October 16, 2007
WENDY KARAMOLEGOS, PLAINTIFF-RESPONDENT,
BENZION YUNGER AND SWIFTY RENT-A-CAR, DEFENDANTS, AND PROFORMANCE INSURANCE COMPANY, DEFENDANT/THIRD-PARTY PLAINTIFF-APPELLANT,
ALLSTATE INSURANCE COMPANY, THIRD-PARTY DEFENDANT.
On appeal from Superior Court of New Jersey, Law Division, Essex County, Docket No. L-10037-04.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued September 19, 2007
Before Judges Wefing, Parker and Lyons.
Defendant/third-party plaintiff, Proformance Insurance Co. (Proformance), appeals from an order entered on September 22, 2006 compelling Proformance to appear at an underinsured motorist (UIM) arbitration within ninety days. We affirm.
Plaintiff Wendy Karamolegos was involved in an auto accident with defendant Benzion Yunger on December 17, 2002. Plaintiff claimed injuries to her back and neck. Yunger was driving a car owned by "Swifty Rent-A-Car" (Swifty) at the time of the accident. Plaintiff was insured by Proformance.
In February 2004, Yunger and Swifty offered plaintiff $14,000 to settle the matter. Their policy limit was $15,000. On February 27, 2004, plaintiff's attorney wrote to counsel for Proformance and requested permission to accept the settlement offer and pursue an underinsured motorist (UIM) claim under Longworth v. Van Houten, 223 N.J. Super. 174 (App. Div. 1988).
On April 16, 2004, Proformance responded to plaintiff's February 27 letter and advised that Yunger may have had additional insurance through Allstate. On May 17, 2004, Proformance advised plaintiff's counsel that it would not approve plaintiff's settlement with the tortfeasor. In June 2004, however, Allstate denied coverage for the accident. Thereafter, plaintiff's counsel sent a second request for Proformance to approve the settlement. Notwithstanding Allstate's denial of coverage, on June 28, 2004, Proformance again refused to approve the settlement, claiming that Yunger may have been covered under his mother's Allstate policy and that Allstate had not yet made a determination of that coverage.
On September 15, 2004, plaintiff's counsel sent another notice to Proformance alleging breach of fiduciary obligations and lack of good faith for withholding settlement approval for more than 200 days. In addition to the letters, plaintiff's counsel made numerous telephone calls to Proformance requesting settlement approval and UIM arbitration. Finally, in December 2004, almost two years after the accident, plaintiff filed her complaint.*fn1
On January 6, 2005, Proformance sent a letter to plaintiff's counsel setting forth its parameters for UIM arbitration. Plaintiff's counsel accepted Proformance's terms in a letter dated March 22, 2005. Proformance failed to respond. Nevertheless, in May 2005, Proformance moved for leave to file a third-party complaint against Allstate.
In August 2005, seventeen months after first requesting Proformance's approval, plaintiff accepted defendants' settlement offer and executed releases and stipulations of dismissal in favor of Yunger and Swifty.
On August 30, 2005, Proformance denied plaintiff's claim for UIM benefits claiming that plaintiff failed to give notice to Proformance prior to executing the stipulation of dismissal, thereby jeopardizing Proformance's subrogation rights.
When Proformance moved for summary judgment and argued that its subrogation rights were violated, plaintiff cross-moved to compel Proformance to appear at the UIM arbitration. Plaintiff's motion was granted and Proformance appealed, again arguing that plaintiff jeopardized its subrogation claim by dismissing her claims against the tortfeasor with prejudice.
Proformance maintains that, although plaintiff provided adequate and timely notice that the tortfeaser had made an offer within his policy limits, "Proformance repeatedly made it clear to plaintiff that it would not authorize this settlement and proceed to a UIM arbitration due to the outstanding issue of whether or not the tortfeaser had additional coverage through his mother's Allstate policy." Proformance notes that plaintiff dismissed her complaint against Yunger after Proformance entered an appearance and moved for leave to file an amended answer and third-party complaint against Allstate.
Proformance argues further that under Rutgers Cas. Ins. Co. v. Vassas, 139 N.J. 163 (1995), the proper procedure was for plaintiff to file an order to show cause, allowing the UIM carrier to take all factors into consideration, including protection of its subrogation rights against the tortfeaser. Proformance claims that it was denied the opportunity to assign the subrogation rights after plaintiff dismissed her claim with prejudice.
In Longworth, we held that "[thirty] days should be regarded as the presumptive time period if the insured notices his carrier [of a settlement offer] prior to assignment of a trial date." 223 N.J. Super. at 194. We concluded that if the carrier failed to respond within thirty days, an insured "who is in doubt as to whether acceptance of the tortfeasor's offer will impair his UIM rights may seek an immediate declaratory ruling . . . on order to show cause." Id. at 195. We held further that the UIM carrier "may . . . honor demands from their insureds to proceed to arbitration of the UIM claim prior to disposition of the claim against the tortfeasor." Ibid.
In Vassas, the Supreme Court approved the Longworth procedure because it balances the interests of insureds and insurers, injured victims and tortfeasors. It provides the insured victim an opportunity both to assert liability against the tortfeasor and to determine the liability of the UIM insurer. In addition, it apprises the UIM insurer of pending litigation by one of its insureds, which may obligate it to provide UIM coverage under the insured's policy. [Vassas, supra, 139 N.J. at 175.]
Moreover, the Court held that:
If the insured receives a settlement offer or arbitration award that does not completely satisfy the claim, because the tortfeasor is underinsured, the UIM insurer then has two options: offer to pay the insured the amount of the tortfeasor's settlement offer or the arbitration award, usually the tortfeasor's policy limit, in exchange for subrogation of the insured's rights against the tortfeasor; or, allow the insured to settle. In either case, the UIM insurer must further allow the insured the benefit of the UIM coverage. If the insurer does not respond within the time allotted for rejection of the award or settlement offer, the insured victim may, consistent with Longworth, supra, move for a declaratory ruling on order to show cause concerning the parties' rights and responsibilities. In this manner, the insured victim is afforded the protection and benefits of the tortfeasor's insurance coverage in addition to the insured's own UIM coverage. As well, the UIM carrier is able to weigh the relative merits of allowing its insured to settle and paying the difference in UIM benefits compared with paying its insured the settlement offer plus UIM benefits and itself maintaining a subrogation action against the tortfeasor.
[Id. at 174-75 (emphasis added).]
Here, when Proformance failed to respond within thirty days, plaintiff did not immediately move for a declaratory judgment. Rather, she exercised great patience in attempting to resolve the matter without resorting to litigation.
In her decision on the motion, Judge Rachel Davidson noted that under Vassas, Proformance had two choices: (1) it could pay plaintiff $14,000 in exchange for the subrogation rights against Yunger and Swifty; or (2) it could allow the settlement to proceed. She noted that
The plaintiff does not have a perpetual obligation to protect . . . Proformance's subrogation claim. And the obligation to protect Proformance's subrogation rights passed from the plaintiff to the defendant a long, long time prior to the actual settlement. Clearly, the amount of time that passed is far in excess of the 30 days presumption in Longworth. There was not a shred of anything provided in response, to indicate that this Allstate policy was real. Proformance maintains that it should not be compelled to UIM arbitration because plaintiff's dismissal of the claims against Yunger and Swifty denied Proformance the opportunity to recoup any UIM payout from them. Allstate is not involved in this appeal, but the only information in the record regarding Allstate's potential coverage is the June 2004 letter from Allstate stating that, "Allstate has never insured Benzion Yunger . . . and Benzion has never been a named insured under [his mother's] policy covering a 2001 Toyota Corolla."
We agree with Judge Davidson that plaintiff substantially complied with her obligations under Longworth and Vassas and that there is no evidence that Yunger was insured by Allstate. To the contrary, the only evidence in the record indicates that Yunger was not insured by Allstate. Proformance had more than seventeen months to approve plaintiff's request for settlement, and Proformance set out parameters for UIM arbitration, which plaintiff accepted. Nevertheless, Proformance refused to honor its own commitment to arbitrate.
We are not persuaded by Proformance's argument that plaintiff's failure to file an order to show cause left Proformance unable to take all factors into consideration. Proformance had more than enough time to consider all of the factors. Moreover, Proformance had the opportunity to present and fully argue its subrogation rights claim before the trial court on its own summary judgment motion.
In short, we affirm substantially for the reasons stated by Judge Davidson in her decision rendered on the record of September 22, 2006. R. 2:11-3(e)(1)(A).