New York motorist's fraud. The New York legislature can apply ample pressure on cheats like Sinkler by using civil sanctions of license and registration revocation or even criminal penalties if its present statutes do not suffice to protect the injured.
It is true that on facts similar to those in the present case the Sullam court found the center of gravity was in the state where the accident took place and the injured parties resided. Sullam, supra 349 N.Y.S.2d at 564-65. In Sullam the defendant obtained a Massachusetts auto insurance policy by representing that, while his permanent residence was in New York State, he was a college student in Boston. After defendant was involved in an auto accident in New York, the insurer discovered that both the New York and Massachusetts addresses given by defendant, as well as his name, were incorrect. The court applied New York law preventing the insurer from rescinding the insurance policy.
The choice-of-law considerations in Sullam are distinguished from the present case on several grounds. First, the insurer issued a policy with the knowledge that defendant's permanent address was out-of-state. The fraud in Sullam did not alter the center of gravity. Sinkler's fraud, by contrast, was what brought South Carolina into the present case, and is exactly the activity South Carolina law seeks to prevent. Thus, it is inappropriate to give much weight to Sinkler's ultimately discovered New York residence in determining New York's interest in the case.
Second, Massachusetts' interest in having its law permitting ab initio rescission apply in Sullam was weaker than South Carolina's interest in the present case. The Massachusetts law designated as "optional" coverage for liability for out-of-state accidents. Sullam, 349 N.Y.S. at 559. It therefore permitted rescission of coverage for out-of-state accidents but not for those in-state. While the South Carolina law is designed to prevent fraud, the Sullam court rightly noted the Massachusetts law's favoritism of its own residents. See Id. at 563. As the Sullam court pointed out: "Whatever the exclusion's rationale was [in 1925 when the law was enacted], it . . . now appears to have no independent policy justification in an era of [extensive interstate travel]." Id. at 564. The Massachusetts law at issue in Sullam clearly compromised the interests of New York residents in a way that the South Carolina law at issue in this case does not.
Third, estoppel in Sullam was the ultimate basis of decision. There were intimations of fraud surrounding the application. Yet, after being put on notice, the insurer in Sullam took no action to protect itself.
New York courts would apply South Carolina law in this case. While mindful of the penchant of forum states to find that conflict of laws and choice-of-law principles favor their own residents, see 12 John A. Appleman, Insurance Law and practice 298 (1981) ("Of course, any forum is always quick to protect its own residents."); Korn, supra at 920-21 ("[The New York Court of Appeals] had not in a single one of its post-Babcock tort cases [through 1974] even conceded the existence of any other state interest opposing that of New York.") (citation omitted), the interests of New York residents and policy are not substantially compromised by the choice of South Carolina law. Both states have significant contacts with the dispute, but South Carolina has the greater interest in having its law applied. The case involves a direct confrontation with South Carolina's law imposing the burden of avoiding insurance application fraud squarely on applicants, but only a minimal conflict with New York's policy favoring compulsory insurance.
VII. SOUTH CAROLINA LAW
As already noted in Part V.B supra, South Carolina permits ab initio rescission of auto insurance contracts where the applicant fraudulently induced coverage. The remaining issue is whether, under applicable South Carolina law, plaintiffs are entitled to summary judgment.
A. Summary Judgment
Summary judgment is appropriate when "there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c); see, e.g., Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986). While doubts must be resolved in favor of the nonmoving party, he must provide "concrete particulars" showing a need for trial. See R.G. Group, Inc. v. Horn & Hardart Co., 751 F.2d 69, 77 (2d Cir. 1984) (quoting S.E.C. v. Research Automation Corp., 585 F.2d 31, 33 (2d Cir. 1978). The opponent must respond to motions supported with affidavits by setting forth "specific facts showing that there is a genuine issue for trial" or by showing a good reason for the absence of such specific facts. Fed. R. Civ. P. Rules 56(e), (f).
P. Rescission Affecting Third Parties
Rescission is permitted when South Carolina's five-part test is satisfied. See Strickland, supra. In this case the policy has already been rescinded as a result of the default judgment. Centennial now maintains that the rescission must apply to third persons Caban and Garcia as well.
Absent a statutory provision to the contrary, an injured party generally stands in the shoes of the insured. See, Southern Farm, supra 155 S.E.2d at 913 (judgment creditors of insured have no greater rights than insured); 8 Appleman, supra at 334. This rule does not generally deprive third persons of the right to litigate the liability of the insurer where the insured defaulted. See, e.g., M.F.A. Mut. Ins. Co. v. Cheek, 34 Ill. App. 3d 209, 340 N.E.2d 331 (1975) (holding default judgments against insured rescinding policy do not preclude litigation by third persons); 8 Appleman, supra at 367-69. Thus, the default judgment against Sinkler does not dispose of the present motion. Rescission as against Mr. Caban and Ms. Garcia must be adjudicated as an independent matter.
Defendants claim that South Carolina law entitles them to go to trial on the basis that whether a policy may be rescinded is a question for the finder of fact. See State Farm Fire & Cas. Co. v. Herron, 269 F.2d 421 (4th Cir. 1959) (holding rescission under South Carolina law a question of fact unless so plain that it becomes matter of law). That holding does not relieve a litigant's burden on a motion for summary judgment. As noted above, for an issue to go to trial there must be "concrete particulars" establishing a genuine issue of material fact. See R.G. Group, supra at 77. Third persons seeking adjudication of insurance policy rescission must therefore still clear the hurdles imposed by summary judgment in order to proceed to trial.
VIII. APPLICATION OF SOUTH CAROLINA LAW TO FACTS
Centennial asserts that Sinkler's misrepresentations satisfy the five factors required for rescission and have provided a factual basis through affidavits and exhibits to support its claims. Its affidavits establish that Sinkler's statement of his residence and location where he would garage the car were untrue and he presumably knew where he lived. The misrepresentation was material to the risk because Centennial was only authorized to insure risks located within South Carolina, and obviously relied upon defendant's statement. Finally, the facts and circumstances demonstrate that the statements were made with the intent to deceive. Sinkler must have known that no insurer would provide coverage for a car in Brooklyn at the rate Centennial charged Sinkler on the basis of the South Carolina address.
Defendants Caban and Garcia offer no factual basis to contest any of these assertions. The record contains no affidavits, exhibits, or depositions putting forward any facts that contradict those asserted by Centennial. Nor have defendants shown any reason why they would be unable to present facts justifying opposition to the motion. Instead, defendants argue merely that because the validity of a rescission is an issue for the finder of fact, they are entitled to go to trial.
Since there is no genuine issue of material fact, plaintiff is entitled to declaratory judgment.
Summary judgment is granted in favor of plaintiff. The policy issued to James Sinkler and rescinded by an order of this court, is declared rescinded ab initio with respect to potential claims brought by third persons Carmen Garcia and John Caban.
Jack B. Weinstein
United States Senior District Judge
Dated: Brooklyn, New York
October 26, 1995
© 1992-2004 VersusLaw Inc.