The Supreme Court of New Jersey held that the state's mandatory insurance statute trumped an auto policy's business pursuits exclusion clause in The Proformance Ins. Co. v. Jones, 2005 WL 3489004 (N.J. Dec. 22, 2005).
Charmaine Panichi loaned her pickup truck to a relative, Henry Ward, with instructions not to use the truck in his furniture moving business or to let anyone else drive it. Ward, however, allowed his employee, Adam Rosario, to drive the truck and deliver furniture in it. Rosario fell asleep while driving, hit and injured a pedestrian, Stacy Jones, and struck a parked car. Rosario 's passenger, Shawn Whelan, was also injured in the accident.
Jones brought a personal injury action against Panichi, Ward, and Rosario. Panichi's auto insurer, Proformance, filed for a declaratory judgment stating that Panichi, Ward, and Rosario were not covered by its policy. The trial court found that the initial permission rule permitted coverage under Proformance's policy. The appellate court also found that “the initial permission rule applied to a subsequent permittee and that coverage was compelled under the omnibus clause of the policy.”
The Supreme Court granted certification of the case “limited solely to the issue of whether a business pursuits exclusion in an automobile insurance policy is enforceable when the person given permission by the insured to operate the vehicle permits another to use it.”
Proformance argued that Ward violated the insured's instructions for the use of her vehicle, thus voiding his status as a permissive user. Proformance further contended that Ward then did not have authority to allow Rosario to operate the truck. Proformance also said that Ward's status did not matter because the policy's business pursuits exclusion barred coverage.
Whelan and Jones, the injured parties who sought recovery, countered that “once a person is given permission to use a vehicle, any subsequent use short of theft or the like is a permissive use within the terms of the standard omnibus clause of the policy.”
When the Supreme Court adopted the initial permission rule, it said that the rule “best effectuates the legislative policy of providing certain and maximum coverage, and is consistent with the language of the standard omnibus clause in automobile liability insurance policies.” Deviation from the purpose for which the vehicle was borrowed, the court reasoned, does not cancel the protection provided by the policy's omnibus clause.
The court determined that the initial permission rule was satisfied because Panichi gave
Ward permission to use her truck and that lack of permission for any subsequent drivers was irrelevant. Although Ward ignored her instructions, the court said that such disregard had no effect on the coverage issues.
The court also addressed Proformance's contention that the business pursuits exclusion barred coverage by stating, “We are convinced that the legislative policy embodied in our statutes of compensating injured third parties by requiring all New Jersey motorists to carry compulsory insurance overrides the business exclusion of the Proformance policy.” Thus, the court held that the exclusion was not enforceable, saying that it conflicts with public policy that favors the protection of innocent third parties under the state's personal injury no-fault system.