On certification to the Superior Court, Appellate Division, whose opinion is reported at 274 N.J. Super. 237 (1994).
The opinion of the Court was delivered by Pollock, J. Chief Justice Wilentz and Justices Handler, O'Hern, Garibaldi, Stein, and Coleman join in Justice Pollock's opinion.
The opinion of the court was delivered by: Pollock
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).
THERESA AUBREY V. THE HARLEYSVILLE INSURANCE COMPANIES (A-88-94)
Argued January 31, 1995 -- Decided June 8, 1995
POLLOCK, J., writing for a unanimous Court.
The issue on appeal is whether Theresa Aubrey, a purchaser under contract of an automobile from Chris Koch Toyota (Koch), is covered under the underinsured motorist (UIM) provisions of a garage policy issued to Koch by Harleysville Insurance Companies (Harleysville), for injuries Aubrey sustained while operating a loaned automobile with Koch's permission.
On January 5, 1991, Aubrey signed a contract with Koch to buy a new 1991 Toyota Tercel. As part of the agreement, Aubrey traded in her 1989 Hyundai. Koch retained title to the Tercel, but gave Aubrey permission to drive it pending approval of her car loan application.
Aubrey was insured under an automobile liability policy issued by the Policy Management Corporation Insurance Company (PMC). That policy provided UIM limits of $15,000 and liability limits of $15,000 for injury to one person and $30,000 for injuries to more than one person.
Aubrey's loan application was rejected on January 9, 1991; however, Koch let her use the Tercel until another lender could be found. Two days later, Aubrey was driving the Tercel when she was seriously injured in a three-car accident. The insurers for the other drivers settled Aubrey's claim by paying their policy limits, totalling $40,000.
Because the $40,000 received from the other insurance carriers exceeded Aubrey's $15,000 UIM limits, she was not entitled to recover UIM benefits under her own insurance policy. Her damages, however, were over $40,000. Therefore, Aubrey sought recovery under the UIM provisions of the Harleysville policy, which insured Koch for $1,000,000 in liability and UIM coverage.
Harleysville denied coverage, noting that Aubrey was not underinsured as defined in the UIM statute. Section 11(a) of the Harleysville policy, dealing with liability coverage, generally excludes car-dealership customers from coverage. The "step-down" clause in subsection 11(a)(2)(d), however, provides liability coverage for customers to the minimum required by law. It provides higher coverage limits for the Koch dealership and its employees, but reduces coverage for Koch's customers. The Harleysville UIM endorsement, on the other hand, does not contain a "step-down" clause. That endorsement defines "insured" to include any person "occupying a covered auto."
Under the parity provision of the UIM statute, an insured's UIM coverage cannot exceed the insured's motor vehicle liability policy limits. Thus, it had to be determined whether Aubrey's right to recover, if any, would extend to the $1,000,000 limit of the UIM clause or would be limited, because of the parity provision and the step-down clause, to $15,000. Aubrey instituted suit seeking, in part, a determination that, under the Harleysville UIM clause, she was a "covered person." Harleysville filed a cross-motion seeking dismissal.
The Law Division granted Harleysville's motion, holding that the step-down clause in the liability section of the insurance policy denied coverage to Aubrey.
On appeal, the Appellate Division reversed, finding that the UIM clause, not the liability clause, governed. As such, the court found that under the UIM endorsement, Aubrey could recover up to $1,000,000. The Appellate Division reasoned that Aubrey was an insured and that the step-down clause did not apply. Lastly, the Appellate Division dismissed Harleysville's claim that UIM coverage is personal to the insured and that Aubrey could seek recovery only under her PMC policy.
The Supreme Court granted certification.
HELD: Because her $40,000 recovery from the other drivers involved in the accident would exceed the $15,000 available to her under the Harleysville insurance policy issued to Chris Koch Toyota, Theresa Aubrey is not an underinsured and is not entitled to recover under that policy.
1. In effect, the UIM statute states that the determination whether a vehicle is underinsured requires ascertaining whether the liability limits of the person against whom recovery is sought are less than the amount of UIM coverage held by the person seeking the recovery. (pp. 7-8)
2. UIM coverage, which is limited to the amount contained in the insured's policy, is "personal" to the insured. Coverage is linked to the injured person, not the covered vehicle. Limiting UIM coverage to the amount chosen by the insured comports with the insured's reasonable expectations. The amount of UIM coverage held by Aubrey was $15,000; therefore she could reasonably expect UIM coverage in that amount. The Court disagrees with the holding in Landi v. Gray because recovery does not depend on the limits of other UIM policies. Recovery depends on the UIM limits chosen by the insured. (pp. 8-11)
3. The UIM statute mandates parity between UIM coverage and an insured's motor vehicle liability policy limits. Aubrey's own policy provides for liability coverage of $15,000; therefore, her UIM coverage cannot exceed that amount. In addition, the step-down clause limits liability coverage for a customer to the statutory minimum, $15,000. Under the parity provision, Aubrey's right to recover UIM benefits would be limited to that amount. Furthermore, Aubrey's own policy meets the $15,000 statutory minimum and, therefore, does not exceed her liability limits. As such, she is not covered under the liability section of the Harleysville policy. Moreover, her $40,000 recovery exceeds the $15,000 available under the Harleysville policy. Thus, Aubrey is not "underinsured" and is not entitled to recover under the Harleysville policy. (pp. 11-12)
4. Aubrey contends that the blanket exclusion of customers in the Harleysville policy renders the liability section invalid as a matter of law. The Court disagrees. Consistent with Rao v. Universal Underwriters Ins. Co., the ...