On appeal from the Superior Court of New Jersey, Law Division, Union County.
Antell, Dreier and Brochin. The opinion of the court was delivered by Brochin, J.s.c. (temporarily assigned).
JoAnn Hamel was injured in an automobile accident. She and her husband, Richard P. Hamel, asserted a claim against William Snee, the driver of the other car involved in the accident.
Mr. Snee's automobile liability insurer was Allstate Insurance Company. The limit of his relevant coverage was $15,000, and,
because of the apparent severity of Mrs. Hamel's injuries, Allstate offered to pay that entire amount in exchange for a release.
Mr. and Mrs. Hamel had automobile insurance provided by Prudential Insurance Company which included underinsured motorist protection of $100,000. On March 31, 1988, Andrew S. Prince, Esq., the Hamels' attorney, wrote to Prudential as follows:
You should be aware that due to the seriousness of the injuries sustained by your insured, the insurance company for the driver of the other vehicle is contemplating on turning over the entire policy in the amount of $15,000.00. Due to the fact that the injuries sustained by Ms. Hamel are clearly in excess of the policy limits of the other driver, I am hereby putting you on official notice of the underinsurance claim of my client. If you wish to discuss this matter in more detail, please do not hesitate to contact me. In summary, it is my anticipation that we will clearly be making an underinsured motorist claim under the automobile policy of Joanne Hamel and her husband, Richard.
By letter dated April 12, 1988, Prudential replied as follows:
We have yet to receive an assets check back on the liable party and therefore, at this time, would not release our subrogation rights. If the liable party makes an offer to you for their policy limits, we would request that Ms. Hamel sign an underinsured partial release and trust agreement for us and then we would pay their policy limits to you so that we could proceed with subro[gation]. I would need verification in writing that they have offered their full policy limits.
Disregarding this warning that Prudential was not willing to release its subrogation rights, the Hamels' attorney sent Allstate an executed general release in its favor and in favor of Mr. Snee on May 17, 1988, requesting its $15,000 check within ten days. With his client's release and demand for payment already in Allstate's possession, Mr. Prince called Prudential to discuss the matter further, and he was informed that Prudential's investigation of the extent of Mr. Snee's assets was not yet completed. He then telephoned Allstate, requesting that it defer issuing its $15,000 check, and he was told that the check had already been mailed. It was received two days later, and it was retained unendorsed and uncashed.
On June 9, 1988, Mr. Prince was told by Prudential that its investigation was complete and that it would pay the Hamels $15,000 and exercise its ...