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Aubrey v. Harleysville Ins. Companies

Decided: June 15, 1994.


On appeal from the Superior Court of New Jersey, Law Division, Camden County.

Before Judges Baime and Conley.


[274 NJSuper Page 238] The opinion of the court was delivered by


Plaintiff appeals a summary judgment granted defendant dismissing her declaratory judgment action seeking underinsurance motorist coverage (UIM) pursuant to a policy issued by defendant to an automobile dealer whose vehicle plaintiff was operating at the time of her accident. We reverse.

The critical facts are not in dispute. On January 5, 1991, plaintiff signed a contract to purchase a new Toyota from Chris Koch Toyota (Koch). The dealer permitted plaintiff to use the new car pending approval of plaintiff's credit. In an agreement labeled "TEMPORARY LOAN OF MOTOR VEHICLE TO PROSPECTIVE BUYER," plaintiff stated that she was currently insured under an automobile liability policy issued by Policy Management Corporation (PMC) which covered her 1989 Hyundai that she was trading in. On January 9, 1991, plaintiff's loan application was turned down. The dealer told her to keep the car while it attempted to find another source of financing.

The next day plaintiff was involved in an accident while operating the Toyota. Two other vehicles were involved. One was insured for $25,000 and the other for $15,000. The respective liability insurers paid plaintiff the policy limits, for a total recovery of $40,000. Her PMC policy contained UIM coverage of $15,000, less than the liability insurance limits available to her from the other drivers. She, thus, could not obtain UIM coverage under her PMC policy. N.J.S.A. 17:28-1.1(e) ("A motor vehicle is underinsured when the sum of the limits of liability . . . available to a person against whom recovery is sought . . . is, at the time of the accident, less than the applicable limits for underinsured motorist coverage afforded under the motor vehicle insurance policy held by the person seeking that recovery.").

It is admitted, however, that the Toyota that plaintiff was operating pursuant to her temporary loan agreement was insured by defendant under the policy issued to Koch. That policy has a $1,000,000 UIM coverage reflected on both the declarations sheet and by separate endorsement. Liability coverage, also reflected

on the declarations sheet, was as well $1,000,000. The liability coverage portion of the policy, however, which is distinct from and at a different location in the policy than the UIM endorsement, contains what is commonly referred to as a "step-down" clause. See Rao v. Universal Underwriters Ins. Co., 228 N.J. Super. 396, 401-02, 549 A.2d 1259 (App. Div. 1988). It was that clause which the trial Judge concluded precluded plaintiff from UIM coverage. Defendant had argued, and the trial Judge agreed, that pursuant to that clause, the $1,000,000 liability coverage was "stepped-down" to $15,000. The tortfeasors' vehicles, then, would not be "underinsured" for the purposes of defendant's policy, as they were not for plaintiff's PMC policy.

On appeal, plaintiff contends the "step-down" clause was previously contained in an endorsement which had been disapproved by the Department of Insurance in 1987 and argues that as such, its inclusion in the 1990-91 policy was invalid. She also argues that the UIM coverage under defendant's policy, which applies to "anyone . . . occupying a covered vehicle," facially applies to her since it is admitted the vehicle was a covered vehicle and she was occupying it at the time of the accident. Alternatively, she contends, as she did below, that the matter should have been submitted to arbitration. We disagree as to the latter, but we are convinced that on its face the UIM coverage applies and that the "step-down" clause in the separate liability provision does not, not only because it is not referenced in the UIM provision but, more importantly, does not apply by its very terms. We need not, then, address the validity of that clause in light of the earlier disapproval.

As we have said, the UIM endorsement contained in defendant's policy and applicable to the Toyota defines insured to include "anyone . . . occupying a covered auto." Defendant admitted that the Toyota was a "covered auto." Thus, plaintiff is an insured. The policy defines an underinsured motor vehicle as "a land motor vehicle or trailer for which a liability bond or ...

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