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Doto v. Russo

June 29, 1995


On appeal from the Superior Court, Appellate Division.

Chief Justice Wilentz and Justices Handler, Pollock, O'hern, Garibaldi, Stein, and Coleman join in this opinion.

(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).


Argued February 15, 1995 -- Decided June 29, 1995


In 1983, Sarasohn & Company (Sarasohn) purchased two insurance policies from Utica Mutual Insurance Company (Utica). The policies were obtained through Anthony Russo, a broker with Russo Insurance Agency, Inc. (Russo). One of the policies was an automobile policy providing for $750,000 in liability coverage, as well as uninsured motorist (UM) coverage and underinsured motorist (UIM) coverage of $500,000 and $1,000,000. The other policy was a $4,000,000 multi-peril policy. In August 1986, Utica decided that it would no longer offer the multi-peril policy. Instead, Utica offered to write a primary-liability policy with a $1,000,000 limit and a $3,000,000 commercial-umbrella policy. After being informed by Russo of Utica's offer, Sarasohn authorized Russo to obtain the new coverage. The policy was issued by Utica in August 1986.

Utica reinsured the umbrella policy with General Reinsurance Corporation (General Reinsurance). As the policy was nearing renewal in 1987, General Reinsurance informed Utica, on July 22, 1987, that it would not provide UM and UIM coverage in the renewal umbrella policy unless the UM/UIM limits in the underlying automobile policy were increased to match the liability limits in the auto policy. Russo was informed of the required increase in coverage. Thereafter, Russo notified Sarasohn of the required change in the umbrella policy. Sarasohn accepted the $250,000 increase and paid the additional premium. An endorsement making that change was processed effective August 11, 1987. At the time these policy limits were changed, Russo believed that the umbrella policy included UM and UIM coverage. Moreover, when the umbrella policy was renewed in August 1987, Utica had available an endorsement, form 8-UMB-14, that excluded UM and UIM coverage from umbrella policies. That endorsement was not attached to the umbrella policy purchased by Sarasohn.

Gerard Doto was an employee of Sarasohn and was a named insured under Sarasohn's commercial-automobile liability policy. On April 18, 1988, Doto was injured as a pedestrian in an automobile accident while in the course of company business. As a result of that accident, Doto incurred substantial medical expenses in excess of $750,000. Doto sued the driver of the automobile, whose insurance policy provided $250,000 in coverage. Because the driver's policy limits were less than Doto's medical expenses, he initiated a claim for UIM benefits under the automobile policy issued by Utica in which he was a named insured. Doto recovered $500,000, the full amount of UIM coverage available under the Utica automobile policy less the amount of liability insurance available under the driver's policy.

Doto's medical expenses still exceeded the amounts recovered from the driver's policy and from Utica's UIM coverage under the automobile policy. Therefore, Russo contacted Utica to confirm coverage under the umbrella policy. Employees of Utica that Russo had contacted all confirmed that there was no exclusion of UM/UIM coverage because endorsement 8-UMB-14 had not been attached to the policy excluding such coverage. Nonetheless, one-and-one-half years after Russo's initial inquiry to Utica, Russo was informed, in a letter dated September 17, 1991, that Doto's claim could not be honored because the umbrella policy did not provide UIM coverage in the state.

In October 1991, Doto sued Russo, alleging professional negligence in failing to procure an umbrella policy that included UM/UIM coverage. Doto also sought declaratory judgment against Utica to determine his right to recover UIM coverage under the umbrella policy. Russo answered and filed a cross-claim against Utica demanding judgment declaring that Doto is entitled to UIM coverage under the umbrella policy.

In June 1993, Russo moved for summary judgment declaring that the Utica policy includes UIM coverage. Doto joined Russo's motion and Utica filed a cross-motion for summary judgment on the same issue. The trial court granted summary judgment in favor of Russo and Doto, holding that the conduct of Utica, its agent, and the insured, both before writing the policy and after the accident, indicated that all parties had considered the umbrella policy to include UM/UIM coverage.

On appeal, a majority of the Appellate Division affirmed the decision of the trial court, finding that specific, cumulative circumstances supported the Conclusion that the umbrella policy provided UIM coverage. The majority based its findings on the increase in the primary limits as required by General Reinsurance and the conduct of Utica both before and after the accident. The Dissenting member of the appellate panel asserted that the umbrella policy was purely a liability policy and that the majority's ruling could not rest on the basis of "the insignificant and idiosyncratic communications involved here."

Utica appeals to the Supreme Court as of right based on the Dissent in the Appellate Division.

HELD: Based on the circumstances evident in the record, Utica Mutual Insurance Co. is estopped from denying coverage; therefore, Utica is obligated under its commercial-umbrella liability policy to provide underinsured motorist coverage to its insured.

1. Umbrella policies characteristically do not contain UM/UIM coverage. The purpose of an umbrella policy is to provide excess liability coverage. In the absence of a statutory requirement that the UM/UIM coverage be equal to liability coverage, the general rule is that umbrella policies should not be understood to provide UM/UIM coverage. Nonetheless, other principles of insurance law effect the Disposition of this appeal. (pp. 9-14)

2. Insurance policies are contracts of adhesion between parties of unequal bargaining power. Because of the unique nature of insurance contracts, courts are particularly vigilant in ensuring conformity with public policy and principles of fairness. To that end, insurance contracts are interpreted in accordance with the objectively reasonable expectations of the insured. There have been occasions when even an unambiguous contract has been interpreted contrary to its plain meaning to fulfill the reasonable expectations of the insured. In addition, insurance companies are equitably estopped from hiding behind the literal language of their policies when the company's conduct and actions, or that of their agents, causes the insured to act or fail to act based on that conduct. (pp. 14-17)

3. A review of the record presented compels the Conclusion that not only the insured, but also the insurer, acted on the assumption and expectation that the umbrella policy provided UM/UIM coverage. It is undisputable that General Reinsurance assumed that the umbrella policy provided UM/UIM coverage. Equally plain is that Utica also assumed that its umbrella policy provided such coverage. Moreover, the only reasonable inference supported by the record is that Sarasohn paid the additional premium because the reinsurer and Utica had insisted that the added coverage was a prerequisite to Sarasohn's securing UM/UIM coverage in the umbrella policy as well as in the underlying automobile policy. Furthermore, several ...

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