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Rider Insurance Company v. First Trenton Companies

October 25, 2002


On appeal from the Superior Court of New Jersey, Law Division, Union County, Docket No. L-1524-00.

Before Judges Cuff, Lefelt and Winkelstein.

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


Argued September 24, 2002

This appeal arises out of Roy Jones's motorcycle accident with an unidentified vehicle. Three automobile insurance companies were potentially available to compensate Jones for his injuries caused by the uninsured motorist (UM). One of the potential insurers, First Trenton Indemnity Company, denied coverage based on a UM policy exclusion. In a declaratory judgment action, Judge William Wertheimer invalidated the UM exclusion as contrary to the statutory requirement that all standard automobile insurance policies must contain UM coverage. This action was taken despite the fact that the Commissioner of Banking and Insurance had approved the First Trenton policy containing the UM exclusion. First Trenton appeals, and we affirm.


The facts and pertinent procedural history are relatively straightforward. At the time of his accident, Jones was the named insured on two separate motor vehicle insurance policies. Rider Insurance Company insured Jones's motorcycle, providing UM coverage of $15,000 per person and $30,000 per accident. New Jersey Citizens Reciprocal Exchange (CURE) provided UM coverage for Jones's 1980 Chevrolet and 1983 Cadillac of $100,000 per person and $300,000 per accident. At the time of the accident, Jones was living in his mother's home and was also insured for $50,000 per person and $100,000 per accident as a named driver under his mother's automobile policy with First Trenton.

Rider and Cure eventually agreed to supply pro rata UM coverage for Jones up to $100,000, the maximum on the two policies, and sought additional coverage from First Trenton. Jones's mother's policy with First Trenton, however, contained an exclusion providing the insurer "does not cover bodily injury suffered or property damage incurred by any insured other than you while occupying any vehicle insured by another motor vehicle policy in which that insured was a named insured or relative." First Trenton denied Jones UM coverage under this exclusion.

A declaratory judgment action was brought and eventually summary judgment motions by all three insurance companies came before Judge Wertheimer. The judge granted summary judgment to CURE and Rider and denied summary judgment to First Trenton. The judge found the exclusion inconsistent with the statutory requirement of N.J.S.A. 17:28-1.1 that all motor vehicle insurance policies, except basic policies, must include UM coverage. Consequently, the judge found that First Trenton owed Jones pro rata UM coverage as a resident relative and named driver on his mother's policy. It is from this determination that First Trenton appeals.


The terms of an automobile insurance policy govern the insured's rights to UM coverage so long as the terms do not conflict with the UM statute or its underlying policy. Brown v. Selective Ins. Co., 311 N.J. Super. 210, 213 (App. Div. 1998). In relevant part, the current UM statute provides that "[e]xcept for a basic automobile insurance policy, no motor vehicle liability policy . . . shall be issued in this State . . . unless it includes coverage . . . for the payment of all or part of the sums which persons insured thereunder shall be legally entitled to recover as damages from owners or operators of uninsured motor vehicles. . . ." N.J.S.A. 17:28- 1.1(a). The UM statute was amended in 1983 and 1998. Before the 1983 amendment, the UM statute was different from the current statute in two ways. First, the statute before 1983 permitted "stacking," or the adding together of available UM policy limits, to afford greater coverage for injured persons. The statute now states that where UM coverage is available under more than one policy, "any recovery shall not exceed the higher of the applicable limits of the respective coverages as the limits of each coverage bear to the total of the limits." N.J.S.A. 17:28-1.1(c). The second way the 1983 amendment changed the previous law was to describe more specifically the Commissioner of Banking and Insurance's powers to approve UM policies. The amendment specified that the Commissioner could approve "terms conditions and exclusions," including those dealing with "unauthorized settlements, nonduplication of coverage, subrogation and arbitration." Id. at 1.1(d). Thus, the 1983 amendment prohibited stacking and gave the Commissioner more specific powers to review UM contract language.

In 1998, the UM statute was again amended to its current form, under a bill known as the Automobile Insurance Cost Reduction Act (AICRA), L. 1998, c. 21, § 71. As one device to reduce the high cost of New Jersey motor vehicle insurance policies, the 1998 legislation provided "for the creation of two insurance coverage options, a basic policy and a standard policy." N.J.S.A. 39:6A-1.1. The basic policy offers minimum coverage options to insureds and need not include UM coverage.

The current legislation as amended in 1983 and 1998 does not provide any indication that the Legislature intended to permit policies to exclude UM coverage, except when an insured voluntarily selects and purchases a basic policy. The cases before and after the statutory amendments support this conclusion.

In Motor Club of Am. Ins. Co. v. Phillips, 66 N.J. 277, 292 (1974), the Supreme Court found an exclusion clause in violation of the statutory intent of N.J.S.A. 17:28-1.1 and thus unenforceable. Phillips was a passenger who was injured in his host's vehicle, which was involved in an accident with an uninsured motorist. Id. at 280. Phillips's damages exceeded the policy limits of his host's vehicle and he sought UM recovery under his own policy. This policy, however, contained a provision that applied his policy "only as excess insurance" over any other similar available insurance. Id. at 281. The Court invalidated this provision, noting that the statute "contains no suggestion of relief from its undertaking in favor of an issuing insurer merely because another insurer had assumed the ...

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