On appeal from the Superior Court of New Jersey, Law Division, Camden County, L-1535-04.
The opinion of the court was delivered by: Lintner, J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Lintner, S.L. Reisner and Seltzer.
This insurance dispute requires us to determine the default personal injury liability coverage responsibility of an automobile insurance carrier where the tortfeasor's policy is subject to retroactive revocation following an otherwise covered accident. We hold that when faced with liability for damages sustained by an innocent third-party claimant, a carrier's default liability on a standard automobile policy subject to retroactive revocation is equal to the $15,000/$30,000 limits mandated by the Automobile Insurance Cost Reduction Act (AICRA), specifically N.J.S.A. 39:6A-2n and -3. Therefore, we overrule Mannion v. Bell, 380 N.J. Super. 259, 260-61 (Law Div. 2005), which held that under AICRA the default coverage following retroactive revocation was limited to the Personal Injury Protection (PIP) benefits and property damage liability coverage mandated in the alternative basic policy described in N.J.S.A. 39:6A-3.1.
The facts are undisputed. On February 15, 2002, Daniel Gaffney's vehicle collided with a vehicle operated by Cheryl Varjabedian and owned by her mother, Louise Denney. At the time, Varjabedian lived with her mother. Gaffney filed suit for personal injuries, naming Varjabedian and Denney as defendants. Denney's vehicle was covered by an insurance policy issued by New Jersey Manufacturers Insurance Company (NJM) with a $300,000 liability limit. Varjabedian's husband, John, had a policy issued by Motor Club of America Insurance Company (Motor Club) on his Dodge pickup truck with liability limits of $100,000/ $300,000. Following the filing of Gaffney's complaint, both Motor Club and NJM sought declaratory relief to reform retroactively the respective liability policies to the minimum compulsory limits of $15,000/$30,000 based upon misrepresentations concerning the status of Varjabedian's driver's license. Eventually, both NJM and Motor Club filed motions for summary judgment, which were granted, reducing both policies' liability limits to $15,000/$30,000.*fn1
Subsequent to the entry of summary judgment, NJM and Motor Club became aware of the May 15, 2005, decision in Mannion when it was reported in the September 26, 2005, issue of the New Jersey Law Journal. State Court Decisions - Trial Court, 181 N.J.L.J. 1165, 1318 (Sept. 26, 2005). Both moved to amend the summary judgment orders previously entered to provide that each was not required to provide any liability coverage. Encompass Insurance Company, the carrier providing uninsured/underinsured (UM/UIM) motorist coverage for Gaffney, was permitted to intervene.*fn2 On February 7, 2006, the motion judge placed his opinion on the record. Noting that he was not bound by the Law Division decision in Mannion, the judge concluded that he was "clearly not satisfied that [NJM] has provided sufficient bases to warrant an amendment of an order granting a motion for summary judgment previously ordered . . . after the Mannion decision had been made."
On appeal, NJM and Motor Club argue that the motion judge erred in failing to follow the decision in Mannion. Varjabedian and Denney counter, arguing that the motion judge's determination was correct because the decision in Mannion runs counter to the State's long-standing policy favoring protection of innocent third parties. Initially, we note that the motion judge did not provide any legal analysis for his determination not to follow the decision in Mannion. Instead, he based his decision on procedural grounds, explaining that NJM and Motor Club obtained the specific relief they sought despite the prior decision in Mannion.
We now affirm the orders denying the amendment sought by NJM and Motor Club because we are convinced that the decision in Mannion is not in accord with provisions of AICRA, N.J.S.A. 39:6A-1.1 to -35, the corresponding amendments to N.J.S.A. 17:28-1.1 and N.J.S.A. 39:6B-1, and the un-repealed provisions of N.J.S.A. 39:6-48 dealing with financial responsibility.
Under N.J.S.A. 39:6-48(a), once its insured has become responsible for damages to third-party judgment creditors, an insurer is precluded from retroactively "cancel[ing]" or "annul[ing]" an automobile liability policy based upon prior misrepresentations or fraud of its insured. N.J.S.A. 39:6-48(a), however, permits a carrier to enter any defense it has against its insured when defending a judgment creditor's claim "with respect to the amount of the excess limits of liability." Based in part upon the non-cancellation provisions of N.J.S.A. 39:6-48, we have held that a carrier is not entitled to retroactively void a policy after its insured becomes liable to an innocent third party for damages. Rather, the insurer's policy is reduced to the minimum limits prescribed by statute. Marotta v. N.J. Auto. Full Ins. Underwriting Ass'n, 280 N.J. Super. 525, 530-32 (App. Div. 1995), aff'd, 144 N.J. 325 (1996). In Marotta, decided before the passage of AICRA, we reasoned that "[a] driver . . . has the right to expect that all other drivers will be insured to the extent required by compulsory insurance." Id. at 532. We also anticipated that drivers desiring protection above the non-cancellable minimal coverage would protect themselves by purchasing UM/UIM coverage. Ibid.; see also Fisher v. N.J. Auto. Full Ins. Underwriting Ass'n, 224 N.J. Super. 552, 557-58 (App. Div. 1988) (requiring insurer to provide minimal third-party PIP benefits to passenger injured in insured vehicle, notwithstanding that policy on vehicle was declared void ab initio). N.J.S.A. 39:6A-3 requires every owner of a motor vehicle to maintain automobile liability insurance coverage with minimum limits of $15,000 per injury and $30,000 per accident. See also N.J.S.A. 39:6B-1. Policies issued with the required $15,000/$30,000 limits are known as "standard automobile insurance polic[ies]." N.J.A.C. 11:3-3.2. Although this requirement pre-dated AICRA, AICRA still requires insurers to offer at least this level of coverage.
In 1998, with the adoption of AICRA, our Legislature introduced a non-compulsory option known as the "basic automobile insurance policy." N.J.S.A. 39:6A-3.1. Under subsection a and b of that statute, the basic policy is required to contain a reduced PIP coverage (subsection a) and property damage liability coverage in the amount of $5000 (subsection b). Subsection c requires carriers issuing basic policies to provide "optional liability insurance coverage" with limits of $10,000. Under N.J.S.A. 39:6A-3.1 the insured "may elect" a basic policy "[a]s an alternative to the mandatory coverages" provided in N.J.S.A. 39:6A-3 and -4.
With the adoption of AICRA, N.J.S.A. 17:28-1.1 was also amended to except mandatory UM coverage from the basic policy. Thus, while all other automobile policies provide mandatory UM coverage with minimum limits of $15,000/$30,000, N.J.S.A. 17:28-1.1a, the basic policy provides no first-party UM coverage. Along with the creation of the basic policy, N.J.S.A. 17:28-1.1e(2) was amended to provide that automobiles covered with a basic policy are not considered uninsured motor vehicles.
In Mannion, the Law Division judge reasoned that, under AICRA, the minimum compulsory insurance at the time of the plaintiff's accident was the basic policy and, thus, the liability coverage, which was optional in the basic policy, was not compulsory coverage under the law. Mannion, supra, 380 N.J. Super. at 265. Relying on our decision in Marotta, the judge also reasoned that the injured plaintiff (1) could not expect the tortfeasor to have any more coverage than that provided by the basic policy and (2) could purchase first-party ...