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Cannavo v. Liberty Mutual Insurance Co.


October 16, 2007


On appeal from Superior Court of New Jersey, Law Division, Middlesex County, L-7088-05.

Per curiam.


Argued telephonically August 24, 2007

Before Judges Payne and Messano.

Plaintiff, Vito Cannavo, III, was injured on May 15, 2002 when the truck that he was driving was rear-ended by a vehicle operated by Leonard Levy, propelling Cannavo into the rear of a vehicle operated by Robert Young. At the time of the accident, Levy was insured under a policy of auto insurance issued by Allstate Insurance Company. Following receipt of Allstate's policy limit of $50,000, Cannavo filed underinsured motorist claims with Liberty Mutual Insurance Company, the insurer of Cannavo's two personal vehicles, and State Farm Insurance Company, the insurer of Cannavo's employer, Joseph Percario, Inc., the owner of the truck Cannavo was driving when the accident occurred.

After State Farm declined coverage, Cannavo filed suit against it and Liberty Mutual and, following discovery, moved for entry of partial summary judgment against State Farm. Liberty Mutual then filed a cross-motion for summary judgment on the ground that its coverage was excess to that of State Farm, and State Farm moved for summary judgment on the ground that its UIM coverage did not apply to Cannavo. Following oral argument, the motion judge ruled in favor of Cannavo on his claim against State Farm in an order of partial summary judgment, dated May 12, 2006, that stated: "defendant State Farm Insurance Company must provide Underinsured Motorist coverage to plaintiff for the May 15, 2002 motor vehicle accident." The summary judgment motions of State Farm and Liberty Mutual were denied.

Thereafter, State Farm moved for reconsideration, and at that time presented additional information to the court that it claimed demonstrated notice to the insured of limitations in its uninsured and underinsured (UM/UIM) coverage, adopted after the passage of New Jersey's Automobile Insurance Cost Reduction Act of 1998 (AICRA). However, the motion judge denied the motion on the ground that her initial decision had not been premised on a lack of notice, and that State Farm had failed to demonstrate error in that initial decision. In orders dated August 1, 2006, the motion judge ordered that State Farm submit to UIM arbitration, and she granted summary judgment to Liberty Mutual.

State Farm has appealed from the Court's May 12, 2006 and August 1, 2006 orders, claiming that they resulted from a misapplication of relevant insurance coverage law. In opposition, Cannavo has made arguments regarding the timeliness of State Farm's motion for reconsideration and appeal, which we decline to address, R. 2:11-3(e)(1)(E), instead turning directly to the substantive arguments presented by both parties.

The State Farm policy at issue, effective from March 4, 2002 to September 4, 2002, listed as the sole insured, Joseph Percario, Inc. The policy, which State Farm's counsel stated was "a standard car policy . . . not a business automobile policy," provided UM/UIM coverage for damages arising from bodily injury or property damage "that an insured is legally entitled to collect from the owner or driver of an . . . underinsured motor vehicle." The term "insured" was defined separately in connection with UM and UIM coverages in a definitional section entitled "Who Is an Insured" that provided in relevant part:

1. When the bodily injury or property damage arises out of the ownership, maintenance or use of an uninsured motor vehicle, Insured means:

a. you;

b. your spouse;

c. your relatives; and

d. any other person while occupying

(1) your car . . . .

2. When the bodily injury or property damage arises out of the ownership, maintenance or use of an underinsured motor vehicle, Insured means:

a. you;

b. your spouse;

c. your relatives who are neither listed as a named insured on any other personal automobile policy nor a spouse of such a named insured . . .

The UM/UIM coverage section additionally contained an exclusion from coverage


State Farm took the position before the motion judge and here that Joseph Percario, Inc., alone, was an insured for UIM purposes, and that such coverage for Cannavo did not exist. In support of that position, State Farm relied on the Supreme Court's decision in Pinto v. N.J. Mfr's Ins. Co., 183 N.J. 405 (2005), a case validating the applicability of the step-down provisions of an employer's UIM coverage to an employee who was injured in a work-related accident while "occupying" a covered vehicle, but was not a "named insured" under the policy.*fn1 The business policy in Pinto afforded UM/UIM coverage limits of one million dollars per accident to the "named insureds": two corporate entities. Although the policy afforded UIM insurance coverage to "anyone . . . occupying a covered auto," a step-down provision capped UIM exposure for injuries to employees who were not named insureds at the limit provided by the employee's own automobile insurance policy or that of a resident family member. In giving effect to this provision, the Court found that "the denomination of a corporate entity as the 'named insured' in the employer's policy" was not so "ambiguous as to allow any employee to be characterized as a 'named insured' and thus avoid the step-down." Id. at 407. It held: "Our case law recognizes the legitimacy of step-down provisions even though they may result in differential treatment of similar plaintiffs based on the existence of other available insurance. Id. at 412 (citing Magnifico v. Rutgers Cas. Ins. Co., 153 N.J. 406, 418 (1998)).

Cannavo asserts the applicability of dictum in our decision in Cook-Sauvageau v. PMA Group, 295 N.J. Super. 620 (App. Div. 1996), certif. denied, 150 N.J. 29 (1997). That decision was preceded by the Supreme Court's decision in Aubrey v. Harleysville Ins. Cos., 140 N.J. 397 (1995). A discussion of Aubrey provides the background necessary to an understanding of Cook-Sauvageau.

In Aubrey, a prospective purchaser, permitted by a car dealer to drive a new car in the period before her auto loan was approved and sale of the car was consummated, sustained bodily injuries in an auto accident. Following the accident, the purchaser sought UIM coverage from the dealer's auto insurer under a policy that excluded the car dealer's customers from liability coverage, but in its UIM endorsement, defined "insured" to include any person "occupying a covered vehicle."

Id. at 401. In determining that coverage did not exist under the dealer's policy in the circumstances presented, the Court declined to construe the policy language literally, finding such a construction would be contrary to Aubrey's reasonable expectations. Id. at 404. Instead, it limited Aubrey to the UIM coverage that she had purchased, and thus was "held" by her, declaring that UIM insurance is personal to the insured. Ibid.

In Cook-Sauvageau, the claimant was injured while operating a van owned by his employer, Joyce Electric, Inc., that was covered by a policy of insurance issued by PMA. When the claimant sought UIM coverage from PMA, the insurer rejected the claim, noting that, although coverage was provided pursuant to the literal terms of its policy because it applied to persons occupying a covered auto, the claimant had his own personal UIM insurance with Prudential. It construed Aubrey as limiting the claimant to that insurance. 295 N.J. Super. at 622-23. We rejected PMA's position, stating:

Although Cook-Sauvageau was not specifically named in Joyce Electric's business automobile policy, it is . . . clear in this case . . . that the essential risk for which PMA's business automobile policy was intended to provide coverage was an accident involving an employee's operation of one of the employer's vehicles. . . . Under PMA's policy, UIM benefits are provided to any person "'occupying' a covered 'auto,'" which certainly includes an employee of the insured who is injured while operating one of its vehicles during the course of employment. [Id. at 627.]

As additional support for this conclusion, we recognized, in language significant to the present matter, that: if the UIM endorsement of the standard business automobile policy were construed to provide coverage only to the employer, the premium paid for UIM coverage would not provide any meaningful benefit either to the employer or to its employees. When as in this case a business automobile policy is issued to a corporate employer, the actual purchaser of the policy cannot itself suffer bodily injury and thus could not maintain a claim for UIM benefits except perhaps in the rather unusual situation where its collision coverage was insufficient to cover the full damages to its vehicle. [Id. at 627-28.]

In Pinto, the claimant contended that "'non-fortuitous primary operators of a corporation's covered vehicles are implied . . . insureds in a commercial auto insurance policy that technically names only the corporate entity as being the named insured'" and that "to hold otherwise would mean that the premium for UIM coverage did not provide 'any meaningful benefit either to the employer or to its employees.'" 183 N.J. at 414-15 (citing Cook-Sauvageau, supra, 295 N.J. Super. at 627-28). The Pinto Court rejected that position, determining that it resulted from an overreading of the decision. 183 N.J. at 415.

It stated: "Here, coverage is not disputed. Only the discrete application of a step-down provision is at issue." Id. at 416.

In the present case, unlike Pinto, coverage is disputed, as the result of State Farm's position that Cannavo cannot recover because he does not meet the definition of insured applicable to the UIM provisions of the policy and because of the exclusion from UM/UIM coverage of any "person" other than an insured or relative "if that person is a named insured or relative of a named insured under another policy providing uninsured and underinsured motorist coverage."

If State Farm's literal reading of the definition of insured applicable to its UIM coverage is accepted, then no UIM coverage for bodily injury exists, since such injury cannot befall the inanimate corporation that is the only insured under the policy's terms. Although UM coverage is proffered, not only for the corporation, but also for "any other person" injured while occupying a covered vehicle, that crucial provision is absent from the definition of insured for UIM purposes, which is limited to coverage of "you," "your spouse" and, in limited circumstances, "your relatives" - terms that are in large measure meaningless in the context of a policy issued solely to a corporate insured.*fn2 As a result, UIM benefits under the policy can be obtained only in those rare instances in which property damage in excess of collision coverage exists. See Cook-Sauvageau, supra, 295 N.J. Super. at 627-28. Bodily injury coverage is wholly unavailable. Yet, examination of the declarations page of the policy suggests that a premium for UIM coverage, consisting of bodily injury and property damage protection, was paid, although its amount is obscured by the combination of UM and UIM coverage under a single premium charge.

We are reluctant in these circumstances to adopt State Farm's interpretation of its UIM coverage, since that interpretation wholly nullifies its insuring agreement, as it applies to UIM coverage for bodily injuries. The Court has previously held that a contract should not be interpreted in a fashion that renders its undertakings meaningless, Russell v. Princeton Laboratories, Inc., 50 N.J. 30, 38 (1967) - a principle that we have applied in connection with the construction of insurance policy exclusions that could serve to make coverage undertakings illusory. See Customized Distrib. Serv's v. Zurich Ins. Co., 373 N.J. Super. 480, 493 (App. Div. 2004), certif. denied, 183 N.J. 214 (2005). Cf. IFA Ins. Co. v. Atlantic Mut. Ins. Co., 331 N.J. Super. 217, 221 (App. Div. 2000) (noting, but declining to adopt the position that, because a corporation can have no "resident relatives" capable of sustaining injuries, PIP coverage appeared illusory, and that it would be more rational for corporate policy to be interpreted to mean that the terms "named insured" and "resident family members" include "employees.").

It has frequently been observed that:

In an insurance policy, an ambiguity exists when an "average policyholder cannot make out the boundaries of coverage." Weedo v. Stone-E-Brick, Inc., 81 N.J. 233, 247 (1979). It is axiomatic that "any ambiguity in an insurance contract must be resolved against the insurer and in favor of coverage." Botti v. CNA Ins. Co., 361 N.J. Super. 217, 224 (App. Div. 2003). [Pinto, supra, 183 N.J. at 419 (Zazzali, J., concurring in part, and dissenting in part).]

See also Customized Distrib. Serv's, supra, 373 N.J. Super. at 487-88.

As Justice Zazzali noted in his dissent in Pinto:

Listing a corporate entity as the named insured on a policy creates an ambiguity because that language can be interpreted in two ways. One could read the reference to the corporation as the named insured in its most literal sense and conclude that the named insured is only the corporate entity and not its employees.

Alternatively, one could reasonably interpret the same language as shorthand for all of the corporation's employees and determine that the employees are named insureds. Thus, on its face, the policy provision is susceptible to multiple meanings because the reference to the corporation as the named insured may encompass none or all of the corporation's human employees. [Pinto, supra, 183 N.J. at 420.]

That an ambiguity existed in the present case is reinforced by the fact that the policy issued by State Farm to Joseph Percario, Inc. was, as admitted by State Farm's counsel, "a standard car policy," not a business policy, and its definitional provisions were framed in terms of persons, not entities. Moreover, as disclosed by the declarations pages of the policy, State Farm evidently required identification of the vehicles' drivers since, in a section of the declarations sheets captioned "Driver(s) in Household" the names Joseph Percario, Helen Percario, and Vincent Percario were initially listed,*fn3 and in an "endorsement" to the policy, driver information was expanded to include, as well, Theus Armstead, Robert Moriarty, John and Annette Lee, and Bryan Ferreira. In certifications submitted by Joseph Percario to the motion judge, Percario attested to his subjective belief that the employees of the company were covered by the UIM provisions of the coverage provided by State Farm, a position that we regard as objectively justified.

In these circumstances, we cannot find it reasonable to assume that the purchasers of coverage on behalf of Joseph Percario, Inc. anticipated that the UIM coverage for bodily injury arising from an automobile accident afforded by the policy would be so drastically reduced as to be a nullity - a conclusion that is unaffected by our review of the change notices allegedly supplied to the insured following the passage of AICRA. In the limited circumstances of this case, we therefore agree that in the context of UIM coverage, the policy's designation of the insured as the named corporate entity is ambiguous and, employing traditional rules of construction, construe that ambiguity to meet the employer's reasonable expectation of UIM coverage for its employees. Our construction renders inapplicable the exclusion from coverage of "any person other than you" who is a named insured under another policy providing UM/UIM coverage.


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