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Country-Wide Insurance Company v. Allstate Insurance Company

January 23, 2001


On appeal from Superior Court of New Jersey, Law Division, Union County, L-2908-98.

Before Judges Newman, Braithwaite and Wells.

The opinion of the court was delivered by: Wells, J.A.D.


Argued: December 18, 2000

On leave granted, plaintiff Country-Wide Insurance Company appeals nunc pro tunc from an order denying its application to enjoin arbitration. The same order directed arbitration to proceed between it and defendant Allstate Insurance Company on Allstate's claim for reimbursement of personal injury protection (PIP) benefits. Those benefits were paid to James Donohue, a pedestrian, insured by Allstate.

The underlying facts and procedural history are undisputed. On January 30, 1997, a motor vehicle accident occurred when Zhang Yuan Gao, a New York resident, struck the pedestrian, James Donohue. Gao was insured by Country-Wide, a New York based insurance company licensed to do business in New Jersey. Country- Wide acknowledges that it is subject to the insurance laws of this state, because it is licensed to do business in this state, and that it is required under N.J.S.A. 17:28-1.4, the so called "deemer statute"(*fn1), to provide PIP benefits pursuant to N.J.S.A. 39:6A-4. As a result of the accident, Donohue sustained bodily injuries and incurred medical expenses allegedly exceeding $75,000, which were paid by Allstate pursuant to N.J.S.A. 39:6A-4. Allstate sought contribution from Country-Wide for its PIP outlay pursuant to N.J.S.A. 39:6A-11.

Country-Wide refused payment, claiming that it was not required to participate in inter-company arbitration.

On May 14, 1998, Country-Wide filed a complaint and order to show cause seeking a declaration that it was not required to contribute to PIP benefits paid by Allstate. Country-Wide also sought to permanently enjoin Allstate from instituting arbitration for any claim for contribution of such benefits.

On June 12, 1998, a hearing was held on the order to show cause. At the conclusion of the hearing, Country-Wide's application for a permanent injunction was denied and an order was entered compelling the parties to proceed with arbitration, pursuant to N.J.S.A. 39:6A-11. The trial court reasoned that because Country-Wide is required to carry PIP coverage payable to an injured pedestrian under N.J.S.A. 39:6A-4, it would also be required, under N.J.S.A. 17:28-1.4, to pay pro rata contribution to a carrier who under its policy paid PIP benefits.

On August 6, 1999, Country-Wide filed a motion to supplement the record and for reconsideration. After Allstate submitted opposition, the court issued an order denying reconsideration and allowing Country-Wide to supplement the record with discovery documents showing that Allstate includes in its automobile insurance policies a "follow-the-family" exclusion in substantially the form recited in Rutgers Cas. Ins. Co. v. The Ohio Cas. Ins. Co., 299 N.J. Super. 249, 252 (App. Div. 1997), aff'd, 153 N.J. 205 (1998).

To better understand Country-Wide's defense against Allstate's claim, we trace the history of inter-company PIP contribution claims. The statutory requirement set forth in N.J.S.A. 39:6A-11 that there be equitable pro rata reimbursement between carriers for PIP benefits is one of long standing. For many years, however, Allstate resisted payment of such contribution under this provision. Its early efforts failed. See, e.g. Selected Risks Ins. Co. v. Allstate Ins. Co., 179 N.J. Super. 444 (App. Div. 1981), cert. denied, 88 N.J. 489 (1981).

Nonetheless, it persevered, and ultimately, based on an informal "gentlemen's agreement" among New Jersey carriers acknowledged in Rutgers Cas. Ins. Co., supra, 299 N.J. Super. at 256, and backed by a clause in their respective policies, such contribution generally became obsolete. That clause, which became known as the "follow-the- family" exclusion, provides:

[T]he insurance under this endorsement does not apply to bodily injury:

(h) to any person other than the named insured or relative if that person is entitled to New Jersey personal injury protection coverage as a named insured or ...

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