On appeal from the Superior Court of New Jersey, Law Division, Essex County.
Approved for Publication February 21, 1997.
Before Judges Havey, Brochin and Kestin. The opinion of the court was delivered by Brochin, J.A.D.
The opinion of the court was delivered by: Brochin
The opinion of the court was delivered by
Defendant Ruth Breen claims that she is a family member of a named insured under an automobile insurance policy issued by plaintiff New Jersey Manufacturers Insurance Company and that she is therefore entitled to underinsured motorist coverage. The insurer disclaimed. The Law Division entered summary judgment sustaining the disclaimer on the basis of Aubrey v. Harleysville Insurance Companies, 140 N.J. 397, 658 A.2d 1246 (1995). We hold that Aubrey, insofar as it voids the underinsured motorist coverage that New Jersey automobile policies containing that coverage purport to extend to family members of named insureds, should be given only prospective effect.
Ms. Breen was seriously injured in a motor vehicle accident that occurred on February 7, 1991, while she was driving her own automobile. Her tortfeasor was insured under a $100,000 automobile liability policy. Ms. Breen's automobile was insured under a policy issued by Liberty Mutual Insurance Company that included underinsured motorist coverage of $50,000. Consequently, the tortfeasor's vehicle was not underinsured if Ms. Breen's insurance policy was the yardstick. N.J.S.A. 17:28-1.1e; Harmon v. New Jersey Automobile Full Ins. Underwriting Ass'n, 268 N.J. Super. 434, 633 A.2d 1033 (App. Div. 1993); Tyler v. New Jersey Automobile Full Ins. Underwriting Ass'n, 228 N.J. Super. 463, 550 A.2d 168 (App. Div. 1988).
Ms. Breen lived in her parents' household. Her parents operated an incorporated family business which traded under the name "Cardinell Products." New Jersey Manufacturers Insurance Company insured "Cardinell Products" under a "Business Auto Policy" which included liability and underinsured motorist coverages of $500,000. "Cardinell Products" was the insured named on the declarations page of the policy, and New Jersey Manufacturers alleges in an affidavit that Ms. Breen's parents were named insureds "under the Drive Other Car Coverage Endorsement." No endorsement identified by that name is included in the copy of the policy submitted to us. Ms. Breen and her mother filed certifications alleging that Ms. Breen was an employee of Cardinell Products and that she was identified to New Jersey Manufacturers annually as a driver to be insured under the policy because she operated company vehicles.
Ms. Breen sued her tortfeasor and, with the consent of New Jersey Manufacturers, accepted $95,000 from the tortfeasor's insurer in settlement of the tort claim. See Longworth v. Van Houten, 223 N.J. Super. 174, 538 A.2d 414 (App. Div. 1988). She also asserted a claim for underinsured motorist benefits against New Jersey Manufacturers under the Cardinell Products' policy and demanded arbitration to establish her damages. New Jersey Manufacturers responded to the claim and arbitrators were chosen. Before the commencement of the arbitration hearing, Ms. Breen rejected a $300,000 settlement offer from New Jersey Manufacturers, electing to proceed to arbitration. The case was partially heard by the arbitrators on May 31, 1995, but was not concluded because further medical reports were to be submitted by Ms. Breen and, if necessary, by New Jersey Manufacturers. On June 8, 1995, before the arbitration proceeding was reconvened, the Supreme Court issued its opinion in Aubrey.
On July 11, 1995, New Jersey Manufacturers filed a complaint for declaratory judgment and obtained an order to show cause why the arbitration should not be stayed on the ground that Aubrey precluded Ms. Breen from recovering under the Cardinell Products policy because it was not "personal" to her. Ultimately, the arbitration was permitted to proceed, and in October 1995 an award was entered in her favor in the amount of $325,000. On March 26, 1996, after what was in substance a motion for summary judgment, the Law Division entered a judgment declaring that, by virtue of Aubrey, Ms. Breen was "not entitled to underinsured motorist benefits under the policy of insurance issued by [plaintiff New Jersey Manufacturers Insurance Company] to its insured, Cardinell Products . . . ."
In considering whether Aubrey bars Ms. Breen's claim, we view the Cardinell Products policy as if Ms. Breen's parents were named insureds. During the oral argument of the present case before our court, New Jersey Manufacturers conceded that it would have recognized Ms. Breen as an insured if Aubrey had not overruled Landi v. Gray, 228 N.J. Super. 619, 550 A.2d 768 (App. Div. 1988), because it read its policy as if Ms. Breen's parents, and not merely "Cardinell Products," were named insureds. That understanding of the policy was implied by the insurer's conduct in proceeding with damage arbitration. We take the same view of the policy. Only human beings are entitled to compensation under an underinsured motorist clause. Since New Jersey Manufacturers included the coverage and presumably collected premiums for it, the policy should be interpreted as if Ms. Breen's parents were named insureds because that must have been the reasonable expectation of the parties. See Werner Indus. v. First State Ins. Co., 112 N.J. 30, 35, 548 A.2d 188 (1988). Cf. Rosenberg v. Universal Underwriters Ins. Co., 217 N.J. Super. 249, 525 A.2d 349 (Law Div. 1986), aff'd on other grounds, 224 N.J. Super. 638, 541 A.2d 246 (App. Div.), certif. denied, 113 N.J. 333, 550 A.2d 449 (1988); but cf. Giambri v. Government Employees Insurance Co., 170 N.J. Super. 140, 405 A.2d 872 (Law Div. 1979), aff'd o.b., 174 N.J. Super. 162, 415 A.2d 1202(App. Div. 1980).
The following are the facts of Aubrey *fn1 . The plaintiff in that case, Theresa Aubrey, was seriously injured in a motor vehicle accident while she was driving a new automobile lent to her by the dealer from whom she had contracted to purchase it. Her automobile policy on her old car, which was still in force, included $15,000 of underinsured motorist coverage. Her two tortfeasors had policies with liability limits of $25,000 and $15,000. Consequently, they were not underinsured with reference to her policy. However, the dealer's car that Aubrey was driving at the time of the accident was insured under an automobile policy issued by The Harleysville Insurance Companies with underinsured motorist coverage of $1,000,000. As the occupant of a "covered auto" under the terms of that policy, Aubrey was an "insured" and she claimed underinsured motorist benefits.
The Law Division sustained the insurance company's denial of coverage on the ground that a "step-down" provision of the policy reduced the liability coverage available to the dealer's customers to $15,000, and the "parity" provision of N.J.S.A. 17:28-1.1b limits underinsured motorist coverage available to an insured to the amount of the insured's liability coverage. On appeal to our court, we reversed. We held that the "step-down" clause was inapplicable to Aubrey because of its language. We also considered an argument which the insurer based on the following statutory definition of an "underinsured" motor vehicle:
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 ...