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Reilly v. AAA Mid-Atlantic Insurance Co.

May 14, 2008

GLEN REILLY, PETITIONER-APPELLANT,
v.
AAA MID-ATLANTIC INSURANCE COMPANY OF NEW JERSEY, RESPONDENT-RESPONDENT.



On certification to the Superior Court, Appellate Division, whose opinion is reported at 390 N.J. Super. 496 (2007).

SYLLABUS BY THE COURT

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

In this appeal, the Court considers whether, and under what circumstances, a driver who is involved in a single-vehicle accident may be considered to be "at-fault" for purposes of assessing insurance eligibility rating points. Central to this inquiry is the question of whether fault in this context is defined in negligence terms or in accordance with actuarial or underwriting concepts.

The facts are not disputed. Plaintiff Glen Reilly was returning home from a ski trip in Pennsylvania on January 2, 2003. He was driving on Route 15 in northwestern New Jersey in weather that was cold and rainy. All of the cars on the road, including Reilly's, were traveling approximately 45 m.p.h. in a 55 m.p.h. speed limit zone. Reilly came upon a patch of black ice and lost control of his car. The vehicle spun and collided with a guardrail. No other vehicles were involved and the investigating police officer did not issue a ticket or traffic citation. Reilly testified that he had not seen any accidents that night prior to his own, but witnessed many on the remainder of his trip home. Newspaper accounts the next day described the conditions throughout northern New Jersey as a "Black Ice Nightmare" that created "treacherous" driving conditions and hundreds of accidents.

At the time of the accident, Reilly had automobile insurance through State Farm Insurance Company, which reimbursed him in excess of one thousand dollars for damage that the vehicle sustained in the accident. At the same time, State Farm, without alerting Reilly, determined that the accident was an "at-fault" accident and assigned five insurance eligibility points to Reilly for future underwriting purposes. Reilly later decided to change insurance companies and applied for coverage from defendant AAA Mid-Atlantic Insurance Company of New Jersey (AAA). Although AAA issued an insurance policy to Reilly, it also concluded that the January 2, 2003 accident was an "at-fault" accident and assigned Reilly five eligibility points, along with two points based on an unrelated moving violation on September 28, 2001. As a result, AAA assigned Reilly a total of seven insurance eligibility points.

The applicable regulations in effect at the time of Reilly's accident permitted an insurer to voluntarily decline coverage to any driver who had nine eligibility points. In December 2003, however, the regulation was amended to lower the threshold from nine to seven points. Based on Reilly's seven points, he could not meet this requirement, as a result of which AAA declined to renew Reilly's policy in April 2004.

Reilly challenged his non-renewal and the five point assessment through an appeal to the Department of Banking and Insurance. After the Department issued a preliminary finding that AAA's assessment of points was correct, Reilly again appealed and the matter was transferred to the Office of Administrative Law for a hearing.

During the hearing before an Administrative Law Judge (ALJ), both Reilly and an underwriter for AAA testified. Reilly testified about the road conditions and offered evidence to support his assertion that the black ice condition was unexpected and created an extraordinarily hazardous emergency. The underwriter offered no contrary version of the facts, but testified that at the time Reilly applied for coverage, another underwriter determined that the 2003 accident was "at-fault," and five points were assigned. In addition, the underwriter testified that she had independently reviewed the 2003 accident and concluded it was correctly deemed to be an "at-fault" accident. According to the AAA underwriter, because a driver is expected to maintain control at all times, the driver is deemed "at-fault" for an accident unless there is another party to whom fault can be attributed.

The ALJ concluded that because the accident was unforeseeable, unavoidable, and caused by black ice on the roadway, it should not be considered a chargeable "at-fault" accident. The ALJ ordered that the five points be rescinded. The Commissioner of the Department issued a final decision concluding that AAA had properly deemed the accident to be an "at-fault" accident and upheld AAA's decision to decline to renew Reilly's policy. The Commissioner reasoned that a single-car accident can be deemed "at-fault" for insurance rating purposes regardless of the driver's culpability, as long as the criteria set forth in the applicable regulation, N.J.A.C. 11:3-34.3, are met.

Reilly appealed and, in a published decision, Reilly v. AAA Mid-Atlantic Ins. Co., 390 N.J. Super. 496 (App. Div. 2007), the Appellate Division affirmed. The court noted that the enabling statute, N.J.S.A. 17:33B-14, which authorized the Department to create a rating schedule for "at-fault accidents," did not define "at-fault," and concluded that the Department could promulgate regulations that clarified and defined such accidents. The Appellate Division also noted that the statute evidenced an intention to prevent "good" drivers from having to subsidize the insurance rates for "bad" drivers, and determined that the Department could interpret the statute to permit it to utilize underwriting concepts, rather than concepts of fault-based negligence, for assigning points for insurance rating purposes. Coupling that analysis with the court's usual deference to an agency's interpretation of its regulations, the appellate panel affirmed the Department's decision.

The Supreme Court granted Reilly's petition for certification. The Court notes AAA's argument that the appeal is moot because the points assigned to Reilly have now expired and can have no effect on his eligibility for insurance in the future. The Court concludes that the questions raised qualify as important matters of public interest, and addresses the merits of the appeal notwithstanding the fact that Reilly can derive no relief as a result.

HELD: The Department's application of its regulations to assign insurance eligibility points to an insured for an accident in which the insured was not negligent or culpable exceeded the scope of its statutory authority.

1. The Legislature is empowered to delegate to an administrative agency the authority to promulgate rules and regulations interpreting and implementing a statute. Such regulations are presumed to be valid, and the Court will defer to an agency's interpretation unless it is "plainly unreasonable." An agency may not, through adoption of regulations, alter the terms of a legislative enactment or frustrate the policy embodied in the statute. The statute, N.J.S.A. 17:33B-14, was enacted in 1990 as part of the Fair Automobile Insurance Reform Act (FAIR Act). It does not define what was meant by "at-fault," but it authorizes that the Commissioner adopt regulations establishing a schedule for the assessment of insurance eligibility points for certain violations and "at-fault accidents." In adopting the FAIR Act, the Legislature explained, as part of the legislative findings and declarations, that it was in the public interest to create a residual market in which insurers share in the risk of insuring the "bad driver," and to guarantee that "good drivers" secure motor vehicle insurance in the voluntary market. N.J.S.A. 17:33B-2. (pp. 12-17)

2. In compliance with the FAIR Act's directive, the Commissioner promulgated a regulation explaining the schedule of insurance points and identified how points would be assessed for insurance eligibility purposes. The regulation defines an "at-fault accident" as an accident in which a driver is "proportionately responsible," and explains that a driver is "proportionately responsible if 50 percent responsible for an accident involving two drivers; if 33 1/3 percent responsible for an accident involving three drivers, etc." N.J.A.C. 11:3-34.3. It goes on to list accidents that are specifically excluded form the definition of "at-fault," such as when the insured vehicle was lawfully parked; the insured vehicle was struck by a hit and run driver; the insured was not convicted of a traffic violation but another driver was convicted; and when the insured vehicle was struck in the rear by another vehicle. The Department's responses to comments received during the notice and comment period when the regulation was proposed includes references to fault in the sense of culpability or negligence rather than solely in terms of ratemaking or underwriting. (pp. 17-22)

3. On its face, the regulation sets forth a method for determining whether the assignment of eligibility points will be permitted. It does not directly conflict with nor does it exceed the statute's grant of authority. It is written largely in words that embrace the negligence concepts expressed both by the Legislature and by the Department. The words "proportionately responsible" suggest that the analysis is not simply one of counting the number of vehicles, but rather one of assigning responsibility, that is, fault, to each of the drivers involved. Similarly, the regulation's specific list of accidents that will be excluded from the "at-fault" category suggests that the regulation includes concepts of fault in the sense of negligence. Nothing in the language of the statute or its legislative history and nothing in the language of the regulation or the history that surrounded its adoptions suggests hat the inquiry to be undertaken in the assignment of points flows from underwriting principles. To be sure, there is a relationship between negligence principles and underwriting considerations. To the extent that the use of underwriting principles plays a role in the assignment of points, it cannot supplant the negligence-based concept embodied in the statute. The intent of the Legislature in enacting the statute was not to identify "good" and "bad" based on an underwriter's evaluation of risk, but to embrace ordinary negligence concepts as the basis for that evaluation. (pp. 22-26)

4. In previous published decisions, the Commissioner has recognized the fact that negligence concepts play a role in the assessment of eligibility points. More recently, the Commissioner has expanded the regulation's definition of "at-fault" in unpublished decisions to an interpretation that is interchangeable with the insurance concept of a "chargeable" accident. These recent decisions seeking to apply solely a ratemaking or underwriting analysis in place of the negligence or culpability driven focus, however, so exceed the agency's statutory authority that they are entitled to no deference. The Department's determination that the regulation not only includes but is governed by an analysis of underwriting rather than negligence-based fault concepts was inconsistent with the plain working of the regulation and expands the scope of the regulation beyond the authority granted by the statute. (pp. 26-29)

The judgment of the Appellate division is REVERSED.

JUSTICE RIVERA-SOTO filed a separate, DISSENTING opinion, expressing the view that after full briefing and argument, the issue raised is not worthy of consideration on a petition for certification, and that certification should be vacated as improvidently granted. Further, even if the appeal satisfied the standards for certification, he would affirm the judgment of the Appellate Division substantially for the reasons stated in the opinion below.

CHIEF JUSTICE RABNER and JUSTICES LONG, ALBIN and WALLACE join in JUSTICE HOENS' opinion. JUSTICE RIVERA-SOTO filed a separate, dissenting opinion. JUSTICE LaVECCHIA did not participate.

The opinion of the court was delivered by: Justice Hoens

Argued November 27, 2007

In this matter, we consider whether, and under what circumstances, a driver who is involved in a single-vehicle accident may be considered to be "at-fault" for purposes of assessing insurance eligibility rating points. Because we conclude that, under the circumstances presented, the Department of Banking and Insurance has applied its regulations in a manner that exceeds the scope of its statutory authority, we reverse.

I.

The facts are not disputed. Plaintiff Glen Reilly was returning home from a ski trip in Pennsylvania on January 2, 2003. He was driving on Route 15 in northwestern New Jersey in weather that was cold and rainy. There had been no snow or ice warnings in the weather forecast. Because of the rain, all of the cars on the road, including plaintiff's, were traveling approximately 45 m.p.h. in a 55 m.p.h. speed limit zone, each driver leaving several car lengths between vehicles. Shortly before 7:30 p.m., plaintiff suddenly and without warning came upon a patch of black ice and lost control of his car. The vehicle spun 180 degrees and slid from the left lane until it collided with the guardrail on the right side of the road. No other vehicles were involved and the investigating police officer did not issue a ticket or traffic citation to plaintiff as a result of the accident.

Plaintiff testified that he had not seen any accidents that night prior to his own, but witnessed many on the remainder of his trip home. Newspaper accounts the next day described the conditions throughout northern New Jersey as a "Black Ice Nightmare" that created "treacherous" driving conditions. George Berken and Mark Mueller, Black Ice Nightmare, The Star Ledger, Jan. 3, 2003, at 1. The weather "spark[ed] hundreds of accidents" and "[b]esieged police departments" unable to keep pace with the resulting "mayhem." Ibid.

At the time of the accident, plaintiff had automobile insurance through State Farm Insurance Company (State Farm), which reimbursed him in excess of one thousand dollars for damage that the vehicle sustained in the incident. At the same time, State Farm, without alerting plaintiff, determined that the January 2, 2003 accident was an "at-fault" accident and assigned five insurance eligibility points to him for future underwriting purposes. For reasons not specified in the record, plaintiff later decided to change insurance companies and applied for automobile coverage from defendant AAA Mid-Atlantic Insurance Company of New Jersey (AAA). Although defendant issued an insurance policy to plaintiff, the company also concluded that the January 2, 2003 accident was an "at-fault" accident and also assigned plaintiff five eligibility points, along with two points based on an unrelated moving violation on September 28, 2001. As a result, defendant assigned plaintiff a total of seven insurance eligibility points.

The applicable regulations in effect at the time of plaintiff's accident permitted an insurer to voluntarily decline coverage to any driver who had nine eligibility points, see N.J.A.C. 11:3-34.4(a)(8) (2002) amended by 35 N.J.R. 3260(a) (Jul. 21, 2003). In December 2003, however, the regulation was amended so as to lower the threshold from nine to seven points, see 35 N.J.R. 3260(a) (Jul. 21, 2003). Based on plaintiff's seven points, he could not meet this requirement, as a result of which defendant declined to renew plaintiff's policy in April 2004.

Plaintiff challenged his non-renewal and the five point assessment through an appeal to the Department of Banking and Insurance ("the Department"). After the Department issued a preliminary finding that defendant's assessment of points was correct, plaintiff again appealed, and the matter was transferred to the Office of Administrative Law for a hearing.

During an April 4, 2005, hearing before an Administrative Law Judge (ALJ), both plaintiff and Danielle Sease, an underwriter for defendant AAA, testified. Plaintiff testified about the road conditions on the night of the accident and offered evidence to support his assertion that the black ice condition was unexpected and created an extraordinarily hazardous emergency.

Sease offered no contrary version of the facts, but testified that the accident was, nevertheless, properly classified as "at-fault." She explained that the 2003 accident was reviewed twice by AAA for its underwriting purposes. First, when plaintiff applied for coverage, another underwriter determined that plaintiff's 2003 accident was "at-fault," and five points were assigned at that time. In addition, Sease testified that she had independently reviewed the 2003 accident and concluded that it was correctly deemed to be an "at-fault" accident. According to Sease, because a driver is expected to maintain control of his or her vehicle at all times, the driver is deemed "at-fault" for an accident unless there is another party to whom fault can be attributed.

The ALJ found Reilly's testimony "to be credible and consistent throughout," while Sease's was not. He found that defendant had no guidelines for determining fault in single-car accidents and that, as a result, those decisions were left to each individual underwriter's judgment. He further found that Sease had not independently reviewed the circumstances surrounding the accident but had merely accepted the conclusion about fault that had been made by another, unidentified underwriter. Comparing the facts relating to the accident to an emergency, the ALJ reasoned that because the accident was unforeseeable, unavoidable, and caused by black ice on the roadway, it should not be considered a chargeable "at-fault" accident. Rather, the ALJ specifically found that the accident "took place through no fault" of plaintiff. The ALJ therefore ordered that the five points be rescinded.

The Commissioner of the Department issued his final decision on May 17, 2005. The Commissioner accepted all of the ALJ's factual findings, but rejected his legal conclusion. Instead, the Commissioner reasoned that a single-car accident can be deemed "at-fault" for insurance rating purposes, regardless of the driver's culpability, as long as the criteria set forth in the applicable regulation, see N.J.A.C. 11:3-34.3, are met. The Commissioner explained:

Pursuant to N.J.A.C. 11:3-34.3, an accident is an "at-fault accident" for which eligibility points should accrue if it: involved a driver insured under the policy; resulted in payment of a claim of $500 or more for accidents that occurred before June 9, 2003, or $1,000 or more, for accidents that occurred on or after June 9, 2003 . . . which payment was not recouped from another tortfeasor; is not specifically excepted as set forth in the rule; and the driver is not excused by application of the proportionate responsibility standard.

The Commissioner therefore concluded that defendant had properly deemed the accident to be an "at-fault" accident and upheld defendant's decision ...


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