancellation voids the policy prospectively but would not affect
any claim asserted by an innocent third party prior to
cancellation. See Marotta v. NJAFIUA,
280 N.J. Super. 525 (App.
Div. 1995).
In Catton, we distinguished our decision from the facts
presented in Bidnick v. Hanover Ins. Co.,
230 N.J. Super. 111
(App. Div. 1989), where we concluded that an insurer could
rescind an automobile insurance policy and rebate the insured's
premiums after it discovered the insured had falsely represented
he was a New Jersey resident. Catton, 242 N.J. Super. at 11
(citing Bidnick, 230 N.J. Super. at 115). The distinction is
obvious. In Bidnick, the application answered a material
question falsely. In Catton, the applicant was not asked any
question as to the place where the automobile was registered.
Footnote: 11 N.J.S.A. 39:3-37 states that:
A person who gives a fictitious name or
address or makes any other intentional
misstatement of a material fact in his
application for registration of a motor
vehicle or driver's license or in a
preliminary application, examination or
proceeding, or a person who knowingly sells,
loans or gives an identification document to
another person for the purpose of aiding that
person to obtain a driver's license or
registration certificate for which that
person is not qualified, shall be subject to
a fine of not less than $200.00 or more than
$500.00, or imprisonment for not more than 6
months or both, at the discretion of the
court. The director shall, upon proper
evidence not limited to a conviction, revoke
the registration of the motor vehicle or
driver's license of a person who violates
this section for a period of not less than
six months or more than 2 years.
Footnote: 12 We are particularly mindful that CAIP was designed to
provide coverage for owners of commercial vehicles unable to
procure insurance through the voluntary market. CAIP is
analogous to the JUA. Applicants to either CAIP or the JUA
should be asked pertinent questions designed to elicit material
facts which affect a decision to accept or reject a proposed
risk.
Footnote: 13 A related annotation on "fire insurance,"
4 A.L.R.5th
117, § 6, states:
[I]n the absence of an inquiry by the
insurer, or where it was not stated by the
court whether such question was asked, it was
not a defense to an insurance claim that the
insured did not disclose that his property
had been affected by prior fires, since the
insured had no independent duty to disclose
such facts, and since the materiality of the
nondisclosure was not proven.