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General Accident Group of Insurance Co. v. Liberty Mutual Insurance Co.

Decided: July 8, 1983.


On appeal from Superior Court, Chancery Division, Burlington County.

Botter, Polow and Brody. The opinion of the court was delivered by Botter, P.J.A.D.


[191 NJSuper Page 531] Liberty Mutual Insurance Company (Liberty) issued an insurance policy to its insured, Car Rentals, Inc. (Car Rentals), with a single liability limit of $2,000,000 for personal injuries and property damages resulting from any one occurrence.*fn1 The named insureds were Car Rentals, other corporations not relevant here, and employees of the named insured. The policy contained an endorsement, referred to as a rentees liability amendment, designating lower limits of liability for a "Rentee." The endorsement set bodily injury limits of $100,000/$300,000 for private passenger vehicles and commercial tractors and semi-trailers leased to a rentee. "Rentee" was defined as the lessee of the vehicle for less than one year, including any person using the vehicle with the rentee's permission. The issue in the case is whether the step-down arrangement -- higher limits for the owner-lessor and its employees, and lower limits for the rentee and its permissive users -- violates the omnibus clause requirements of N.J.S.A. 39:6-46, the statute in effect when the policy was written and when the accident which triggered this litigation occurred. In a letter opinion, the trial judge held that the two tier arrangement in one policy violated the statute and

that the policy must be read to afford coverage at the higher limit, $2,000,000, for any permissive user of an insured motor vehicle. Liberty appeals from that decision, and we now reverse.

The underlying facts giving rise to this case are not in dispute. In September 1976 an automobile operated by Michael Schettini collided with a truck owned by Car Rentals. Car Rentals had leased the truck to American Telephone & Telegraph Co. (AT & T), and it was driven by AT & T's employee, Cesar Perez, at the time of the accident. Schettini sued Perez, AT & T and Car Rentals. We are told that in the trial on liability only, Schettini was found 30% negligent and Perez 70%. Prior to trial summary judgment was entered in favor of Car Rentals. The parties thereafter agreed to a substantial structured settlement that exceeded $100,000 and was less than $1,000,000.

Plaintiff in the case before us, General Accident Group of Insurance Co. (General Accident), was the automobile liability carrier for AT & T. It had issued a policy providing AT & T and its employees excess coverage in the amount of $1,000,000 for liability arising out of the lease or use of vehicles. It is agreed that Liberty's policy affords primary coverage for the damage claim in question. However, Liberty contends that the limit of such coverage for Schettini's claim is $100,000 based on the rentee's endorsement. In this action General Accident sought a declaration that the $2,000,000 limit of Liberty's policy applies. As noted above, the trial judge agreed with General Accident's position.

AT & T is not at risk in this case. It has the benefit of coverage under the Liberty policy insuring the rented vehicle operated by its employee. It also has excess coverage under the General Accident policy. The settlement with Schettini is within the combined limits of both policies, whatever limit of primary coverage is found to apply under the Liberty policy. It may also be noted, regardless of its legal significance, that the rental contract between Car Rentals and AT & T clearly provided

that Car Rentals would supply insurance with limits of $100,000/$300,000 for bodily injury liability and $25,000 for property damage liability (as well as $250 deductible comprehensive and collision coverage or no deductible at an additional charge). The rental contract contained other provisions explaining the coverage for liability in limits of $100,000 for each person but not more than $300,000 for each accident for "anyone permitted by this agreement to drive the car."*fn2

N.J.S.A. 39:6-46, which has since been repealed by L. 1979, c. 169, ยง 5, required all motor vehicle policies furnished as proof of financial responsibility under our law to afford minimum liability coverage of $15,000 per person and $30,000 per accident. The statute provided that the insurance coverage on a designated vehicle must insure "the insured named therein and any other person using or responsible for the use of any such motor vehicle with the express or implied consent of the insured. . . ." Selected Risks Ins. Co. v. Zullo, 48 N.J. 362, 373 (1966), held that all insurance policies "must have the broad form omnibus coverage" required by N.J.S.A. 39:6-46, and any policy "which purports to have a more restrictive omnibus coverage is automatically amended to conform to the statutory standard." The issue in Zullo was whether a policy limitation could restrict coverage for an accident occurring while the operator to whom a vehicle was entrusted departed from the scope of use for which permission had been granted initially. Zullo invalidated any such restriction.

Closer to the case at hand is Keystone Ins. Co. v. Atlantic Chrysler Plymouth, Inc., 167 N.J. Super. 353 (Law Div.1979). There the court invalidated a provision in a garage owner's automobile policy which purported to eliminate omnibus coverage to the extent that a customer using the insured's vehicle had

valid and collectible insurance sufficient to meet the limits of the financial responsibility law. The intended effect was to allow coverage for the named insured but to afford coverage when the vehicle is used by a customer only to the extent that the customer does not have insurance with the minimum limits required by law. As to such users, the ...

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