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David v. Government Employees Insurance Co.

May 08, 2003


On appeal from the Superior Court of New Jersey, Law Division, Somerset County, Docket No. SOM-L-1745-00.

Before Judges Stern, Coburn, and Alley.

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


Argued January 22, 2003

In this appeal we are urged to depart from our decision in Knox v. Lincoln Gen. Ins. Co., 304 N.J. Super. 431 (App. Div. 1997). We held in Knox that a personal injury protection (PIP) insurance carrier is not required to notify its insured before obtaining reimbursement from an alleged tortfeasor's insurer of PIP benefits the PIP insurer has paid to its insured, even though the tortfeasor's coverage might be insufficient to cover both the PIP reimbursement claim and the damages of the PIP carrier's insured, and the insured consequently might be unable to recover from the tortfeasor's carrier his or her full amount of damages. Id. at 437.

In Knox, we noted the application of N.J.S.A. 39:6A-9.1, stating:

The New Jersey Automobile Reparation Reform Act (the Act), N.J.S.A. 39:6A-1 to 6A-35, . . . requires every automobile liability insurance policy to provide PIP coverage so that an injured motorist might have ready access to medical benefits without regard to the motorist's fault and at a time before the ultimate liability for the accident is determined. Sotomayor v. Vasquez, 109 N.J. 258, 261 (1988); see also N.J.S.A. 39:6A-5. In pertinent part, N.J.S. A. 39:6A-9.1 provides as follows:

An insurer . . . paying benefits pursuant to [39:6A-4], as a result of an accident occurring within this State, shall, within two years of the filing of the claim, have the right to recover the amount of payment from any tortfeasor who was not, at the time of the accident, required to maintain personal injury protection or medical expense benefits coverage, other than for pedestrians, under the laws of this State[.] In the case of an accident occurring in this State involving an insured tortfeasor, the determination as to whether an insurer . . . is legally entitled to recover . . . shall be made against the insurer of the tortfeasor, and shall be by agreement of the involved parties or, upon failing to agree, by arbitration. [304 N.J. Super. at 434 (alterations in original).]

The court in Knox "glean[ed] a legislative intent in dealing with statutory reimbursement schemes[,]" a "scheme" which the decision states was derived from an "instructive" earlier holding in Otto v. Prudential Prop. and Cas. Co., 278 N.J. Super. 176 (App. Div. 1994), and from the Supreme Court's decision in Frazier v. N.J. Mfrs. Ins. Co., 142 N.J. 590 (1995), a workers' compensation case. Id. at 435-37. We continued, The carriers, whether paying PIP benefits or worker's compensation benefits, both have a right to be made whole even though reimbursement may reduce the pool of available insurance coverage to which the claimant or injured employee may look for recovery. See Otto, supra, at 181; Frazier, supra, at 605. The fact that a PIP carrier is given a degree of priority in being reimbursed for PIP payments made to its injured insured is understandable. The Act requires the injured motorist's medical expenses to be paid up-front by the PIP carrier without regard to the motorist's fault even before there has been a determination of ultimate liability for the accident, in order to afford the injured motorist a prompt measure of relief not available were he/she relegated to a conventional common-law negligence action. [citation omitted.] Thus, the possibility that PIP reimbursement may be charged against the tortfeasor's liability coverage is a fair trade-off.

All is not lost for the injured claimant. Recovery may be sought under the underinsured motorist coverage of the tortfeasor's [sic] policy or even against the tortfeasor's excess liability insurer, if such coverage exists.

Beyond insurance coverage, the injured claimant still has a full cause of action for recovery from the tortfeasor, although in the case of an underinsured or impecunious tortfeasor that course may not be fully satisfactory. [Id. at 437.]

In the case before us now, the motion judge applied the Knox holding and granted summary judgment dismissing plaintiff's complaint, denying plaintiff's motion for summary judgment, and granting summary judgment in favor of GEICO, the alleged tortfeasor's automobile liability insurance carrier. The motion judge determined that she was "constrained to follow Knox and its reasoning[.]"

Essentially, the facts here are that plaintiff allegedly was injured on February 10, 1999, when the vehicle she was driving was in a two-car collision in New Jersey with a vehicle driven by a New York resident, Adolf Gaerner. GEICO provided Gaerner's automobile insurance coverage under a policy in the amount of $300,000. Plaintiff's insurer was CNA Insurance Company and/or Commercial Insurance Company (collectively "CNA").

In August 2000, CNA obtained through arbitration against GEICO, and without notice to plaintiff, an award of $57,208.46, which was the total of $42,718.86 in PIP benefits CNA had paid plaintiff, $187.50 in "essential services benefits" paid by CNA, and counsel fees for CNA of $14,302.12. The latter was a thirty-three and one-third percent contingent fee calculated on the $42,906.36 total CNA had paid for PIP and essential services benefits. *fn1

Plaintiff's counsel thereafter made a settlement offer to GEICO for the $300,000 policy limits and was met with the response from GEICO that this amount was not available to be paid to plaintiff because of the award to CNA. Plaintiff ultimately settled her claim for $242,791.52.

Plaintiff further asserts on this appeal that (1) even if we do not decline to follow Knox, she is entitled to recover so much of the arbitration award as awarded counsel fees to CNA; (2) even if she does not prevail on the foregoing issues, she had a valid claim for underinsured motorist benefits and should have been awarded summary judgment on that aspect of her complaint; (3) even if she does not prevail on any of the foregoing, CNA should have been denied summary judgment for failure to respond to discovery.


To support her contention that Knox should not be controlling in this case, plaintiff asserts (1) that her carrier owed her a fiduciary obligation which it improperly subordinated to its own interests by obtaining the PIP reimbursement award, which served to lower the amount under the GEICO policy available to be paid to plaintiff; (2) that CNA's actions were inconsistent with a principle she claims to be common in subrogation cases, that an insurer's right to reimbursement must yield to the insured's rights when the settlement is for less than the full amount of the damages; (3) that this principle was recognized in Pennsylvania Mfrs. Ass'n Ins. Co. v. Gov't Employees Ins. Co., 136 N.J. Super. 491 (App. Div. 1975), aff'd. o.b., 72 N.J. 348 (1977) (deciding claim under N.J.S.A. 39:6A-9, a predecessor of the current PIP recovery statute); (4) that Otto and Frazier, supra, were incorrectly relied on in Knox to furnish a rule of decision because significant differences between Knox and those earlier cases made the latter inapplicable; (5) that since the PIP carrier has already been paid for providing coverage, the carrier obtains an unfair windfall if it is allowed recovery when the insured's recovery is thereby diminished; (6) that Knox was incorrect in concluding that a PIP carrier would lose its arbitration rights if it failed to proceed with arbitration; and (7) that the current PIP reimbursement statute, N.J.S.A. 39:6A- 9.1, was adopted to supersede, "at least in certain circumstances[,]" the holding in Aetna Ins. Co. v. Gilchrist Bros., Inc., 85 N.J. 550, 567 (1981), insofar as it determined, according to plaintiff, that "once the right to reimbursement created by the earlier statute of N.J.S.A. 39:6A-9 lapsed, a PIP carrier no longer could maintain a claim for reimbursement or subrogation of its PIP payments against the tortfeasor or its insurer."

A-As a threshold matter, we address an issue that we raised sua sponte after oral argument. That issue, on which the parties have submitted supplemental briefs, is whether N.J.S.A. 39:6A-9.1 applies to a case such as this one, where the alleged tortfeasor is a non-resident of New Jersey and his or her vehicle is neither garaged nor registered in New Jersey.

Upon consideration of the parties' respective views, we are satisfied that the statute applies in this scenario. Its plain language makes it applicable to "any tortfeasor" not required to maintain PIP coverage. The Legislature did not limit the statute's applicability to commercial vehicle owners or to New Jersey residents, though it plainly could have done so. N.J.S.A. 39:6A-9.1 refers, moreover, to the "deemer" statute, N.J.S.A. 17:28-1.4, which requires, among other things, that any insurer that is authorized to transact automobile or motor vehicle insurance business in New Jersey and that sells such a policy in another state or Canada must provide PIP coverage for the insured automobile when operated in New Jersey. The deemer statute creates a particular category of out-of-state motorists, namely, the insureds of a defined category of insurers. Because the Legislature in effect has provided that such motorists are not within the scope of N.J.S.A. 39:6A-9.1, the necessary inference is that out-of-state motorists whose insurers are not subject to the deemer statute are subject to the procedures of N.J.S.A. 39:6A-9.1. In other words, in drafting N.J.S.A. 39:6A-9.1, the Legislature would not have needed to refer to the deemer statute if a tortfeasor who resides in another state or who owns a vehicle insured in another state would not have been potentially liable for PIP reimbursement. Thus, we conclude that in N.J.S.A. 39:6A-9.1 the Legislature contemplated recovery of PIP reimbursements from out-of-state residents.

This interpretation, moreover, furthers the purpose of the No Fault Act and its amendments to reduce insurance costs for New Jersey residents, and accords with the interpretation embraced by the Supreme Court in State Farm Mut. Auto. Ins. Co. v. Licensed Beverage Ins. Exch., 146 N.J. 1, 15 (1996), in which the Court expressed an intent to read the reimbursement requirement broadly so as to encompass all potentially liable tortfeasors, "consistent with the legislative objective of reducing insurance premiums for owners of private-passenger vehicles."

Although cases pre-dating State Farm apply a somewhat narrower interpretation of N.J.S.A. 39:6A-9.1, none has held that a non-resident tortfeasor, driving a vehicle garaged and insured in another state, was not liable for PIP reimbursement under the statute. We further observe that our recent decision in Gov't Employees Ins. Co. v. Allstate Ins. Co., __ N.J. Super. ___,___ (2003) (slip op. at 2-3), considered a fact pattern similar to the one before us here and concluded that GEICO was responsible under N.J.S.A. 39:6A-9.1 for ...

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