May 1, 2007
RUTGERS CASUALTY INSURANCE COMPANY, PLAINTIFF-APPELLANT,
ANDREW MCADAMS, DEFENDANT-RESPONDENT.
On appeal from the Superior Court of New Jersey, Law Division, Camden County, L-4396-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted April 16, 2007
Before Judges S.L. Reisner, Seltzer and C.L. Miniman.
This insurance coverage and choice-of-law case arises from an accident that occurred in Philadelphia, between a vehicle owned and insured in New Jersey and a vehicle owned and insured in Pennsylvania. Rutgers Casualty Insurance Company (RCIC), appeals from a trial court order dated July 21, 2006, granting summary judgment in favor of the accident victim, Andrew McAdams, who was driving the car covered by RCIC's New Jersey policy. The trial court ordered that Pennsylvania law applied to McAdams' claim for underinsured motorist (UIM) coverage under the RCIC policy and that McAdams was, therefore, entitled to $25,000 in UIM coverage, which would be stacked above McAdams' $90,000 recovery from the Pennsylvania tortfeasor's insurance policy. We reverse, based on our conclusion that New Jersey law should be applied to McAdams' claim.
In 2003, McAdams, a Pennsylvania resident, was involved in an accident in Philadelphia, while driving a vehicle owned by Megan Reeves, a New Jersey resident who had obtained automobile insurance for the vehicle from RCIC in New Jersey. The McAdams vehicle was struck from the rear by a car operated by David Scott McQuate. The McQuate vehicle was covered by a $100,000 liability policy, and McAdams settled his claim against McQuate for $90,000. He then sought UIM benefits under Reeves' RCIC policy.
Reeves' policy provided $25,000 in bodily injury liability coverage and $25,000 in UIM coverage per person. The policy defined "underinsured motor vehicle" as "a land 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." This contractual definition is consistent with New Jersey's statutory definition of "underinsured":
A motor vehicle is underinsured when the sum of the limits of liability under all bodily injury and property damage liability bonds and insurance policies available to a person against whom recovery is sought for bodily injury or property damage is, at the time of the accident, less than the applicable limits for underinsured motorist coverage afforded under the motor vehicle insurance policy held by the person seeking that recovery. [N.J.S.A. 17:28-1.1e.]
Under both definitions, the McQuate vehicle was not "underinsured" because it was covered by a $100,000 liability policy which exceeded the $25,000 coverage on the Reaves vehicle.*fn1
On the other hand, Pennsylvania law does not restrict UIM coverage to situations in which the tortfeasor's liability coverage limits are lower than the limits of the policy covering the accident victim. Pennsylvania law defines "underinsured motor vehicle" simply as "[a] motor vehicle for which the limits of available liability insurance and self-insurance are insufficient to pay losses and damages." 75 PA. CONS. STAT. § 1702. See Kmonk-Sullivan v. State Farm Mut. Auto. Ins. Co., 788 A.2d 955, 962 (Pa. 2001) (referring to "the broad coverage required by the statute"). Moreover, Pennsylvania would probably invalidate a UIM provision in a Pennsylvania insurance policy that was more restrictive than the statute permitted. For example, in Kmonk-Sullivan, supra, the Pennsylvania Supreme Court declined to enforce a provision in a policy that excluded government-owned vehicles from the definition of an "underinsured" motor vehicle. Ibid. Therefore, under Pennsylvania law, the McQuate vehicle would be considered underinsured if McAdams' damages exceeded the $100,000 available under McQuates' liability policy. If the RCIC policy had been written in Pennsylvania, the more restrictive definition of UIM in the policy would likely be unenforceable under Pennsylvania law.
The trial judge concluded that there was a conflict-of-law issue and resolved it in favor of applying Pennsylvania law. While the judge recognized that ordinarily "a contract will be construed in accordance with the laws of the state in which it was written," in this case "[t]he overwhelming [factual] connections are to the State of Pennsylvania." He also reasoned that since Reeves lived in South Jersey and worked in Pennsylvania, the insurer could have reasonably expected that her car would be driven in Pennsylvania and should have expected Pennsylvania law to be applied in case of an accident occurring there.
Our review of the trial court's grant of summary judgment is plenary, applying the Brill standard. Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998); Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995).
In deciding conflict-of-law issues, our courts first determine whether there is a conflict and, if so, use the "governmental-interests" test to resolve the conflict. See Rowe v. Hoffman-LaRoche, Inc., ___ N.J. ___ (2007). Where the issue concerns an insurance contract, our Court has articulated the test in the following language:
[T]he proper approach in resolving conflict-of-law issues in liability insurance contract controversies . . . calls for recognition of the rule that the law of the place of the contract ordinarily governs the choice of law because this rule will generally comport with the reasonable expectations of the parties concerning the principal situs of the insured risk during the term of the policy and will furnish needed certainty and consistency in the selection of the applicable law. At the same time, this choice-of-law rule should not be given controlling or dispositive effect. It should not be applied without a full comparison of the significant relationship of each state with the parties and the transaction. That assessment should encompass an evaluation of important state contacts as well as a consideration of the state policies affected by, and governmental interest in, the outcome of the controversy.
While this approach is necessarily broad and flexible, we find it to be appropriate in this case. It best serves and accommodates the diverse, important considerations which must be duly weighed in settling conflicts of law in litigation such as this. We thus hold that, in an action involving the interpretation of an automobile liability insurance contract, the law of the place of the contract will govern the determination of the rights and liabilities of the parties under the insurance policy. This rule is to be applied unless the dominant and significant relationship of another state to the parties and the underlying issue dictates that this basic rule should yield. [State Farm Mut. Auto. Ins. Co. v. Estate of Simmons, 84 N.J. 28, 37 (1980) (citations omitted).]
Like New Jersey, Pennsylvania requires insurers to offer UIM coverage, 75 PA. CONS. STAT. § 1731(a), but does not require drivers to have UIM coverage. "Purchase of uninsured motorist and underinsured motorist coverages is optional." Ibid. Likewise, in New Jersey, "UIM coverage is a matter of contractual agreement." Rutgers Cas. Ins. Co. v. Vassas, 139 N.J. 163, 168 (1995) (quotations and citation omitted). Pennsylvania's insurance law on UIM has no requirement analogous to New Jersey's "deemer" statute, which requires insurers doing business in New Jersey to provide the minimum level of benefits to accident victims injured in New Jersey consistent with New Jersey law,*fn2 even if the insurers cover those insureds under policies written out of state that do not provide such coverage. N.J.S.A. 17:28-1.4. Hence, Pennsylvania statutory law does not require insurers writing policies in other states to match its UIM coverage for their insureds who are injured in Pennsylvania. The Pennsylvania Court has also recognized that the "overarching public policy" of Pennsylvania's motor vehicle insurance laws is to control costs. Progressive N. Ins. Co. v. Schneck, 813 A.2d 828, 831 (Pa. 2002). That is also a principal goal of New Jersey's auto insurance laws. See Reilly v. AAA Mid-Atlantic Ins. Co., 390 N.J. Super. 496, 506 (App. Div. 2007); Walsh v. Mattera, 379 N.J. Super. 548, 558 (App. Div. 2005). This goal is not served by requiring insurers to provide UIM coverage far in excess of that for which the policy holders have paid. Of course the deemer statute may be seen as inconsistent with this cost-saving principle, but we perceive a clear demarcation between a requirement imposed by statute and one inferred as a matter of public policy.
Pennsylvania case law acknowledges this distinction between statutory requirements and public policy. Absent a specific statutory requirement, Pennsylvania courts have recognized that "UIM coverage is not mandated by public policy because there is no clear statutory requirement mandating UIM coverage. Consequently, a policy [of insurance] which limits or excludes UIM coverage is not a per se violation of public policy." Progressive N. Ins. Co., supra, 813 A.2d at 833.
In Progressive, the Pennsylvania Court cited with approval an earlier case, Hall v. Amica Mut. Ins. Co., 648 A.2d 755 (Pa. 1994), in which it had rejected a claim that UIM coverage should be extended outside the territorial United States. Progressive, supra, 813 A.2d at 832-33. The following language from Hall is pertinent to McAdams' claim that the New Jersey UIM coverage for which Reeves paid should be extended to a situation not covered in the policy:
The fact that a Pennsylvania motorist need not purchase uninsured motorist coverage even within the state of Pennsylvania undermines the argument that public policy in favor of protection against uninsured motorists has such force, dominance, and universality that insurers must offer worldwide uninsured motorist coverage and cannot include any territorial limitations in an uninsured motorist policy. [Id. at 761 n.2.]
The Hall court also reasoned that cost should be considered:
Moreover, Amica argues that it contracted and collected a premium to insure its customer against loss due to uninsured motorists in a clearly stated territory; it did not contract to cover its customer throughout the world including places where uninsured motorist risk is entirely unknown or the known risk is unacceptably high, regardless of a country's traffic rules and regulations, traffic patterns, insurance requirements, even where no motor vehicle insurance is required at all. If uninsured motorist coverage were extended worldwide, the rates of Pennsylvania insurers would necessarily reflect the increased scope of the risk as well as the increased difficulty and expense involved in the investigation of claims. In addition, motorists who do not drive in foreign countries would be required to subsidize the additional costs of underwriting the risk to those who do. We do not think the uninsured motorist law contains an indication of public policy which is clear enough to void a plain, unambiguous territorial limitation clause in an insurance contract. [Id. at 761.]
Hence, we find no basis to conclude that Pennsylvania has a policy of requiring that all injured accident victims have UIM benefits available to them. At most we conclude from Kmonk-Sullivan, supra, that Pennsylvania strictly requires insurance policies written in Pennsylvania to conform to Pennsylvania insurance law, rejecting efforts to narrow coverage through policy exclusions that are inconsistent with that State's law. Consequently, we doubt that a true conflict-of-law situation exists here because it appears likely that Pennsylvania courts would enforce the contractual limitation on UIM coverage in Reeves' New Jersey policy. However, if there is a conflict-oflaw issue, we resolve it in favor of applying New Jersey law.
On the conflict issue, we find no basis to conclude that Pennsylvania's governmental policy to control insurance rates is substantially different from that of New Jersey, although its UIM statute is somewhat broader. We do not conclude that Pennsylvania's interest in applying its UIM law to provide coverage under a policy written outside its borders outweighs New Jersey's interest in enforcing its statutory definition of "underinsured motor vehicle." The insurance contract was made in New Jersey and this State's law should govern its interpretation. State Farm, supra, 84 N.J. at 37.
Nationwide Mut. Ins. Co. v. Perlman, 187 N.J. Super. 499 (App. Div.), certif. denied, 93 N.J. 292 (1983), does not dictate a different result. In that case, as in Veazey v. Doremus, 103 N.J. 244 (1986), our courts addressed conflict-of-law issues concerning inter-spousal immunity, an issue controlled by public policy considerations rather than by contract language. In both cases, the result favored the law of the state in which the spouses resided. However, significantly, neither case involved a contractual provision that by its terms controlled the coverage issue. In Nationwide, we reasoned that, "absent a specific provision to the contrary in the policy, it would be within the reasonable expectation of the parties that coverage would extend to inter-spousal actions where permitted by local law. There was no such specific exclusion of coverage for inter-spousal claims here." 187 N.J. Super. at 504. In the case before us, however, the extent of UIM coverage is controlled by the specific language of the policy, which reflects New Jersey law on the subject. See Muto v. Kemper Reinsurance Co., 189 N.J. Super. 417, 424 (App. Div. 1983). Consequently, the reasonable expectations of the parties should be deemed to have been based on the contract, and judgment should have been entered for RCIC.