Court Opinion

ID: 5707598
Source: CourtListenerOpinion
Date Created: 2022-01-12 15:49:22.295232+00
Date Added: 2024-06-11T08:40:27.232997
License: Public Domain

Ughetta, J.
(dissenting). In this action for a declaratory judgment appellant seeks to rescind an automobile liability insurance policy on the ground that it had been procured through fraud and misrepresentation of a material nature. The policy had been issued to the respondent O’Connor, and before rescission was attempted he had been involved in an automobile accident with the respondent Per lev Hamilton, inflicting serious bodily injury upon said respondent Hamilton.
The facts are undisputed, as is essentially the appellant’s right to this relief had the insurance policy in question been sought and issued voluntarily. The trial court indicated that if this had been so, the relief sought would have been granted. However, difficulty arises because the policy issued to the respondent O’Connor was obtained through the New York Automobile Assigned Bisk Plan (hereinafter referred to as the Plan). The question now presented is whether the terms of that Plan, which provide to an insurer induced to issue a policy by such fraud or misrepresentation the remedy of cancellation, exclude by implication the equitable remedy of rescission.
It is the position of appellant that in the absence of statutory prohibition its common-law right to equitable relief for fraud remains unchanged by the terms of the Plan. On the other hand, the respondents Hamilton urge that the intent and practical application of the Plan requires a determination that the appellant’s only relief is cancellation.
A loss had occurred during the policy period for which the appellant might well be liable unless it can void the policy from its inception. The only legislative sanction for the Plan is found in section 63 of the Insurance Law. That section provides that all licensed motor vehicle liability insurers shall participate in the equitable apportionment amongst themselves of applicants for insurance who are in good faith entitled to such insurance *536but are unable to obtain it through ordinary channels. In addition to authorizing the Superintendent of Insurance to approve a plan which would accomplish this purpose, this section also made provision for either applicant, insured or insurer, to appeal to the Superintendent from any ruling or decision of the manager or committee designated to operate the Plan. Finally, the Superintendent’s rulings were made subject to judicial review.
On this authority the Plan was established and was in effect when the policy issued to O’Connor pursuant to the terms and procedures of the Plan. That O’Connor from the beginning was not entitled to the insurance is hardly in dispute. Section 9 of the Plan established the qualifications of those entitled in good faith to obtain insurance under the Plan, as follows:
“Asa prerequisite to consideration for assignment under the Plan, an applicant must certify, in the prescribed application form, that he has attempted, within 60 days prior to the date of application, to obtain automobile bodily injury and property damage liability insurance in the State and that he has been unable to obtain such insurance.
‘1 An applicant so certifying shall be considered for assignment upon making application in good faith to the Plan. An applicant shall be considered in good faith if he reports all information of a material nature, and does not wilfully make incorrect or misleading statements, in the prescribed application form, or does not come within any of the prohibitions or exclusions listed below.
“ A risk shall not be entitled to insurance nor shall any subscriber be required to afford or continue insurance under the following circumstances:
“ (A) If the applicant or anyone who usually drives the automobile is engaged in an illegal enterprise, or has been convicted of any felony or high misdemeanor during the immediately preceding thirty-six months or habitually disregards local or state laws as evidenced by two or more non-motor vehicle convictions during the immediately preceding thirty-six months. ’ ’
That O’Connor had been convicted on four separate occasions for disorderly conduct and public intoxication during the 36 months preceding his application for insurance was so amply proved at the trial that it seems clear that he was not in ‘ ‘ good faith entitled to insurance ’ ’, nor was any subscriber to the Plan “ required to afford or continue insurance.” Had O’Connor in his application made truthful answers to the questions designed to elicit a history of convictions, he would have undoubtedly *537been denied the insurance. In short, by his misrepresentations he obtained that which would have been denied to the honest applicant. To hold, therefore, that O’Connor’s policy, fraudulently obtained, remains valid from issuance, although the fraud was detected and the policy was cancelled, would create an anomalous situation which ought not be permitted when the innocent party objects unless such was clearly the intent of the Legislature or of the contract between the parties.
The policy of insurance did not contain the terms of the Plan. However, whether by force of law or the act of the parties, it is not disputed that the terms of the Plan, where applicable, are determinative of the rights and obligations of each. Even though the policy itself contained a cancellation clause which permitted cancellation by either party without cause, by dealing with each other pursuant to the Plan it was obviously the intention of both to restrict cancellation to the method outlined in section 18 of the Plan, as follows:
“ A carrier which has issued a policy or'binder under this Plan, shall have the right to cancel the insurance by giving notice as required in the policy or binder if the insured
“ (1) is not or ceases to be eligible or in good faith entitled to insurance, or
“ (2) has failed to comply with reasonable safety requirements, or
“ (3) has violated any of the terms or conditions upon the basis of which the insurance was issued, or
“ (4) has obtained the insurance through fraud or misrepresentation, or
“ (5) has failed to pay any premium due under the policy.
“ Each such cancellation shall be on a pro rata basis, subject to the minimum charge of $10.00 per car, and a copy of each such cancellation notice shall be furnished to the producer of record. A statement of facts in support of each such cancellation shall be furnished to the Manager, and, except in the case of cancellation for nonpayment of premium, to the Superintendent of Insurance of the State, ten days prior to the effective date of cancellation.
“ Cancellation shall be effective on the date specified and coverage shall cease on such date.”
Respondents Hamilton urge that this provision was an insurer’s exclusive remedy in the event that it had been induced to issue a policy by fraud or misrepresentation. In support of this contention they argue that the terms of the Plan must be deemed incorporated in the policy. Hence the authors of the Plan, the insurers, by making specific reference to cancellation *538in the event of fraud or misrepresentation recognized that possibility and by remaining silent as to rescission provided an exclusive remedy. Any other interpretation, it is urged, would render meaningless the right of appeal provided by section 63 of the Insurance Law and section 19 of the Plan.
In contemplation of law, were rescission and cancellation equivalent remedies, this argument would be persuasive. It is to be noted that respondents Hamilton do not claim the remedies are the same. Hence, the difficulty with said respondents’ position lies in the fact that the common-law right of rescission and the contractual right of cancellation are different, independent and distinct remedies. The former finds its origin in equity, while the latter exists only if provided for by the parties themselves, either specifically in the contract or by necessary reference when the contract itself is sought and issued under a master plan to which the parties consented.
That an action for rescission to void a policy of insurance ab initia for fraud is well founded and of long standing seems beyond dispute. Indeed, section 149 of the Insurance Law, which concerns itself, inter alla, with misrepresentations and their materiality, has been enacted for the very purpose of restricting such actions to those wherein the misrepresentation directly induced the issuance of the policy. While such actions are more common in the life insurance field, equivalent actions wherein the subject matter was motor vehicle liability insurance are not hard to find (Hartford Acc. & Ind. Co. v. Breen, 2 A D 2d 271).
The distinction, of course, is of vital importance, since where rescission is sought the court will insofar as possible return the parties to the status they enjoyed at the inception of the voided contract and will determine the rights and obligations of each as though there never had been a contract in the first instance. On the other hand, cancellation of an insurance contract presupposes that, however short the duration, there was in existence a valid policy which is to be terminated according to the terms of the contract. There can be no termination of a contract which had no beginning. The distinction is neither new nor novel. Webster’s New International Dictionary (2d ed.) makes specific reference to the meaning of the word “ rescind ” as applied to the law of contracts: “In the law of contracts the technical rescinding of a contract avoids the. contract ab initia and requires that both parties be put as far as possible in the same position as before making the contract.”
Section 9 of the Plan enumerates four classes of applicants who are disqualified from obtaining insurance under the Plan. *539They are applicants engaged in illegal enterprises, applicants convicted of one felony or high misdemeanor during the preceding 36 months, applicants who habitually violate local or State laws as evidenced by two or more 11 non-motor vehicle convictions ”, and, finally, applicants twice convicted of specified motor vehicle violations. O’Connor came squarely within the third category.
Nowhere in the Plan is there expressed any intention to waive these exclusions unless it be found in the provision that the insurer had a right to cancel if the insured ‘ ‘ is not or ceases to be eligible or in good faith entitled to insurance” or “ has obtained the insurance through fraud or misrepresentation In this case the cancellation clause of the Plan does not in and of itself use language restricting the remedy for fraud or misrepresentation to that of cancellation. Any such holding must, therefore, be founded upon what can be gleaned of the intent of the parties in entering into such a contract and the intent of the Legislature in approving such a plan.
All of the five conditions enumerated in section 18 of the Plan, any one of which must exist to permit the carrier to validly exercise the right of cancellation, also contemplate the existence of a valid policy of insurance for some period of time, however short. Therefore, cancellation is an appropriate remedy when subsequent events during the policy period give rise to that right, and an insurer which had partially performed would be entitled to a partial premium for the period of the life of the policy before cancellation.
The fraud or misrepresentation outlined in the fourth condition in section 18 of the Plan is not otherwise defined and a scrutiny of the application for insurance (Exhibit 1) shows that there were representations made by the respondent O’Connor which provided the opportunity for misrepresentation and yet were not concerned with the four classes of applicants who were not qualified under any conditions to apply for and obtain insurance under the Plan. Clearly therefore the parties did not intend to use the word ‘ ‘ cancellation ’ ’ in any way as the equivalent of rescission. This is further confirmed by reference to the provisions for charging premiums which were always to be either a Tmuimnm of $10 or prorated if the premiums earned exceeded that amount.
Only the first condition in section 18 of the Plan contemplates cancellation of a policy wherein the applicant in the first instance was not eligible for, or in good faith entitled to, insurance. In such instance the assured can hardly be aggrieved, since he had agreed to give the insurer the “ right to cancel ” which plainly *540imports a unilateral right of election. In the event the right is not exercised and the insurer elects instead to rescind, the insured again can hardly complain when he is deprived of that to which he had no right in the first instance.
It goes without saying that the right to rescission must be exercised in good faith and promptly upon learning the facts, and these factors are of course subject to the closest scrutiny, particularly when a loss has occurred before the attempted rescission. Except for the fact that a loss has occurred to innocent parties who had nothing to do with the misrepresentation, there would be nothing unreasonable about giving to an insurer the right to cancel at some period during the life of the policy and retain a prorata share of the earned premium. This would be true even where the insurer had good grounds for voiding the policy ab initia by refunding all the premium and pursuing a plenary suit for rescission.
In step with the constantly increasing use of motor vehicles, the Legislature and the courts of the State of New York have constantly enlarged the protection accorded to innocent victims of motor vehicle accidents. Conversely, there has been ever-increasing restriction on the right of an insurance company to void its obligation to pay a loss because of any act or omission by the insured which would have precluded recovery by those whose claims against the insurer were wholly derivative. (Lauritano v. American Fid. Fire Ins. Co., 3 A D 2d 564.) However, this very awareness on the part of the Legislature of this problem and its willingness to act in similar situations should logically require caution in finding any such purpose where the Legislature has not spoken.
Article 6-A (now renum. 6-B) of the Vehicle and Traffic Law, entitled 11 Motor Vehicle Safety-Responsibility Act ” and section 167 of the Insurance Law are examples of legislation designed to limit this common-law right of rescission where overwhelming dictates of extending protection to the public so require. Section 167 did so by enlarging and liberalizing the requirements as to notice contained in policies issued in this State. Section 94-q of article 6-B did so by withdrawing from the insurer its common-law right to defeat or void the policy up to the limits provided in the article, for violation of the terms of the policy, and made absolute the liability of any company upon the occurrence of a loss.
The Safety-Responsibility Act had for its purpose the protection of the general public using the highways by eliminating certain classes of operators, by requiring production of evidence of financial responsibility in event of injury to others. *541(Shuba v. Greendonner, 271 N. Y. 189.) It fell short of making insurance compulsory. However, with the enactment in 1956 of the present article 6-A of the Vehicle and Traffic Law entitled the “ Motor Vehicle Financial Security Act ” (eff. Feb. 1,1957), the Legislature virtually accomplished this when it provided that no motor vehicle could be registered in the State of New York unless proof of financial security in the form of an approved policy of insurance or otherwise was furnished. Hence resolution of the question in favor of the respondents is negated rather than aided by a study of the enactments of the Legislature dealing with motor vehicle liability insurance.
Heretofore the Legislature has shown an awareness of the problem and a disposition to deal affirmatively "with it. Most significantly, at the time it enacted what was virtually a compulsory liability insurance law, it refused to make policies issued thereunder nonvoidable. The Plan, while approved by the Legislature, still remains virtually voluntary except for the inherent compulsion that any insurer writing automobile liability policies in this State must subscribe to the Plan.
No sound reason has been advanced why rights which were not abrogated in a compulsory insurance law should be abrogated by an attempt to find such a legislative purpose and intent in a voluntary insurance program. In short, only in the terms of the Plan, if at all, can any basis be found for the contentions of the respondents Hamilton. However, the arguments advanced must fail, for they all assume the basic error that rescission and cancellation are the same remedy.
Assuming that the terms of the Plan have the force of law does not aid the respondents, for then the general rule that statutes changing the common law must be strictly construed comes into play. (Matter of Town of Cheektowaga, 259 App. Div. 141; Matter of Ryan, 291 N. Y. 376.) Nothing in section 63 of the Insurance Law or in the Plan itself provides any basis for inferring that the Legislature intended to abrogate the right to rescind, particularly when the distinction between rescission and cancellation is borne in mind. The general rule that enumeration of certain powers is a negation of all other powers necessarily has application when the powers concern the same subject matter. When the subject matter is different, the logic behind the rule fails.
The objection that the appellate procedures outlined by section 63 might conflict or overlap with the usual appellate procedures that might arise from a plenary suit for rescission is difficult to follow. Plenary suits for rescission belong to the courts from inception to conclusion. On the other hand, questions arising, *542inter alia, out of attempted cancellations are to be handled in the first instance by- the administrative processes, subject only to final review by the courts. The line of demarcation seems clear and the potential conflict more apparent than real. Equally illusory is any argument that the higher premium rates charged assigned risks conferred any new right on the part of the insurers to issue such policies. That assigned risks make unwelcome insureds despite the rate is well known.
Also to be noted is that the Plan itself in section 16, while it did provide a graduated rate depending on the extent of the accident and motor vehicle violation history of the applicant, refrained from establishing a rate for risks with the conviction history of the respondent O’Connor.
The judgment should be reversed, and judgment should be directed as prayed for in the complaint.
Wenzel and Hallinan, JJ., concur with Beldock, J.; Nolan, P. J., concurs for affirmance in separate opinion. Ughetta, J., dissents and votes to reverse the judgment and to direct judgment as prayed for in the complaint, in opinion.
Judgment affirmed, with costs.