On appeal from the Superior Court, Appellate Division, whose opinion is reported at 330 N.J. Super. 231 (2000).
The opinion of the court was delivered by: Chief Justice Poritz Presiding
ON APPEAL FROM Appellate Division, Superior Court
In this declaratory judgment action, plaintiff seeks indemnification from defendant insurer in connection with a suit brought against him by his wife for injuries sustained in a boating accident. Specifically, plaintiff asks that we set aside the intra-family exclusion in his boatowner's insurance policy. The trial court ruled in favor of the insurer. A divided panel of the Appellate Division likewise denied plaintiff his requested relief, concluding that the exclusion was plainly written and thus valid. We agree and affirm.
Plaintiff owned a boat insured by Allstate Insurance Company (Allstate). Plaintiff's boatowner's policy consists of eighteen pages, including the table of contents, with two columns of print on each page, in addition to a two-page declarations sheet. The declarations sheet outlines the coverages and limits of liability in dollar amounts as well as the premiums by item. The declarations sheet also indicates that the coverages and limits of liability are "SUBJECT TO THE FOLLOWING FORMS AND ENDORSEMENTS." There are four such forms and endorsements listed, the first of which is "BOATOWNERS POLICY."
The boatowner's policy is written in regular and bold type. On page three, the definitions page, the policy reads, "?Insured person' -- means you and, if a resident of your household: a) any relative; and b) any dependent person in your care." On page twelve, there is a heading "Losses We Do Not Cover." On the next page, still under that heading, the policy includes an intra- family exclusion that reads: "We do not cover bodily injury to an insured person or property damage to property owned by an insured person."
On September 3, 1995, plaintiff was operating his boat with his wife on board. During that trip, plaintiff allegedly operated the boat in a negligent manner and, as a result, his wife suffered injuries. Plaintiff submitted a claim to Allstate on behalf of his wife, but the carrier disclaimed coverage based on the intra-family exclusion in the policy. Thereafter, plaintiff's wife sued plaintiff for her injuries.
Allstate provided a defense for plaintiff under a reservation of rights. Plaintiff then filed this declaratory judgment action against Allstate seeking to void the intra-family exclusion. In the alternative, plaintiff sought to compel the carrier to indemnify him because of the insurer's alleged failure to inform plaintiff of the exclusion. The underlying injury case and the declaratory action were consolidated. Both parties filed motions for summary judgment. The trial court denied plaintiff's motion and granted defendant's motion, thereby dismissing plaintiff's action.
With one member of the panel dissenting, the Appellate Division affirmed the trial court's disposition. Zacarias v. Allstate Ins. Co., 330 N.J. Super. 231 (App. Div. 2000). The majority held that the policy was free of ambiguity and was to be given its "plain and ordinary meaning." Id. at 234. The dissenter concluded that the policy should be read to conform to the reasonable expectations of the insured, explaining that plaintiff had purchased insurance with the intention of covering all legally cognizable liability claims arising from the use of his boat. Id. at 236-37 (Pressler, P.J.A.D., dissenting). Plaintiff filed this appeal as of right. R. 2:2-1(a).
We give special scrutiny to insurance contracts because of the stark imbalance between insurance companies and insureds in their respective understanding of the terms and conditions of insurance policies. Gibson v. Callaghan, 158 N.J. 662, 669 (1999). In the first instance, the words of an insurance policy are to be given their plain, ordinary meaning.
"In the absence of any ambiguity, courts should not write for the insured a better policy of insurance than the one purchased." Id. at 670 (quotation and citation omitted). However, "[i]nsurance policies are contracts of adhesion and as such, are subject to special rules of interpretation." Ibid. (citing Longobardi v. Chubb Ins. Co., 121 N.J. 530, 537 (1990); Meier v. N.J. Life Ins. Co., 101 N.J. 597, 611-12 (1986)). When there is ambiguity in an insurance contract, courts interpret the contract to comport with the reasonable expectations of the insured, even if a close reading of the written text reveals a contrary meaning. Id. at 671. "?The objectively reasonable expectations of applicants and intended beneficiaries regarding the terms of insurance contracts will be honored even though painstaking study of the policy provisions would have negated those expectations.'" Sparks v. St. Paul Ins. Co., 100 N.J. 325, 338-39 (1985) (quoting R. Keeton, Insurance Law 351 (1971); R. Keeton, Insurance Law Rights at Variance with Policy Provisions, 83 Harv. L. Rev. 961, 967 (1970)).
That fundamental rule of interpretation, known as the doctrine of reasonable expectations, has long been a part of our law. This Court invoked the doctrine in Kievit v. Loyal Protective Life Insurance Co., 34 N.J. 475 (1961). In Kievit, the plaintiff owned an accident insurance policy that covered losses "?resulting directly and independently of all other causes from accidental bodily injuries,'" but not losses "?resulting from or contributed to by any disease or ailment.'" Id. at 477. While at work, the plaintiff sustained an injury that activated or caused Parkinson's disease-like symptoms over his entire body. Id. at 478. The symptoms completely disabled him. Ibid. The insurer compensated the plaintiff for several months, then stopped payment on the ground that a pre-existing disease or ailment was contributing to his losses. Ibid.
The Court held that a pre-existing, dormant condition was not a disqualifier under the terms of the contract. Id. at 490- 91. The Court reasoned that the distinction between accidental injuries that cause disability on their own and accidental injuries that trigger pre-existing ailments was too fine for a layperson to anticipate in advance of purchasing an insurance policy. "[Insureds] should not be subjected to technical encumbrances or to hidden pitfalls and their policies should be construed liberally in their favor to the end that coverage is afforded ?to the full extent that any fair interpretation will allow.'" Id. at 482 (citation omitted). The Court also noted:
[T]he court's goal in construing an accident insurance policy is to effectuate the reasonable expectations of the average member of the public who buys it; he may hardly be expected to draw any subtle or legalistic distinctions based on the presence or absence of the exclusionary clause for he pays premiums in the strong belief that if he sustains accidental injury which results (in the commonly accepted sense) in his disability he will be indemnified and not left empty-handed on the company's assertion that his disability was caused or contributed to by a latent disease or condition of which he was unaware and which did not affect him before the accident. [Id. at 488-89.]
The Court reached a similar conclusion in Gerhardt v. Continental Insurance Cos., 48 N.J. 291 (1966). There, the plaintiff purchased a homeowner's policy. Id. at 292. The language of the policy excluded a worker's compensation claim by a domestic employee. To discover that exclusion, the insured would have had to cross-reference several provisions deep into the contract. Id. at 293-94. Citing Kievit, the Court concluded that the plaintiff's reasonable expectation of coverage against a worker's compensation claim should be fulfilled. Id. at 300. In so doing, we described the confusing nature of the policy, observing that "[it] continue[d] over many printed pages in small print and with much obscure terminology." Id. at 293. We also stated:
[T]he exclusionary clause in the policy before us was neither conspicuous nor plain and clear. . . . [O]nly a very hardy soul would have plowed through all of the fine print here in an effort to understand the many terms and conditions. . . . [I]t seems highly unlikely that the ordinary insured would have so understood it on his or her own reading. [Id. at 298, 299.]
In other instances, this Court has found no ambiguity in insurance contracts and thus enforced their terms as written. One such case is Di Orio v. New Jersey Manufacturers Insurance Co., 79 N.J. 257 (1979). In that case, the plaintiff was the insured's son who used a vehicle, owned by the insured's business and furnished for the insured's regular use, as a second family car. Id. at 266. The insurance policy for the family car covered the plaintiff when he drove a "non-owned automobile," which was defined as "?an automobile . . . not owned by or furnished for the regular use of either the named insured or any relative[.]'" Id. at 263. The insured's son drove the business- owned car and had an accident in which an infant was badly injured. Id. at 261.
The insurer disclaimed coverage because, it argued, the policy unambiguously excepted non-owned cars that the insured's family (either the insured or his son) regularly used. Ibid. The plaintiff argued that the policy should have covered the vehicle when he drove it because he did not regularly use the business-owned car. Id. at 268-69. The plaintiff claimed that the policy was ambiguous and should be construed consistent with the insured's reasonable expectations. Id. at 267.
The Court held in favor of the insurer, concluding that the doctrine of reasonable expectations did not apply. Id. at 269- 70. The coverage and the definition provisions relating to "non- owned" automobiles were on the first page of the policy, making them clear and conspicuous to the insured. Id. at 270. The Court found that the non-owned automobile provisions had fulfilled their purpose, which was to prevent an insured from obtaining coverage for multiple cars when paying for insurance on only one. Id. at 269-70.
The Court noted that "[t]he case at hand does not pose the situation where the entangled and professional interpretation of an insurance underwriter is pitted against that of an average purchaser of insurance." Id. at 270.
Similarly, in Weedo v. Stone-E-Brick, Inc., 81 N.J. 233, 235-36 (1979), the Court held that a "business risk" provision in a builder's insurance contract was unambiguous and enforceable. Stone-E-Brick's workers allegedly performed shoddy stucco and roofing work on two different jobs. When the customers sued for the costs of replacing the ...