December 17, 2008
ELIZABETH ARROYO AND JUANITO ARROYO, PLAINTIFFS-RESPONDENTS,
FIRST TRENTON INDEMNITY COMPANY, DEFENDANT-APPELLANT, AND STATE FARM INSURANCE COMPANY, DEFENDANT.
On appeal from Superior Court of New Jersey, Law Division, Camden County, Docket No. L-4621-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued: October 16, 2008
Before Judges Parrillo, Lihotz and Messano.
Defendant, First Trenton Indemnity Company (FTIC), appeals from a November 2, 2007 Law Division judgment entered in favor of plaintiffs, following a bench trial, on plaintiffs' declaratory judgment action.
The underlying litigation resulted following a head-on three-vehicle accident that occurred on February 13, 2000. The intoxicated tortfeasor, Peter Favuzzi, first rear-ended one vehicle operated by Edward Smith, and then crossed the center line of travel and struck the vehicle operated by plaintiff Juanito Arroyo and occupied by his wife, plaintiff Elizabeth Arroyo. Six other passengers were injured in the collisions.
The Arroyos' vehicle was insured pursuant to an automobile insurance policy issued by FTIC. The policy provided underinsured motorists (UIM) benefits in the amount of $100,000 per person and $300,000 per occurrence. Favuzzi's vehicle was insured by State Farm with liability coverage of $100,000 per person and $300,000 per occurrence. Smith's car was insured by Liberty Mutual and provided minimum liability coverage, that is, $15,000 per person and $30,000 per occurrence. Both Smith's and Favuzzi's carrier tendered the policy limits to resolve plaintiffs' and the other injured passengers' claims. A binding arbitration award assessed each claimant's request for damages consisting of pain, suffering, permanency, and economic loss. Ultimately, the court ordered a proportionate distribution of the monies paid into court.
The compensable loss resulting from plaintiffs' injuries exceeded their share of the sums received. Thus, they requested UIM benefits from FTIC. In final correspondence following arbitration but preceding suit, Elizabeth Arroyo explained she "recovered $58,500.00 from the tortfeasors and demanded the balance of her policy limits or $31,500.00."*fn1 Similarly, Juanito Arroyo sent post-arbitration correspondence advising he recovered "$32,000.00 from the tortfeasors and demanded $68,000.00 in UIM benefits."
FTIC repeatedly declined plaintiffs' requests for UIM benefits. FTIC's position was, "[t]he tortfeasor's $300,000 liability limit is not less than the insured's $100,000/$300,000 Underinsured Motorist Insurance limit."
Following a bench trial on plaintiffs' complaint, the court awarded Elizabeth Arroyo "$31,500.00 plus pre-judgment interest . . . in the amount of $3,399.09 for a total judgment in her favor in the amount of $34,899.09" and Juanito Arroyo "$68,000.000 plus pre-judgment interest in the amount of $7,337.73 . . . for a total judgment in the amount of $75,337.73."
On appeal, FTIC argues:
I. AS A MATTER OF LAW, TORTFEASOR FAVUZZI IS NOT UNDERINSURED AND NO CLAIM FOR UIM BENEFITS IS ALLOWED BY REASON OF HIS NEGLIGENCE.
II. A CLAIM FOR UIM BENEFITS BASED ON THE SMITH POLICY MUST BE PREMISED ON A FINDING OF LIABILITY, A PRESCRIBED PERCENTAGE OF LIABILITY, A QUANTUM OF DAMAGES AND A COMPARISON OF THE POLICY LIMITS.
III. NO DISPUTE OF MATERIAL FACT EXISTED AT THE MOTION STAGE, SO SUMMARY JUDGMENT SHOULD HAVE BEEN GRANTED IN FTIC'S FAVOR AT THAT POINT.
IV. THE PROCEDURAL EFFORT TO APPLY THE ZIRGER DOCTRINE WAS AMBIGUOUS AND INADEQUATE.
V. THE ARBITRATION IN WHICH THE COURT-DEPOSITED FUNDS WERE ALLOCATED WAS SUBSTANTIVELY DEFICIENT AND THEREFORE CANNOT BE BINDING ON DEFENDANT FTIC.
Plaintiffs do not dispute the premise stated in Point I, that is, Favuzzi's vehicle was not underinsured, as his automobile liability policy limits matched plaintiffs' UIM coverage limits. See Tyler v. N.J. Auto. Full Ins. Underwriting Ass'n, 228 N.J. Super. 463, 466 (App. Div. 1988) (UIM benefits are available if the tortfeasor's liability limits are lower than the limits of the underinsured motorist coverage contained in the plaintiff's policy). Following our review, we conclude we need not address the argument advanced in Point III, and we reject FTIC's suggestion it did not receive proper notice, as argued in Point IV. We agree Smith's liability was never determined (Point V). Further, we conclude a determination of whether Smith was a tortfeasor and if so, the percentage of his liability, must precede a review of whether Smith's vehicle was underinsured (Point II). Accordingly, we reverse and remand for further proceedings.
New Jersey's underinsured motorist coverage statute, N.J.S.A. 17:28-1.1(e)(1), "creates a framework within which one can purchase as much UIM protection as is desired, given the purchaser's individual situation[.]" French v. N.J. Sch. Bd. Ass'n Ins. Group, 149 N.J. 478, 482-83 (1997); Bauter v. Hanover Ins. Co., 247 N.J. Super. 94, 96 (App. Div.), certif. denied, 126 N.J. 335 (1991). "'The principle of UIM coverage is not to make the injured party whole, but to put that person in as good a position as if the tortfeasor possessed an amount of liability insurance equal to the UIM coverage of an insured under the policy in question.'" Vassiliu v. Daimler Chrysler Corp., 356 N.J. Super. 447, 456 (App. Div. 2002) (quoting Calabrese v. Selective Ins. Co., 297 N.J. Super. 423, 431 (App. Div. 1997)) aff'd in part and rev'd in part, 178 N.J. 286 (2004); see also Zirger v. General Accident Ins. Co., 144 N.J. 327, 334 (1996) ("the mandatory availability of UIM coverage for all insureds reflects a strong public-policy interest in providing . . . adequate compensation to New Jersey motorists for injuries sustained in accidents with underinsured motorists").
The statute describes the nature and scope of coverage as follows:
"underinsured motorist coverage" means insurance for damages because of bodily injury and property damage resulting from an accident arising out of the ownership, maintenance, operation or use of an underinsured motor vehicle . . . . 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. A motor vehicle shall not be considered an underinsured motor vehicle under this section unless the limits of all bodily injury liability insurance or bonds applicable at the time of the accident have been exhausted by payment of settlements or judgments. The limits of underinsured motorist coverage available to an injured person shall be reduced by the amount he has recovered under all bodily injury liability insurance or bonds[.]
A tortfeasor is "underinsured" only when all liability coverage insuring his or her vehicle is less than the UIM benefits of a claimant's policy. Applied to these facts, Favuzzi's automobile liability coverage was not less than plaintiffs' UIM coverage and therefore, Favuzzi's vehicle was not underinsured. Di Ciurcio v. Liberty Mut. Ins. Co., 299 N.J. Super. 426, 430 (App. Div. 1997), certif. denied, 154 N.J. 611 (1998); Tyler, supra, 228 N.J. Super. at 466.
To determine a party is underinsured, the defendant must be "an actual tortfeasor and not simply a named defendant." Carrasco v. Palma, 377 N.J. Super. 579, 583 (App. Div. 2005). "In a situation where there are multiple [tortfeasors], each defendant's vehicle and each defendant's insurance policy must be considered separately to determine whether that defendant's vehicle is underinsured." Carrasco, supra, 377 N.J. Super. at 582-83.
[W]hen the statute, N.J.S.A. 17:28-1.1(e), speaks of "available" insurance coverage, it plainly refers to that of persons who are actual responsible tortfeasors and not that of those who may have been "involved" in the accident without being liable under the law.
To rule otherwise would lead to the result that underinsured coverage would be eliminated whenever entirely blameless persons involved in an accident happen to be heavily insured.
[Prudential Prop. and Cas. Ins. Co. v. Kress, 241 N.J. Super. 81, 86 (App. Div. 1990) (quoting Gold v. Aetna Life & Cas. Ins. Co., 233 N.J. Super. 271, 276 (App. Div.1989)).]
Although the trial judge did not expressly say so, he considered Smith a tortfeasor. If, in fact, Smith was liable for causing plaintiffs' injuries, his liability policy was less than plaintiffs' UIM coverage and, depending on the percentage of Smith's liability, Smith's vehicle potentially was underinsured, entitling plaintiffs' to UIM arbitration on their claims. However, on this record, we find no evidence that Smith's liability was ever reviewed or determined. Thus, whether Smith was liable to plaintiffs and the percentage of liability ascribed to his actions must be determined prior to concluding his vehicle was underinsured.
Plaintiffs argue FTIC's failure to participate in the arbitration waived any argument regarding Smith's liability. Citing Zirger, supra, plaintiffs maintain FTIC is precluded from requesting a determination of liability or damages. 144 N.J. at 331. FTIC suggests it did not have a valid basis or opportunity to intervene in the arbitration because plaintiffs did not identify Smith as a tortfeasor. We reject each of these contentions.
The question posed in Zirger, supra, was whether the defendant-insurer was collaterally estopped from enforcement of the policy's UIM endorsement arbitration provisions when the carrier declined to exercise its opportunity to intervene in the liability and damages trial brought by plaintiff against the tortfeasor, after receipt of adequate and timely notice. Id. at 342. Determining the carrier was properly advised of the litigation, the court invalidated, as unenforceable, the contractual arbitration clause that would require "an arbitration proceeding that duplicates the underlying litigation of the tort claim." Id. at 343.
In this matter, FTIC was informed of the three vehicles involved in the February 13, 2000 accident. We note, FTIC requested whether plaintiffs received "offers extended" by the carrier for the owner of the vehicle driven by Smith and whether Smith was insured, on November 2, 2001. As to the arbitration, an October 31, 2003 letter, sent by plaintiff Elizabeth Arroyo to FTIC, stated:
Please be advised that the primary tortfeasor's carrier has deposited its policy limits in the amount of $300,000.00 with the court and a secondary tortfeasor's carrier deposited its policy limits in the amount of $30,000.00 with the court. Enclosed please find a copy of the [court's] March 7, 2003 Order permitting deposit of the policy limits on behalf of Peter Favuzzi as well as the October 17, 2003 correspondence of counsel for Edward C. Smith confirming the tender of Mr. Smith's policy limits in the amount of $30,000.00. Please also be advised that in view of the serious injuries to all claimants, this matter will proceed to binding arbitration on December 9, 2003 at 9:00 a.m. in Camden County Superior Court . . . .
Finally, please be advised that claimant names Gavin P. Lentz, Esquire . . . as claimant's arbitrator for underinsured motorists benefits . . . .
We reject FTIC's suggestion this letter may have identified Smith as a tortfeasor but not as an underinsured motorist. Further, FTIC's argument that the effect of plaintiffs' lack of specificity was to "blindside or sandbag FTIC" is wholly unpersuasive. We determine FTIC was notified that plaintiffs sought UIM benefits, binding arbitration was scheduled, and two possible tortfeasors were identified. FTIC believed it had no UIM liability, based on the extent of coverage by Favuzzi's policy, and merely overlooked the possibility of a UIM claim based on Smith's policy. Such misunderstanding rests with FTIC and was not created, as suggested, by plaintiffs' misrepresentation. Thus, we do not agree plaintiffs' notice was inadequate.
Moreover, had the binding arbitration addressed the respective liability of the putative tortfeasors, Zirger would have precluded further determination of those issues. Vaccaro v. Pa. Nat'l Mut. Cas. Ins. Co., 349 N.J. Super. 133, 143 (App. Div. 2002). However, we cannot agree with plaintiffs that the arbitration resolved all issues precluding FTIC's requests for further review of Smith's liability.
Here, Favuzzi's and Smith's carriers paid their respective policy limits into court. The arbitration served to fix the respective damages of the eight injured claimants and to allocate each claimant's proportionate share of the total $330,000 fund. FTIC received proper and timely notice and chose not to participate. Thus, the conclusions reached in arbitration, as to the quantum of damages suffered by plaintiffs' in the underlying tort action, are binding on FTIC. Zirger, supra, 144 N.J. at 340; Green v. Selective Ins. Co. of Am., 144 N.J. 344, 354 (1996).
Nevertheless, the arbitration does not preclude a review of whether Smith was a tortfeasor and if so, what percentage of liability is attributed to his conduct. These underlying determinations of liability were never presented or determined. Therefore, their consideration would not duplicate the previously conducted arbitration proceeding, rendering an adjudication unnecessary. Zirger, supra, 144 N.J. at 343; Vaccaro, supra, 349 N.J. Super. at 144. The Court in Zirger, supra, was concerned with the need for "avoidance of redundant litigation." Id. at 335. This is evident by the comment "if the underlying tort claim does not result in an adjudication of damages, as is often the case, the arbitration clause in the UM/UIM policy will be given full force and effect." Id. at 343. Arguably, liability could have been included within the same arbitration proceeding, but it was not.
Also, Smith's potential liability was not litigated before the trial court. FTIC's attempt to present the issue was precluded. The trial judge found FTIC received proper and adequate notice of the arbitration and concluded FTIC was "provided the opportunity . . . to intervene to protect its interest regarding the bodily injury action." The judge does not explain the basis for concluding Smith's liability was determined in that proceeding. Neither Favuzzi nor Smith participated in the arbitration as their carriers merely proposed payment of the respective policy limits in exchange for releases.
Accordingly, we reverse the trial court's conclusion FTIC is precluded from arbitrating the threshold analysis of whether Smith is a tortfeasor, and if so, the percentage of his liability for payment of plaintiffs' damages fixed by the July 6, 2004 court order. Hreshko v. Harleysville Ins. Co., 337 N.J. Super. 104, 110 (App. Div. 2001). Once Smith's liability is determined, a comparison may then be made of the amount of plaintiffs' damages attributed to Smith's percentage of fault. If the amount of ascribed damages exceed the limits of the liability policy covering Smith's vehicle, it is at that point plaintiffs' UIM insurance claim may be presented. French, supra, 149 N.J. at 484. If Smith is found not to be a tortfeasor, judgment for FTIC must be entered. Hreshko, supra, 337 N.J. Super. at 111.
The matter is remanded for further proceedings consistent with this opinion.
Reversed and remanded.