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Frazier v. Liberty Mutual Insurance Co.

Decided: April 7, 1977.


Talbott, J.c.c., Temporarily Assigned.


[150 NJSuper Page 128] Defendant Liberty Mutual Insurance Co. (Liberty) moves for summary judgment against plaintiff, plaintiff Clarence S. Frazier to

compel him to accept $15 a week on an income continuation claim made under his automobile insurance policy.

The underlying suit is based upon an accident which occurred on August 23, 1974. Plaintiff's vehicle was hit in the rear by another vehicle which was being pursued by the police. This accident disabled Frazier. He could not work at his usual occupation as a packager for CGS Fiberglass of Williamstown, New Jersey, where he earned about $187 a week. Pursuant to N.J.S.A. 39:6A-4(b), a section of the New Jersey Automobile Reparations Reform Act, he made application for reimbursement for medical expenses and income continuation benefits in the amount of $100 a week. The medical expenses have been paid and are not in issue.

Liberty tendered plaintiff $15 a week for his wage losses, claiming he was eligible to receive $85 a week in the form of temporary disability benefits, N.J.S.A. 43:21-25 et seq. , and as required by N.J.S.A. 39:6A-6. It is uncontroverted that plaintiff could have applied for and collected the $85 a week in disability benefits. Plaintiff refuses the tender, claiming that N.J.S.A. 39:6A-6 is unconstitutional.

The recent case of Rybeck v. Rybeck , 141 N.J. Super. 481 (Law Div. 1976), upheld the constitutionality of the Automobile Reparations Reform Act N.J.S.A. 39:6A-1 et seq. under a broad-sweep due process and equal protection attack, but that court concluded that some provisions of the act may create constitutional issues. Plaintiff contends that N.J.S.A. 39:6A-6, which reads as follows, is such a provision:

The benefits provided in section 4a., b., c., d., and e. and section 10, shall be payable as loss accrues, upon written notice of such loss and without regard to collateral sources, except that benefits collectible under workmen's compensation insurance, employees temporary disability benefit statutes and medicare provided under Federal law, shall be deducted from the benefits collectible under section 4a., b., c., d., and e. and section 10.

Plaintiff first challenges the constitutional validity of this section on the ground that the statute constitutes a taking of property without just compensation, in violation of the Fifth and Fourteenth Amendments to the United States Constitution. He contends that statute compels an insured to accept less from his insurance company than it contracted to pay. However, Liberty asserts that when the policy is read in conjunction with the above-quoted section of the act it is entitled to deduct the money collectible under temporary disability benefits which is concededly $85 a week.

The Legislature may not deprive a person of life, liberty or property without due process of law. N.J. Const. (1947), Art. I, par. 20, prevents a deprivation of property without just compensation. However, the court is mindful that there is a strong presumption that a statute is constitutional. A legislative act will not be declared void unless its repugnancy to the Constitution is clear beyond a reasonable doubt. David v. Vesta Co. , 45 N.J. 301 (1965); Harvey v. Essex Cty. Freeholders Bd. , 30 N.J. 381 (1959); In re Loch Arbour , 25 N.J. 258 (1957); Gangemi v. Berry , 25 N.J. 1 (1957); Yellow Cab Co. v. State , 126 N.J. Super. 81 (App. Div. 1973). Judicial enforcement does not permit a court to substitute its own policy judgment for that of the Legislature. Ferguson v. Skrupa , 372 U.S. 726, 83 S. Ct. 1028, 10 L. Ed. 2d 93 (1963). If any state of facts may reasonably be conceived to justify the legislation, a court's duty is to sustain it. Rybeck, supra , 141 N.J. Super. at 492; McGowan v. Maryland , 366 U.S. 420, 81 S. Ct. 1101, 6 L. Ed. 2d 393 (1961); Robinson v. Cahill , 69 N.J. 449 (1976).

The issue here is whether the legislative requirement that deduction of temporary disability benefits be made from the $100 a week income continuation benefits payable under the contract of insurance is a taking of plaintiff's property. Before reaching the question of taking of property it must be

shown that N.J.S.A. 39:6A-6 is a proper exercise of the State's police power.

The "police power" of the State is the public right to reasonable legislation for the common good and welfare. Katobimar Realty Co. v. Webster , 20 N.J. 114 (1955); Schmidt v. Newark Bd. of Adj. , 9 N.J. 405 (1952). The public interest must require the legislation. Katobimar, supra. The law must not be unreasonable, arbitrary or capricious. The means selected should have a real and substantial relation to the object sought to be obtained. Sabato v. Sabato , 135 N.J. Super. 158 (Law Div. 1975).

A state's inherent power to protect the public welfare may be validly exercised under the Contract Clause even if it impairs a contractual obligation, so long as it does not destroy it. P.T. & L. Constr. Co. v. Comm'r., Dept. of Transp. , 60 N.J. 308 (1972); Stamboulos v. McKee , 134 N.J. Super. 567 (App. Div. 1975); and U.S. Trust Co. of New York v. State , 134 N.J. Super. 124, (Law Div. 1975), aff'd, 69 N.J. 253 (1976), app. dism. Gaby v. Port Authority of New York and New Jersey , 427 U.S. 901, 96 S. Ct. 3185, 49 L. Ed. 2d 1195 prob. juris. 427 U.S. 903, 96 S. Ct. 3188 (1976), 49 L. Ed. 2d 1197. Plaintiff's recovery has been mandated recoverable from particular sources. There is a taking only if that legislative mandate destroys the insurance contract between plaintiff and defendant.

As early as 1911 the New Jersey courts recognized that certain deductions from earned benefits may be required without offending constitutional mandates. Allen v. Passaic Bd. of Ed. , 81 N.J.L. 135 (Sup. Ct. 1911). That case holds that deductions from teachers' pay for the teachers' retirement fund was not a taking of property without due process of law or the taking of private property for public use without just compensation. By statutes in 1907 the Legislature decreed as to the employment of teachers that "every person who shall be appointed to any position * * *

after the first day of January 1, 1908, shall be a member of the fund by virtue of such appointment." Since the statute was in effect when plaintiff and defendant entered into a contract of employment, the court held it formed a part of such contract and was one of the terms of plaintiff's employment. The court held that the creation of the fund was an important public measure and tended to make the position of teacher a more desirable one, thereby contributing to a more effective educational system. There was, therefore, a strong public and social purpose for the legislation. Persons desiring to become teachers were free to accept or refuse such positions. If they accepted a teaching position, the act was binding upon them. Since the statute formed a part of the contract, the net amount was known, and there was no taking of property in the constitutional sense.

Similarly, the collateral source provision of N.J.S.A. 39:6A-6 is, by the terms of the legislation, incorporated into every contract of automobile liability insurance in the State of New Jersey after January 1, 1973. The need for such reform was clear.

Great injustices existed under the prior system of tort recovery. Under that negligence system a driver had to be entirely blameless in order to recover. Automobile accident victims often waited many years while their claims were processed through the courts. Meanwhile, these victims spent huge sums for medical expenses and lost wages. The most severely injured, who needed the money the most, were often forced to compromise their legitimate claims. Some less severely injured victims were paid quickly and overgenerously. To correct these inequities the Legislature passed the first party No-Fault Act, where each person involved in an automobile accident could recover within 30 days of the accident. Recovery from the insurance company for out-of-pocket medical expenses, income continuation benefits up to $100 a week for 52 weeks, essential service benefits, survivor benefits and funeral expense benefits

is permitted. N.J.S.A. 39:6A-4. The Legislature had four purposes in mind in enacting the no-fault legislation: (1) to increase the number of persons covered; (2) to reduce the costs of auto insurance; (3) to increase the availability of coverage, and (4) to reduce litigation and court time. Automobile Insurance Study Commission Report to the Governor and the Legislature, Reparation Reform for New Jersey Motorists , at 7 (Dec. 1971).

The most difficult objective was reducing the costs of insurance. The original concept behind no-fault was that the number of law suits would decrease while the number of claims filed against insurers would increase. The debate on the success of the system is now widespread. New Jersey Magazine , Sept. 1976 and May 1976. Sheeran Editorial, The Philadelphia Bulletin (South Jersey ed.), April 4, 1977. Zanate, "Sheeran Denies Rate Rise for 9 Auto Insurers," The Philadelphia Bulletin (South Jersey ed.), Dec. 7, 1976, at 7; Crystal, "No-Fault One Year Later," 97 N.J.L.J. 14 (Apr. 4, 1974).

First, the number of larger lawsuits have not declined. Under no-fault, injured drivers may sue only when the cost of medical treatment for soft tissue injuries (sprains, bruises, abrasions, etc.) exceeds $200. A driver sustaining any fractures, disfigurement or permanent injuries can sue regardless of medical costs. Second, the amount of the average claim has not decreased to offset the increase in claims frequency. The insurance companies have not been able to make up their increased medical payments by saving on legal costs, as anticipated from the desired decrease in suits.

The important device designed to reduce the insurer's burden in its role as the primary source of recovery and thereby reduce costs to consumer-insureds is established in N.J.S.A. 39:6A-6. It provides statutory right to deductions for collateral sources that belong to insurers. Solimano v. Consolidated Mut. Ins. Co. , 146 N.J. Super. 393, 397-398 (Law Div. 1977). By ...

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