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Gambino v. State Farm Insurance Co.

February 27, 2002


On appeal from Superior Court of New Jersey, Law Division, Monmouth County, L-1398-00.

Before Judges Cuff,*fn1 Wecker and Winkelstein.

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



Argued January 24, 2002

On June 7, 1998, Thomas Gambino, Sr., was operating his automobile when it struck a tree. In the vehicle at the time of the accident were his wife, Carol Gambino, their two sons, Thomas, Jr. and Anthony, and an unrelated minor passenger. Carol Gambino was killed, and their two sons and the unrelated minor passenger were injured.

Thomas Gambino's vehicle was insured by State Farm Insurance Company (State Farm) under policy #B073553-E18-30, which provided split limit liability coverage in the amount of $100,000 per person, and $300,000 per accident. By way of settlement, State Farm paid $100,000 to the Estate of Carol Gambino (the Estate), $50,000 each on behalf of Thomas, Jr. and Anthony, and $100,000 to the unrelated passenger, exhausting the total liability limits. Thomas Gambino had a second State Farm policy in effect, #Y43-5107- E17-30,*fn2 which provided split limit underinsured motorist (UIM) benefits of $250,000 per person and $500,000 per accident.

In this appeal we are asked to decide whether defendant should receive a $200,000 aggregate credit against the $500,000 UIM per accident UIM limit, leaving only $300,000 available to satisfy all of plaintiffs' claims, or whether the credit is computed by separately deducting the amount of liability insurance proceeds received by each injured party from the $250,000 UIM per person limitation.*fn3 The latter method would leave the Estate with $150,000 in available UIM coverage ($250,000 less $100,000 received under the liability policy) and each child with $200,000 available UIM coverage ($250,000 less $50,000 received under the liability policy). Although this calculation would make the aggregate UIM recovery $550,000, plaintiffs concede that their aggregate recovery is capped at $500,000. The Law Division applied an aggregate credit of $200,000 against the $500,000 per accident policy limit. We conclude that N.J.S.A. 17:28-1.1e, which defines underinsured automobile insurance coverage, and case law which has interpreted the statute, require a different result. Under the statute, when, as here, there are multiple claimants who have exhausted the tortfeasor's liability insurance, and UIM coverage is available through a split limit policy, the appropriate credit is determined by applying each injured party's recovery of liability insurance against that party's per person UIM coverage, subject only to the total per accident UIM cap set forth in the policy. Accordingly, we reverse.


Plaintiffs demanded arbitration under the UIM policy. State Farm refused to arbitrate until a declaratory ruling was obtained determining the amount of UIM benefits at stake. As a result, on March 24, 2000, plaintiffs filed a complaint and order to show cause seeking to compel State Farm to arbitrate the UIM claims and to provide UIM coverage of $250,000 per person, with a cap of $500,000 for the accident. On the return day of the order to show cause, May 26, 2000, the Law Division heard oral argument. No testimony was taken since the question presented was purely a matter of law. On November 22, 2000, the judge placed an oral decision on the record and issued a written decision. Considering the issue as one of first impression, the court phrased the question as "whether claimants may recover $500,000 from a split limit UIM policy when they've already received settlement monies from the tortfeasor's liability policy for a total of $200,000." The judge found in favor of State Farm. The court, after reading various provisions of the insurance policy into the record, concluded that the "language of the policy is clear that State Farm is obligated to pay the [$]500,000 per accident and is not obligated to pay more than that aggregate sum to satisfy claims arising from a single accident regardless of the number of claimants." Given this conclusion, the judge decided "to subtract the $200,000 previously recovered from the $500,000 per accident limit under the UIM policy, leaving $300,000. Then the parties can either divide evenly the $300,000 or can seek arbitration if State Farm is not willing to pay the total amount of the remaining UIM policy."


The purpose of UIM coverage "is to provide as much coverage as an insured is willing to purchase, up to the available limits, against the risk of an underinsured claim." Nikiper v. Motor Club of America Cos., 232 N.J. Super. 393, 399 (App. Div.), certif. denied, 117 N.J. 139 (1989). A UIM provision allows an insured to receive "benefits up to the amount contracted for, whether these come from the tortfeasor's policy or from that policy coupled with his own." Clegg v. New Jersey Auto. Full Underwriting Assoc., 254 N.J. Super. 634, 638 (App. Div. 1992) (citation omitted). The principle behind UIM coverage was recently described by Judge Shebell in Calabrese v. Selective Ins. Co., 297 N.J. Super. 423, 431 (App. Div. 1996), overruled on other grounds, Magnifico v. Rutgers Cas. Ins. Co., 153 N.J. 406 (1998), as follows:

The principle of UIM coverage is not to make the injured party whole, but to put that person in as good a position as if the tortfeasor possessed an amount of liability insurance equal to the UIM ...

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