CITIZENS UNITED RECIPROCAL EXCHANGE v. VINCENT F. MAIORANO

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0

CITIZENS UNITED RECIPROCAL

EXCHANGE,

Plaintiff-Appellant,

v.

VINCENT F. MAIORANO, PAMELA A.

CAHOONE, DANIELLA VITOLO, BRIANA

BIRDSALL, KATELYN BIRDSALL, CRAIG

VANBLARCOM, 21st CENTURY INSURANCE

COMPANY and HIGH POINT AUTO

INSURANCE COMPANY,

Defendants-Respondents.

March 4, 2016

Argued February 8, 2016 - Decided

Before Judges Messano, Simonelli, and Carroll.

On appeal from the Superior Court of New Jersey, Law Division, Ocean County, Docket No. L-678-10.

Chad B. Sponder argued the cause for appellant (Bright & Sponder, attorneys; Mr. Sponder, of counsel and on the briefs).

Sandra S. Grossman argued the cause for respondents 21st Century Insurance Company A/S/O Briana Birdsall and Katelyn Birdsall (Law Offices of Steven G. Kraus, attorneys; Ms. Grossman, on the brief).

Kevin M. Stankowitz argued the cause for respondent Daniella Vitolo by her guardian ad litem Frank Vitolo (Rosenberg, Kirby, Cahill, Stankowitz & Richardson, attorneys; Mr. Stankowitz, on the brief).

Matthew P. Pietrowski argued the cause for respondent Craig Vanblarcom (Levinson Axelrod, attorneys; Kimberly L. Gozsa, on the brief).

PER CURIAM

In this insurance dispute, plaintiff Citizens United Reciprocal Exchange (CURE) appeals from trial court orders directing it to pay the liability claims of innocent third parties, and awarding counsel fees to those successful claimants pursuant to Rule 4:42-9(a)(6). For the reasons that follow, we affirm.

The facts underlying this dispute are cogently set forth in a series of written opinions issued by Judge James Den Uyl. We reiterate the basic facts drawn from Judge Den Uyl's decisions to provide context to the issues raised by CURE before the trial court and again on appeal.

On July 28, 2009, defendant Pamela Cahoone was driving a 1996 Eagle Vision (the vehicle) that was owned by defendant Vincent Maiorano. Cahoone was driving northbound on Lighthouse Drive in Stafford Township around 2:52 a.m. when the vehicle left the roadway and struck a utility pole. Four passengers in the vehicle (collectively, "the passengers"), none of whom were family members of either Cahoone or Maiorano, sustained bodily injuries. At the time, the vehicle was insured by CURE under a standard policy with minimum liability limits of $15,000 per-person and $30,000 per-accident ($15,000/$30,000).

On February 16, 2010, CURE filed a complaint against Maiorano, Cahoone, and the passengers, seeking a declaratory judgment. In Count One, CURE alleged that Maiorano falsely represented that the vehicle would be garaged at his home and that no one else would use it. CURE sought rescission of the endorsement that added the vehicle to the policy due to Maiorano's misrepresentations, and a declaration that there was no coverage thereunder for the injured passengers. Count Two sought damages against Maiorano for violation of the Insurance Fraud Protection Act (IFPA), N.J.S.A. 17:33A-1 to -34. In Count Three, CURE asserted that Cahoone drove the vehicle knowing that her license was suspended or revoked. CURE thus sought to disclaim coverage under an exclusion in Maiorano's policy that reads: "We do not provide Liability Coverage for any 'insured' . . . [u]sing a vehicle without a reasonable belief that that 'insured' is entitled to do so."

The passengers filed personal injury claims against Cahoone and Maiorano, and asserted claims against CURE's liability policy. Cahoone and Maiorano failed to file responsive pleadings in the declaratory judgment action and defaults were entered against them. Separate orders were thereafter entered consolidating the pending actions and directing that the coverage issue be tried first.

The parties agreed to try the coverage dispute on stipulated facts. They also submitted proposed findings of fact and conclusions of law. In a fifteen-page written opinion dated March 14, 2013, Judge Den Uyl found the endorsement adding the vehicle to the policy was void ab initio because "Maiorano failed to disclose that Cahoone would be the usual and customary operator of the vehicle and . . . the true garage location of the vehicle." The judge noted that Maiorano had offered various "inconsistent and contradictory" statements about Cahoone's use of the vehicle. To the contrary, the evidence established that Maiorano had allowed Cahoone to use the vehicle and that she was its "customary/usual operator . . . and that the true garage location was [Cahoone's] residence, rather than Maiorano's." This finding is unchallenged on appeal.

However, relying on New Jersey Manufacturers Insurance Co. v. Varjabedian, 391 N.J. Super. 253 (App. Div.), certif. denied, 192 N.J. 295 (2007), the trial judge determined that the passengers were still entitled to $15,000/$30,000 coverage, which the judge deemed to be the minimum coverage mandated by New Jersey law under a standard automobile policy. See N.J.S.A. 39:6A-3; N.J.S.A. 39:6B-1. The judge also concluded that Maiorano was liable for damages for violating IFPA. Finally, the judge found it was unnecessary to determine whether Cahoone operated the vehicle without a reasonable belief that she was entitled to do so in light of his ruling that the policy was void ab initio. The judge entered an order memorializing his rulings on April 19, 2013.

CURE successfully moved the court to reconsider its decision and rule on the merits of CURE's "reasonable belief" claim. CURE argued that Cahoone's license was suspended on the date of the accident and therefore at that time she could not have had a reasonable belief that she was entitled to operate Maiorano's car. On May 14, 2013, Judge Den Uyl issued a supplemental eight-page written opinion rejecting this contention.

The judge detailed the stipulated facts he relied on, as follows

Cahoone was deposed on March 1, 2012. During her deposition, she testified that she and Maiorano had a dating relationship, seeing each other every day from July 17, 2009 until the date of the accident. Maiorano offered to provide her with his vehicle. The car was provided to her on or about July 17, 2009. He drove her to his house and she drove the vehicle back to her house. He provided her with the key. She was permitted to use the vehicle as needed. He made an announcement in front of Cahoone's children that Cahoone now had a car so they would be able to get around. She was with Maiorano when he called CURE to add the vehicle. He Provided her with the vehicle on the same date that he added it.

Her license to operate a vehicle had previously been suspended. She had been paying insurance surcharges for a "long, long time." Cahoone was aware that if a surcharge payment was missed, her license would be suspended. Her license had previously been suspended for failing to make insurance surcharge payments. She does not know for certain if she received paper bills for her surcharge payment because she usually paid online, but knew she had to make timely surcharge payments for her license to remain valid. As to the payment immediately prior to the suspension on July 26, 2009, Cahoone claimed that "my payment went out but I guess it didn't make it there in time and the system suspended me at midnight, midnight on July 28th, which I was not aware of and three hours later I had the car accident. So I was not issued, that ticket was dismissed in court because it was proven that I had no knowledge that my license was being suspended because I did send my payment out." She also claimed that she spoke with a representative because the payment was running late. Cahoone claimed she assumed her license remained valid as she assumed her payment would have been received prior to the suspension date. Cahoone testified that if she thought her license was not valid, she would not have been driving. She did not recall if she told the officer that her license was suspended.

Maiorano did not leave the vehicle at her house because he was running out of gas. No one picked up Maiorano to take him home because he ran out of gas. He placed no restrictions on her use of the vehicle. Cahoone used the Maiorano vehicle a total of three times. Cahoone understood that the car was a loan and not a gift.

The Stafford Township Drinking-Driving Report noted that Cahoone told the officer that [MVC] had contacted her and advised her that her license was being suspended on July 27, 2009. On June 13, 2009, a Proposed Plan Default and Proposed Suspension was mailed to Cahoone dated June 12, 2009, advising her that she failed to make a surcharge payment. The document warned: "If you fail to pay the surcharge(s) in full, or do not remit the installment payment of $284 by 06/26/2009, your driving privilege will be indefinitely SUSPENDED on 07/26/2009 . . ." The last payment prior to the accident on the surcharges was made by Cahoone on March 16, 2009.

The Order of Suspension from the Motor Vehicle Commission is dated July 26, 2009.

Although ticketed for driving while suspended, an entry of not guilty to that charge was rendered in the Municipal Court.

Judge Den Uyl found that these facts failed to establish that Cahoone knew her license was suspended at the time of the accident. Moreover, even if she was so aware, this was "but one factor to consider in the totality of circumstances under which a person comes to operate the insured vehicle and their 'reasonable belief'" (citing State Farm Auto Ins. Co. v. Zurich Am. Ins. Co., 62 N.J. 155, 168-69 (1973); St. Paul Ins. Co. v. Rutgers Cas. Ins. Co., 232 N.J. Super. 582, 585 (App. Div. 1989)). The judge reaffirmed his previous finding that "Cahoone had possession, care, custody and control of the vehicle which was furnished for her use by [] Maiorano." Ultimately, the judge concluded that "[u]nder the totality of the circumstances, even assuming [Cahoone] knew her license was suspended, which [] CURE did not prove, [CURE] failed to meet its burden of proving the policy exclusion based on 'reasonable belief.'"

The passengers each moved for an award of counsel fees as successful claimants under CURE's liability policy. CURE opposed the applications, contending that it was the successful party because it had succeeded in voiding the policy endorsement and establishing Maiorano's fraud. On July 26, 2013, the parties entered into a Consent Order allocating the $30,000 funds available under the CURE policy among the four injured passengers. CURE reserved its right to appeal from the court's coverage decisions and the passengers' pending counsel fee applications.

On August 14, 2013, Judge Den Uyl awarded the passengers a combined total of $54,597.58 in counsel fees and costs. In his twelve-page written decision, the judge reasoned

Under the factors identified in Enright v. Lubow, 215 N.J. Super. 306, 311 (App. Div. 1987) and, under the totality of the circumstances, this [c]ourt finds, in its discretion, that an award of counsel fees is appropriate. CURE did not act in good faith in refusing to pay the innocent third party passengers the $15,000/$30,000 liability indemnity. CURE had no justification in litigating the issue against these passengers on their entitlement, and CURE's obligation, to afford them the benefits of the minimum liability of $15,000/$30,000 under [Varjabedian, supra]. CURE's conduct contributed substantially to the necessity for the litigation. The passengers acted fairly and reasonably to resolve their claims. CURE's conduct in the litigation had nothing to do with the bona fides of the passenger claims and everything to do with their dissatisfaction with established case law. This [c]ourt finds an award of counsel fees to be just, fair, reasonable and warranted under the circumstances.

The Maiorano policy had minimum mandatory liability limits of $15,000/$30,000 in the first place. It was not as if the Maiorano policy had $100,000/$300,000 liability limits and CURE filed this declaratory judgment [action] to reduce their obligation to these passengers to $15,000/$30,000. CURE never disputed the status of the passengers as innocent third parties. The underlying tort actions were indefensible on liability. CURE had the opportunity but did not contest that damages met or exceeded the $15,000/$30,000 limit. Even if successful, CURE knew and even acknowledged they were legally responsible and obligated to the innocent third party passengers for [] their policy limits of $15,000/$30,000 under [Varjabedian, supra].

The issue on the passengers' entitlement to the $15,000/$30,000 could have ended with the [c]ourt's decision on March 14, 2013[,] finding, as CURE asserted, that their insured, Maiorano, added the vehicle to his policy and gave it to his girlfriend, Cahoone, to keep at her house for her use. The "reasonable belief" exemption was not tied to a specific policy provision that defined "reasonable belief," as in Martin v. Rutgers [Casualty Insurance] Co., 346 N.J. Super. 320, 324-25 (App. Div. 2002), to include: "any person operating the vehicle without a valid license . . . shall be conclusively presumed to be operating the insured vehicle without a reasonable belief that they are entitled to do so." [Id.] at 323. CURE could cite no case law that a mere license suspension, even with knowledge of same, triggers an exemption on liability coverage under an automobile policy. The facts that formed the basis of CURE's claim for material misrepresentation, i.e., Maiorano gave the car to his girlfriend to keep at her house for her use, was inconsistent with their argument that Cahoone did not have a "reasonable belief" that she could operate the vehicle. CURE argues they were a successful claimant because this [c]ourt found Maiorano was [] in violation of [IFPA]. Interestingly enough, CURE never perfected their judgment and submitted to this [c]ourt their investigation expenses, cost[s] of suit and attorneys' fees to which they were entitled under N.J.S.A. 17:33A-7(a). CURE may have been "successful" with respect to Maiorano and Cahoone but not the parties seeking counsel fees on the issue of their entitlement to the minimum mandatory $15,000/$30,000 coverage.

On appeal, CURE renews its arguments presented to the trial court. It contends that because Cahoone's license was suspended at the time of the accident, she did not have a reasonable belief she was entitled to drive the vehicle, and therefore, no liability coverage exists. CURE further contends that the trial court erred in requiring it to provide $15,000/$30,000 liability coverage to the injured passengers notwithstanding that the policy was void due to Maiorano's material misrepresentations when he added the vehicle to his policy. Finally, CURE argues that the court erred in awarding counsel fees and costs.

Our review of a trial court's fact-finding in a non-jury trial is limited. Seidman v. Clifton Sav. Bank, S.L.A., 205 N.J. 150, 169 (2011). Our inquiry is "whether . . . there is substantial evidence in support of the trial judge's findings and conclusions." Sipko v. Koger, Inc., 214 N.J. 364, 376 (2013)(quoting Seidman, supra, 205 N.J. at 169). Appellate courts should not disturb the factual findings of the trial judge unless convinced that "they are so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice." Tractenberg v. Twp. of W. Orange, 416 N.J. Super. 354, 365 (App. Div. 2010) (quoting Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474, 484 (1974)); see also Beck v. Beck, 86 N.J. 480, 496 (1981).

However, we owe no deference to the trial court's "interpretation of the law and the legal consequences that flow from established facts." Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995). We review such decisions de novo. 30 River Court E. Urban Renewal Co. v. Capograsso, 383 N.J. Super. 470, 476 (App. Div. 2006) (citing Rova Farms,supra, 65 N.J. at 483-84).

Guided by these standards, we find no basis to disturb the trial court's determinations, which are supported by substantial credible evidence in the record. We therefore affirm substantially for the reasons Judge Den Uyl expressed in his comprehensive and well-reasoned written opinions. We add the following comments.

Here, there is sufficient evidence in the record to support the judge's finding that Cahoone was unaware, at the time of the accident, that her license was suspended. The record includes a June 12, 2009 notice of a proposed suspension of Cahoone's driving privileges as of July 26 should she fail to timely pay a $284 surcharge installment. At her deposition, Cahoone testified that she sent her payment in a few days before the scheduled suspension, and was unaware that her license was actually suspended. Moreover, the order of suspension issued by the MVC indicates that it was prepared on July 26, 2009 (a Sunday), and fails to include a certification of mailing that would demonstrate that Cahoone actually received it prior to the accident date.

We also share the trial court's conclusion that, even if CURE had satisfied its burden to show that Cahoone knew her license was suspended, this would still not allow CURE to avoid liability with respect to the injured passengers. This result flows from the court's determination that Cahoone was a permissive user of the vehicle. We agree that the "reasonable belief" exclusion, which has been held to limit coverage under first-party insurance provisions, i.e. personal injury protection (PIP) and under insured motorist (UIM) coverage for a driver, cannot be applied to restrict third-party coverage under the liability section of the policy.

CURE's reliance on Martin, supra, is misplaced. In Martin, the plaintiff was an unlicensed driver of a vehicle owned by her fiancé's stepfather. Martin, supra, 346 N.J. Super. at 322. There, the owner did not know the driver's license had been revoked. Ibid. There was a one car collision. Id. at 321-22. The unlicensed driver sought PIP and uninsured motorist (UM) coverage for her injuries under the Rutgers policy. We held that even if the plaintiff had consent to drive the vehicle, she could not reasonably believe she was entitled to drive any car because she was unlicensed, and therefore she was not entitled to PIP or UM coverage for her injuries Id. at 325-26. Although we denied coverage to the unlicensed driver, we stated

We also note the very limited question presented to us. We are not confronted with a claim for PIP coverage put forth by an unwitting, injured passenger. Neither are we presented with a claim for liability coverage by an individual injured as a result of a collision with a vehicle driven by plaintiff. Rather, we are asked to conclude that an individual who had to know she was not entitled to drive this automobile is entitled to PIP coverage and UM coverage for injuries she received while driving with complete disregard of her lack of entitlement.

[Id. at 325.]

Instead, we find more controlling a line of cases that have adopted the "initial permission" rule in determining that coverage will apply in favor of an innocent third-party where initial permission existed to drive the vehicle. Under the "initial-permission" rule,

if a person is given permission to use a motor vehicle in the first instance, any subsequent use short of theft or the like while it remains in his possession, though not within the contemplation of the parties, is a permissive use within the terms of a standard omnibus clause in an automobile insurance policy.

[Matits v. Nationwide Mut. Ins. Co., 33 N.J. 488, 496-97 (1960).]

In French v. Hernandez, the Court explained that "once an owner gives his vehicle's keys to another person for a drive, the courts ordinarily will find coverage, even if the driver deviates from the expected scope of use of the vehicle, unless the driver's later conduct amounts to a theft or the like of the vehicle." 184 N.J. 144, 152 (2005).

In Rutgers Casualty Insurance Company v. Collins, an unlicensed husband-driver was involved in a one-car accident, which resulted in the death of his passenger-wife. 158 N.J. 542, 545-46 (1999). The accident occurred while the husband was driving, with the wife's permission, a car owned by the husband's stepfather. Id. at 545. Rutgers disclaimed coverage for the wife's estate under an exclusion for persons "'[u]sing a vehicle without a reasonable belief that [the] person is entitled to do so.'" Id. at 546. The Supreme Court disagreed that the "reasonable belief" standard governed the entitlement to coverage. Id. at 547. The Court held that if the wife had permission to use the car, and had in turn given her unlicensed husband permission to drive it, then his reasonable belief became irrelevant as the result of the operation of the initial permission rule. Id. at 551.

In French, supra, the Court reaffirmed the initial-permission rule. 184 N.J. at 152-53. There, the Court allowed an insurance company to disclaim coverage because there was no evidence that an unlicensed driver ever had permission to drive the insured vehicle. Id. at 147. However, the Court held that had the driver "been given either express or implied permission to drive the truck [that day], then his use of the truck, 'short of theft or the like[,] while it remain[ed] in his possession' would have provided the basis for coverage under the initial-permission rule." Id. at 156-57 (quoting Mattits, supra, 33 N.J. at 496-97).

More recently, in Ferejohn v. Vaccari, we again upheld the initial permission rule and found the "reasonable belief" provision of a policy irrelevant where express permission existed. 379 N.J. Super. 82, 90 (App. Div. 2005). There, an unlicensed driver using his father's vehicle was involved in an accident that caused injury to a third-party. Id. at 85. Although the driver exceeded the scope of permission to drive the vehicle, we noted that "the initial-permission rule contemplates a situation in which the subsequent use of a car may be inconsistent with and even frustrate the intentions and plans of the person granting permission." Id. at 89 (citations omitted).

In the present case, there is sufficient evidence in the record to support the judge's finding that Maiorano permitted Cahoone to use the vehicle. We find in these circumstances that it would be contrary to public policy and established case law to apply the "reasonable belief" exclusion to void liability to the innocent third-party passengers who were injured as a result of Cahoone's negligence.

CURE's next argument, that the passengers are not entitled to any liability coverage because the policy was voided due to Maiorano's misrepresentations, requires little discussion. The Supreme Court has recently reaffirmed that

Although CURE was indeed able to rescind [the insured's] policy, thereby depriving her of any coverage as a named insured, that does not mean that it escapes liability with respect to innocent, third-party members of the public whose protection is a paramount concern of the PIP . . . no-fault system."

[Citizens United Reciprocal Exch. v. Perez, 223 N.J. 143, 151 (2015)(citations omitted).]

Perez left undisturbed our holding in Varjabedian that, under standard policies such as that issued by CURE to Maiorano here, insurers are liable to innocent third parties for $15,000/$30,000 coverage. Id. at 155.

Finally, CURE argues that the trial court erred in awarding counsel fees to the passengers as successful claimants under the liability policy. We disagree.

"[F]ee determinations by trial courts will be disturbed only on the rarest of occasions, and then only because of a clear abuse of discretion." Rendine v. Pantzer, 141 N.J.292, 317 (1995). An abuse of discretion is shown when "a decision is made without a rational explanation, inexplicably departed from established policies, or rested on an impermissible basis." Flagg v. Essex Cnty. Prosecutor, 171 N.J.561, 571 (2002) (citation omitted).

Rule 4:42-9(a)(6) provides that "[n]o fee for legal services shall be allowed in the taxed cost or otherwise, except in an action upon a liability or indemnity policy of insurance, in favor of a successful claimant." "The trial judge has broad discretion as to when, where and under what circumstances counsel fees may be proper." Enright, supra, 215 N.J. Super. at 313. Factors the court may consider include

(1) the insurer's good faith in refusing to pay the demands; (2) excessiveness of plaintiff's demands; (3) bona fides of one or both of the parties; (4) the insurer's justification in litigating the issue; (5) the insured's conduct in contributing substantially to the necessity for the litigation on the policies; (6) the general conduct of the parties and; (7) the totality of the circumstances.

[Ibid. (internal citations excluded).]

Here, Judge Den Uyl properly concluded that these factors weighed in favor of awarding counsel fees to the injured third parties. The judge found that CURE did not act in good faith in continuing to contest the policy limits. The conduct of the passengers was reasonable and their demands were not excessive. Further, their conduct did not contribute to the necessity for litigation. Rather, CURE knew they were entitled to the compulsory liability limits, yet continued to litigate the issue based on its contention that the relevant case law should be overturned, notwithstanding a wealth of reported and unreported authority to the contrary.

In sum, there was a rational explanation for the judge's decision and no departure from established law. The trial court's award of attorneys' fees was well within its discretion, and we find no basis to disturb it.

Affirmed.