On certification to the Superior Court, Appellate Division.
The opinion of the Court was delivered by Garibaldi, J. Chief Justice Wilentz and Justices Handler, Pollock, O'Hern, and Stein join in this opinion. Justice Coleman did not participate.
The opinion of the court was delivered by
This appeal raises several questions concerning underinsured motorist (UIM) coverage. We consider whether an insured who receives an arbitration award from his tortfeasor, moves to confirm that award, enters judgment on that award, and issues a warrant of satisfaction of that judgment--all without notice to his UIM insurer--may subsequently assert a claim against his UIM carrier for UIM benefits. We also consider the procedure set forth in Longworth v. Van Houten, 223 N.J. Super. 174, 538 A.2d 414 (App. Div. 1988), addressing the competing interests of insureds and insurers, in respect of the insured's third-party claim, the insurer's subrogation rights, and the resolution of the UIM claim.
On January 15, 1989, defendant Chris Vassas (Vassas) was involved in an automobile accident with a vehicle driven by Andre Vold (Vold or tortfeasor). Vold was insured under a policy issued by Allstate Insurance Co., providing the statutory minimum liability limits of $15,000/$30,000. Vassas was insured by defendant Rutgers Casualty Insurance Company (Rutgers), whose policy included an endorsement for UIM coverage in the amounts of $100,000/$300,000.
Shortly after their collision, Vassas filed suit against Vold for personal injuries sustained in the accident. Vassas's suit against Vold proceeded to mandatory arbitration pursuant to Rule 4:21A-1(a)(1). Vassas accepted the arbitration award of $15,000 plus interest, Vold's policy limit, and confirmed the award, as required by Rule 4:21A-6(b)(3). Judgment was entered on October 2, 1990, whereupon Vassas filed a warrant of satisfaction of that judgment on October 15, 1990, and received Vold's policy limit of $15,000.
On January 8, 1992, Vassas asserted, for the first time, a claim against Rutgers for UIM benefits. The claim letter makes reference to an earlier demand upon Rutgers for UIM coverage arising out of this accident, but no evidence of that asserted prior demand exists. Although soon after the accident Vassas did notify Rutgers of the collision damage to his car, he never notified it of his personal injuries, his suit against Vold, the arbitration award, his acceptance of that award, the entry of judgment, and the issuance of a warrant of satisfaction.
Rutgers immediately filed this suit for declaratory judgment to deny Vassas coverage. Rutgers argued that Vassas's confirmation of the arbitration award, entry of judgment, and issuance of the warrant of satisfaction destroyed its subrogation rights against the tortfeasor, Vold. The trial court, on cross-motions for summary judgment, granted Vassas's motion and denied Rutgers's motion. The court dismissed Rutgers's complaint and ordered it to enter into arbitration with Vassas regarding his UIM claim. The court held that only the issuance of a general release, as opposed to a warrant of satisfaction of judgment, would destroy a UIM insurer's subrogation rights against the tortfeasor, and that the confirmation of an arbitration award does not preclude a UIM insurer from filing a subrogation claim against the tortfeasor.
Rutgers filed a motion for reconsideration under Rule 4:49-2, arguing that because Vassas delayed in seeking UIM benefits, the two-year statute of limitations on the underlying tort had already run, which prevented Rutgers from instituting action against the tortfeasor. The trial court denied Rutgers's motion, asserting that Rutgers had no excuse for its failure to make the statute-of-limitations argument earlier. Moreover, the trial court held that, in any event, the statute of limitations had not commenced running until the arbitrator had set the amount of the arbitration award.
Rutgers appealed to the Appellate Division, which reversed the Law Division in an unreported opinion. The appellate panel held that the motion to confirm an arbitration award, the entry of judgment, and the execution of the warrant of satisfaction in favor of the underinsured tortfeasor, Vold, had the same preclusive effect against the UIM insurer, Rutgers, as did the issuance of a general release. Because the Appellate Division reversed the trial court on this point, it declined to address Rutgers' statute-of-limitations argument. Vassas moved for reconsideration, and the Appellate Division issued a supplemental opinion reaffirming its earlier determination.
Vassas filed a petition for certification to this Court, and Rutgers filed a cross-petition. We granted both petitions. 137 N.J. 165 (1994).
In 1983, the Legislature, concerned that victims of automobile accidents were placed at risk not only by uninsured drivers but also by underinsured drivers, introduced legislation providing for UIM coverage. The Legislature enacted N.J.S.A. 17:28-1.1(e)(1), which states, in part:
A motor vehicle is underinsured when the sum of the limits of liability under all bodily injury and property damage liability bonds and insurance policies available to a person against whom recovery is sought for bodily injury or property damage 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. A motor vehicle shall not be considered an underinsured motor vehicle under this section unless the limits of all bodily injury liability insurance or bonds applicable at the time of the accident have been exhausted by payment of settlements or judgments. The limits of underinsured motorist coverage available to an injured person shall be reduced by the amount he has recovered under all bodily injury liability insurance or bonds.
Although the Legislature made uninsured motorist (UM) coverage mandatory, it determined that insurers only need offer UIM coverage to each motorist; purchase of this additional protection is optional. The purchase of UIM coverage is "a matter of contractual agreement." Longworth, supra, 223 N.J. Super. at 178.
Vassas's insurance policy with Rutgers contained the following ...