On appeal from the Superior Court of New Jersey, Law Division, Burlington County, L- 2365-01.
Before Judges Wallace, Jr., Axelrad and Hoens.
The opinion of the court was delivered by: Axelrad, J.T.C. (temporarily assigned)
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
The issue in this case is whether an insured has a right to settle a claim against a tortfeasor for considerably less than that party's coverage and then proceed against his own uninsured motorist (UIM) carrier, giving the carrier full credit for the tortfeasor's policy. The trial judge reviewed the insured's reasons for accepting the settlement and the carrier's arguments to the contrary and ordered the carrier to provide coverage for damages in excess of the tortfeasor's policy limits. The carrier appealed. We affirm.
Defendant Lewis R. Bornstein *fn1 , who was a passenger in a taxicab in New York City, sustained injuries when the driver rear-ended another car. As a result of the accident, defendant filed suit in New York against the owners and operators of the taxicab and the second vehicle which had been struck in the rear by the taxicab. The tortfeasor taxicab company had liability limits of $100,000. The second vehicle, which had liability limits of $15,000, neither offered nor paid any money in connection with the motor vehicle accident in which it had been rear-ended.
At the time of the accident, defendants had an automobile liability policy with plaintiff, Ohio Casualty Insurance Company, which had $500,000 UIM coverage. Under the insuring agreement, plaintiff promised to pay "compensatory damages which an 'insured' is legally entitled to recover from the owner or operator of an . . . 'underinsured motor vehicle.'" The policy defines an "underinsured motor vehicle" as a motor vehicle "to which a liability bond or policy applies at the time of the accident but its limit for liability is less than the limit of liability for this coverage." The policy incorporates the Longworth v. Van Houten, 223 N.J. Super. 174, 194 (App. Div. l988), procedure and requires notice of a tentative settlement, thereby allowing the insurer to exercise its subrogation rights if it so chooses. To exercise those rights, plaintiff must pay its insured the amount of the settlement within thirty days, but the insured is still entitled to UIM benefits up to the limits of the policy. The policy does not condition payment of UIM benefits upon the insured's exhaustion of the limits of the tortfeasor's policy. Instead, the carrier's limit of liability with respect to an accident with an uninsured vehicle is "reduced by all sums paid . . . by or on behalf of persons or organizations who may be legally responsible."
On February 5, 1999, defendant notified plaintiff of the pending New York action, indicated he intended to file a UIM claim, and invited plaintiff to participate in the lawsuit. On July 20, 2001, in accordance with Longworth v. Van Houten, supra, 223 N.J. Super. at 194, defendant notified plaintiff he wanted to accept the taxicab company tortfeasor's $60,000 settlement offer, and asked plaintiff to inform him within thirty days whether it wished to preserve its subrogation rights, in which case defendant would assign his claim to plaintiff in exchange for $60,000. Plaintiff then filed this declaratory judgment action, asserting it should be relieved from any obligation to pay UIM benefits because defendant's settlement was substantially below the tortfeasor's policy limit.
In response, defendant offered, consistent with Longworth, id. at 191, to credit plaintiff with the tortfeasor's full $100,000 policy limit. Defendant explained his reasons for accepting 60% of the tortfeasor's policy:
1) Empire Insurance Company, the tortfeasor's carrier, [a C company], may be going into liquidation which had the potential to cause delay, administrative obstacles, interim loss of the use of money, and "perhaps a less than dollar for dollar recovery based upon the true value of the claim."
2) Defendant's treating medical providers were located in South Jersey and he had been advised that New York courts want "live" testimony but for exceptional circumstances, which would cause additional expense and scheduling difficulties to plaintiff and his medical experts.
3) Defendant would have to pay higher legal fees to his New York counsel if the matter went to trial.
4) Defendant would incur additional costs for accommodations for himself and his witnesses if ...