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Superior Court of New Jersey, Appellate Division.


FIRST TRENTON INDEMNITY COMPANY, Defendant/Third–Party Plaintiff–Appellant, v. THE HARTFORD, Third–Party Defendant- Respondent.

DOCKET NO. A–1775–12T4

    Decided: April 10, 2014

Before Judges Fisher and Koblitz.Law Offices of William E. Staehle, attorneys for appellant (Michael A. Mourtzanakis, on the brief). Smith, Stratton, Wise, Heher & Brennan, L.L.P., attorneys for respondent (Thomas E. Hastings, of counsel and on the brief).

In this dispute between two insurance companies, First Trenton Indemnity Company (FTIC) appeals from the October 22, 2012 judgment entered against it in favor of the Hartford Fire Insurance Company 1 (Hartford) for $71,758.34 including pre-judgment interest.   We affirm.

The litigation began when plaintiff Kamil Hudeen filed a complaint against defendant Dazahan Sanders Smith, Smith's employer, defendant Systems Communications Services, Inc.2 (SCS), and defendant FTIC, which insured Hudeen.   The complaint alleged that Smith, while driving SCS's vehicle, caused an accident that injured Hudeen.   Default was apparently entered against Smith.3

FTIC, after leave was granted, filed a third-party complaint seeking indemnification from Hartford, which insured SCS, for PIP benefits FTIC had paid to Hudeen and a declaration that Hartford was estopped from denying coverage for Smith.   Hartford's answer included a counterclaim seeking the recovery of PIP reimbursements it paid to FTIC under the mistaken impression that Smith had SCS's permission to operate its vehicle at the time of the accident.

SCS filed a successful motion for summary judgment on the ground that Smith was not a covered driver because he was not driving within the scope of his employment and did not have SCS's permission to use the vehicle.   The two insurance companies do not dispute that at the time of the accident Smith was intoxicated, did not have a valid driver's license and was using the vehicle for social purposes after his work hours.   All three of these conditions specifically violate the Systems Communications' Vehicle Fleet Safety Policy, signed by Smith.   A certification submitted by the SCS safety manager delineated the many monitoring and enforcement efforts made to ensure that employees followed the written limitations on use of company vehicles.   Hartford mistakenly paid FTIC PIP reimbursements from August 2008 until September 2009, even though Hartford only included as insureds drivers using a SCS vehicle with permission of SCS. Hartford claimed that it understood from a SCS representative that Smith was a permissive user of the vehicle at the time of the accident.

“The determination of whether an individual is an insured under an insurance policy is a matter of law to be decided by the court.”  Atl. Mut. Ins. Co. v. Palisades Safety & Ins. Ass'n, 364 N.J.Super. 599, 604 (App.Div.2003).   We review matters of law de novo.  Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).   The motion judge determined that Smith was not “a permissive user or driver” and therefore not covered by Hartford.

FTIC maintains that Smith did have permission pursuant to the “initial-permission rule,” which it claims can be viewed as “once the 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.”   FTIC cites to French v. Hernandez, 184 N.J. 144, 152 (2005) in support of this principle.   In French, however, our Supreme Court held that this rule did not apply to an employee authorized to drive a truck in a private lot who took the vehicle on the open road while intoxicated.  Id. at 156–57.  “Under the initial permission rule only two questions must be answered to determine coverage.   Was there permission to use the car initially?   Did the subsequent use, while possession was retained, constitute ‘theft or the like?’ ”  Small v. Schuncke, 42 N.J. 407, 413 (1964).

Here the limits of Smith's use of the vehicle were spelled out in a document signed by Smith.   Smith's use of the vehicle on the day of the accident violated three provisions of this contract.   He was not using the vehicle for work purposes, was intoxicated, and did not have a valid driver's license.   This is unlike the usual permissive use case, where an individual lends his vehicle to another individual.   See Ferejohn v. Vaccari, 379 N.J.Super. 82, 88–89 (App.Div.2007) (finding the son had permissive use to drive, while intoxicated, his father's unregistered car on a public street where the father had given his son, who only had a learner's permit, the keys to the car to repair and operate the car in the driveway only).   Here a written contract limited Smith's use of the vehicle.   Additionally, the injured party was compensated, so a public policy argument favoring coverage is not implicated.   See Matits v. Nationwide Mut. Ins. Co., 33 N.J. 488, 496 (1960) (noting that the initial permission rule is consistent with the policy that innocent victims should receive compensation for their injuries).

FTIC also argues that Hartford should be estopped from declining coverage because it reimbursed PIP payments for more than a year on the assumption that Smith was covered by its policy.   With regard to FTIC's estoppel argument, the judge wrote:

[FTIC] cannot demonstrate that Hartford [ ] paid PIP reimbursements to [FTIC] to induce [FTIC] to take some action or that [FTIC] took some action in detrimental reliance because it received the PIP reimbursements.   As [FTIC] points out, Hartford [ ] probably could have, or should have, concluded that Mr. Smith was not a permissive user sooner than it did, but the court sees no harm in that delay.

We agree with this reasoning.   FTIC argues that a combination of equitable estoppel and laches should bar Hartford from changing course after initially reimbursing FTIC. Equitable estoppel applies when conduct, either express or implied, [ ] reasonably misleads another to his prejudice so that a repudiation of such conduct would be unjust in the eyes of the law.  D'Agostino v. Maldonado, 216 N.J. 168, 200 (2011) (internal citation and quotation marks omitted).   The core equitable concern in applying laches is whether a party has been harmed by the delay.  Knorr v. Smeal, 178 N.J. 169, 181 (2002).   Both equitable principles require the element of harm or prejudice to the other party.

As the motion judge pointed out, FTIC cannot show that it relied to its detriment on Hartford's PIP payments or suffered any harm whatsoever from the delay in FTIC's realization that it did not insure Smith.   Thus, reimbursement of the PIP payments made by Hartford was proper and the trial judge did not err in entering judgment in Hartford's favor for the amount of those payments.



FN1. Improperly pled as The Hartford..  FN1. Improperly pled as The Hartford.

FN2. Improperly pled as Systems Communication Company..  FN2. Improperly pled as Systems Communication Company.

FN3. Hartford indicates in its brief that default was entered, although not reduced to judgment..  FN3. Hartford indicates in its brief that default was entered, although not reduced to judgment.


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