On appeal from the Superior Court of New Jersey, Law Division, Essex County.
Approved for Publication December 6, 1996. As Corrected January 16, 1997.
Before Judges Pressler, *fn1 Stern and Wecker. The opinion of the court was delivered by Stern, J.A.D.
The opinion of the court was delivered by: Stern
The opinion of the court was delivered by
In this case defendant, who provided underinsured motorist (UIM) coverage to plaintiff, insists that plaintiff's acceptance of a settlement with the tortfeasor, perfected within thirty days of plaintiff's notice to the carrier of the offer, deprived defendant of its subrogation rights and, thus, excuses it from UIM liability. The motion Judge agreed with defendant, and plaintiff appeals from a judgment dismissing his order to show cause and verified complaint seeking to compel the carrier ("defendant" or "MCA") to arbitrate his claim for UIM benefits.
For purposes of defendant's motion to dismiss, it is uncontested that before accepting the $15,000 policy limits of the vehicle that hit plaintiff, plaintiff's counsel, by letter of September 6, 1995, *fn2 advised defendant of the offer "to settle the matter for the full extent of the insurance policy limits of $15,000" and that, unless he heard to the contrary "in writing within thirty (30) days" of the letter, counsel and the insured would "assume" both that "there is no objection to the settlement ... in exchange for a General Release" and that "[a] separate claim file shall be set up for a claim under your Underinsured provision." The covering letter also indicated that a police report, medical reports and medical bills were enclosed. Information was also supplied regarding a workers' compensation lien. By memorandum dated September 25, 1995, the carrier acknowledged receipt of the letter and asked counsel to "contact the writer to discuss the claim."
Plaintiff contends that after Discussions with the carrier (the substance of which is disputed), plaintiff accepted the policy limits from the tortfeasor and gave a release, dated September 21, 1995, in exchange for the tortfeasor's $15,000 policy limit received by plaintiff's counsel on October 6, 1995. (The check of the tortfeasor's insurer was dated October 2, 1995). According to plaintiff's counsel, settlement Discussions continued with MCA, and he supplied additional information to the carrier. He also gave defendant's representative the name of a UIM arbitrator. While not in the record before us, defendant apparently wrote to plaintiff's attorney on January 2, 1996 requesting additional information. Plaintiff responded by sending the additional documents on January 10, 1996. Subsequently, on January 16, 1996, MCA orally advised plaintiff that its subrogation rights were prejudiced by the release and it would not be naming an arbitrator. *fn3
Plaintiff argues that he obtained authorization from a representative of the carrier to settle and that, even if he had not, the lack of a timely objection by MCA demonstrated the absence of prejudice by the settlement. MCA argues that any waiver of subrogation rights must be in writing and, as the motion Judge here found, that Longworth v. Ohio Casualty Group, 223 N.J. Super. 174, 538 A.2d 414(App. Div. 1988), requires written permission to settle, and that plaintiff's failure to wait thirty days before so doing irreparably prejudiced defendant's subrogation rights. *fn4 See also Rutgers Casualty Ins. Co. v. Vassas, 139 N.J. 163, 652 A.2d 162 (1995) (adopting the Longworth procedure).
Plaintiff contends that "it is clear from the record [including the notes of defendant's adjuster] that defendant ... chose to allow plaintiff to settle." Plaintiff insists that the defendant's notes reflect that on September 27, plaintiff advised defendant that he was looking "for at least $60,000" from MCA separately under its UIM coverage and that MCA even made an offer to pay plaintiff $6,000 on October 5, 1995, before the tortfeasor's settlement check was received. According to plaintiff "the $6,000 can only mean defendant acquiesced in the settlement with the tortfeasor and was attempting to settle the claim for underinsured motorist benefits" above the $15,000 limits of the tortfeasor's policy. Defendant counters that the facts are in dispute and do not reflect either a settlement or approval of the release. It further insists that, in any event, plaintiff is not entitled to relief because, by not waiting the thirty days required by Vassas and Longworth, it irrevocably waived its right to collect UIM benefits.
It is undisputed that MCA never gave any formal or written response advising plaintiff not to settle with the tortfeasor. Defendant's primary argument boils down to the proposition that, because plaintiff did not wait the thirty days to permit MCA to respond, defendant must be deemed prejudiced as a matter of law notwithstanding that defendant never issued a written response, even on the 30th, 60th or 100th day following notice. Defendant contends that a carrier is entitled to an irrebuttal presumption of prejudice whenever the insured settles with a tortfeasor, without the carrier's express written consent, if that settlement occurs within thirty days of the notice. It asserts this is so irrespective of the carrier's knowledge or actual prejudice in the case.
Vassas explains the dilemma which gives rise to the issue we face:
The difficulty presented in Longworth was that the insurance contract's exhaustion, subrogation, and consent-to-settle clauses thrust insured victims of auto accidents into a contractual impasse that frustrated the intent and policy of the Legislature in authorizing UIM coverage. 223 N.J. Super. at 184, 538 A.2d 414. Exhaustion clauses required an insured to exhaust the tortfeasor's insurance limits before making a claim on his own UIM carrier. Id. at 182, 538 A.2d 414. For an insured whose damages exceeded his tortfeasor's insurance coverage, exhaustion could most expeditiously be achieved by settling with the tortfeasor for, or close to, the policy limits. Id. at 183, 538 A.2d 414. However, the tortfeasor's insurer would usually settle only upon the execution of a general release of liability. Id. at 184, 538 A.2d 414. Yet under the insured's UIM policy, the insured could not ...