March 21, 2008

Re: Failure to Cooperate

TO THE COMPANIES IN INTEREST:

In Hager v. Gonsalves and Chilito, A-4293-06T1(March 7, 2008), the Superior Court of New Jersey, Appellate Division addressed the issue of whether the failure of both the operator and owner of the motor vehicle to cooperate with the vehicle’s insurer, thus preventing the insurer from ascertaining whether the operator was a permissive user, provides sufficient grounds for the insurer to disclaim coverage. 

Rutgers Insurance Company issued an automobile liability policy to defendant, Chilito insuring his pick-up truck. The policy contained a standard “cooperation clause” that required any person seeking coverage to “cooperate with the insurer in the investigation, settlement or defense of any claim or suit”.

Tommy Gonsalves, who was not a named insured under the policy, was operating Chilito’s truck while intoxicated and was involved in an accident.  Hager sustained serious personal injuries as a result of the accident. 

Neither Gonsalves nor Chilito informed Rutgers of the accident. Rutgers became aware of the accident upon receipt of a letter from Hager’s attorney more than five weeks after the accident.  Rutgers made repeated attempts to contact both Chilito and Gonsalves, but neither responded.  The trial court concluded that even though Gonsalves and Chilito had “utterly failed in their duty under the policy to cooperate with Rutgers, Rutgers failed to show that it suffered appreciable prejudice as a result of this failure”. 

The Superior Court of New Jersey Appellate Division concluded that an insurer must show that it was appreciably prejudiced by its insured’s failure to cooperate in order to disclaim coverage based on that failure.  However, the Appellate Division also concluded that Rutgers made a sufficient showing that it was appreciably prejudiced by the failure to cooperate.  The court further concluded that the failure to cooperate prevented Rutgers Casualty from ascertaining the facts relevant to determining whether Gonsalves was a permissive user of Chilito’s pick-up truck. 

Gonsalves was not a named insured under the Rutgers policy or a resident of Chilito’s household. Consequently, Gonsalves would have been entitled to coverage under the Rutgers policy only if she were a permissive user of Chilito’s vehicle at the time of the accident. As a result of the failure to cooperate, Rutgers irretrievably lost the opportunity to ascertain the true facts relating to whether Gonsalves had permission to use Chilito’s truck, which entitled Rutgers Casualty to disclaim coverage for the accident.

If you should have any questions please do not hesitate to contact Glen Danks, Esquire at (856) 751-5285 or by e-mail at danks@bbs-law.com.

For a copy of the Hager opinion please click here.

Very truly yours,

GED/dng