February 19, 2009
RONALD DANCHISKO, PLAINTIFF-RESPONDENT,
HARLEYSVILLE INSURANCE COMPANY, DEFENDANT-APPELLANT.
On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-3969-07.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted: September 24, 2008
Before Judges C.L. Miniman and Baxter.
Defendant Harleysville Insurance Company (Harleysville) appeals from a November 2, 2007, order confirming an arbitration award in favor of plaintiff Ronald Danchisko (Danchisko) in the amount of $50,000 under the uninsured motorist (UM) coverage in the policy Harleysville issued to Danchisko's employer, Lift Rite Rentals, Inc. (Lift Rite), which covered its listed employees, including Danchisko.*fn1 We reverse and remand for the reasons expressed in this opinion. We need not address Harleysville's claim that the judge erred in denying its motion to intervene in the underlying tort action because that order was not included in the notice of appeal and the parties to the underlying tort action were not served with the notice of appeal, as would have been required by Rule 2:5-1(a). Thus, we do not have jurisdiction of the issue. See N.J. Div. of Youth & Family Servs. v. K.M., 136 N.J. 546, 550, 562 (1994).
Danchisko was involved in a motor vehicle accident that occurred on March 24, 2004. The police report indicates that defendant Matthew L. Rachmiel (Rachmiel) was driving south in the middle lane of the New Jersey Turnpike in Edison Township. Rachmiel claimed that a vehicle veered into his lane from the right and that he veered to the left and lost control of his vehicle. Danchisko, who was driving a van owned by Lift Rite, claimed that Rachmiel "was riding my bumper" and when Rachmiel tried to get into the left lane, he hit the rear of the Lift Rite van. Rachmiel spun around 180 degrees, impacted with the front of a third vehicle being driven by Jason C. King in the right-hand lane, and came to rest on the right shoulder headed north. Danchisko impacted the Jersey barrier on the left with the left front of the van, crossed the southbound lanes, and struck the right guardrail with the right front of the van. King corroborated Danchisko's version of the accident. The State Trooper investigating the accident charged Danchisko with careless driving in violation of N.J.S.A. 39:4-97.
On September 30, 2004, Danchisko notified Harleysville that he was making a UM claim against it and designated his arbitrator. That claim was not pursued at that time.
Danchisko filed a personal injury action against Rachmiel in Middlesex County under Docket No. MID-L-0156-06 (the underlying tort action). While that action was pending, Danchisko notified Harleysville on February 26, 2007, that he intended to renew a UM claim under Lift Rite's policy based primarily on Rachmiel's claim of a phantom vehicle because Rachmiel's carrier was not stipulating to liability.
While Harleysville's motion to intervene was pending, Danchisko instituted another action in Middlesex County under Docket No. MID-L-3969-07 against Harleysville seeking, among other things, to compel it to participate in uninsured motorist arbitration and on May 3, 2007, the judge assigned to the matter entered an order requiring Harleysville to appear on June 26, 2007, and show cause why the relief sought in the complaint should not be granted.
When the parties appeared on May 25, 2007, the judge stated that "there was a request to handle both" the order to show cause and the motion to intervene at the same time and that he would address both applications because there was a trial date on June 4, 2007. Danchisko argued that the motion to intervene should be denied because he was ready for trial and had a right to present his claim against Harleysville to arbitrators, not a jury and because a jury in the tort action against Rachmiel would never be called upon to decide the liability of a phantom driver.
Harleysville responded that Allstate Insurance Company, Rachmiel's carrier, had agreed to accept 100 percent liability and arbitrating the UM claim could lead to inconsistent results on liability. It also argued that it should be allowed to intervene because, if an arbitral award was over $15,000, it had a right to bring the UM claim into court for a trial de novo. Harleysville represented that it would be ready for trial on June 4 and would not request an adjournment if it was allowed to intervene.
The judge placed his decision on the record on May 25, 2007. He explained that he was denying the motion to intervene because it was not timely, as Rule 4:33-1 required, and because the case was ready for trial and intervention would inevitably delay that trial. Additionally, he found that intervention would not benefit Harleysville because it had a contractual obligation to arbitrate the UM claim. The judge then granted the relief sought in the complaint seeking to compel arbitration.
The arbitration proceeded on August 23, 2007, and a majority of the arbitrators found for plaintiff "100%" on the issue of liability and awarded Danchisko $50,000 in UM benefits. Harleysville rejected the arbitration award on September 4, 2007, in a notice sent to Danchisko's attorney by certified mail and served again on September 18 by facsimile and Lawyers Service. Harleysville demanded a trial de novo because its policy . . . provides among other things, that where the amount of the damages award entered exceeds the minimum limits for liability specified by the financial responsibility laws of New Jersey either party may demand the right to a trial provided the demand is made within 60 days of the arbitrators' decision. Even though Harleysville . . . has rejected the award, it is the obligation of your client to commence an action to compel payment under the UM/UIM endorsement.*fn2 Verbeiest v. N.J.A.F.I.U.A., 256 N.J. Super. 85, 89 (App. Div. 1992).
However, Danchisko had already filed a "notice of motion to confirm the arbitration award pursuant to N.J.S.A. 2:24-7." On September 20, 2007, the judge entered an order in the tort action confirming the arbitration award entered against Harleysville. He indicated on the order that the motion was not opposed. This triggered a motion for reconsideration on September 26, 2007, which was heard on November 2, 2007. Harleysville maintained that changes to the policy it issued to Lift Rite, Danchisko's employer, entitled it to reject the arbitral award and proceed to trial.
In particular, Thomas Loughery, a Commercial Lines Underwriting Manager for Harleysville, certified that the policy issued to Lift Rite "contained an endorsement change CA-7145 which clearly changed the terms of UM/UIM arbitration from a binding procedure to a non-binding procedure." The endorsement was included in the policy when it was issued to Lift Rite and amended paragraph 4, section E, "Changes In Conditions," of the endorsement providing New Jersey UM/UIM coverage. Paragraph 4 governed arbitration of UM/UIM claims. Endorsement change CA-7145 replaced paragraph 4 with the following language:
4. The following Condition is added: ARBITRATION
a. If we and an "insured" disagree whether the "insured" is legally entitled to recover damages from the owner or driver of an "uninsured motor vehicle" or an "underinsured motor vehicle" or do not agree as to the amount of damages that are recoverable by that "insured," then the matter may be arbitrated. . . . Either party may make a written demand for arbitration. In this event, each party will select an arbitrator. The two arbitrators will select a third. If they cannot agree within 30 days, either may request that selection be made by a judge of a court having jurisdiction. Each party will pay the expenses it incurs and bear the expenses of the third arbitrator equally.
b. Unless both parties agree otherwise, arbitration will take place in the county in which the "insured" lives. Local rules of law as to arbitration procedure and evidence will apply. A decision agreed to by two of the arbitrators will be binding only if neither "we" nor an "insured" demand a trial within 30 days after the award. Trial will be in a court of competent jurisdiction. Trial will be on all issues of the aware. (Emphasis added.)
During argument on Harleysville's motion for reconsideration, Danchisko's counsel agreed with the judge that the issue was whether or not an insurance carrier has a right to . . . make a subscandent [sic] change . . . by sending the change to the insured, and without explanation, without endorsement, but only with mailing, that the sending of a check signifies agreement to the policy as well as the addendums or changes that occurred.
Counsel argued that "the actual clause" did not define "insured," did not have an effective date, and was ambiguous. He also argued that the change from binding to non-binding arbitration was a significant change to the detriment of the employees of Lift Rite, "who are the real insureds" in UM policies. He contended that the Supreme Court has required that such changes require "significant and obvious communication to those who are insured." Because Harleysville "merely thr[e]w in the mail this big packet to the President of Lift Rite," the carrier had not "in any way succeeded in enacting a valid change."
After hearing from counsel for Harleysville, the judge observed that policies are to be construed favorably to the insured and stated that the insurance company has the burden to prove that any changes to a policy were accepted by the insured. He then observed that the real telling factor is that [Harleysville] sent the original language [of the UM/UIM endorsement], apparently, with an addendum.
And without having it signed, there's no way that this [c]court can make a determination that the person would read that original language and stop reading.
So, for the reasons frankly stated by the plaintiff during his argument, without reiterating them, and for the reasons stated by the [c]court, Counsel, your motion for reconsideration is granted[,] [b]ut summary judgment[']s granted to [Danchisko].*fn3
By order dated November 2, 2007, the judge vacated the order of September 20, 2007, and "ordered that the judgment of $50,000 is affirmed."
Harleysville contends on appeal that its policy was not ambiguous, it fulfilled its duty to inform the named insured of the change to the arbitration procedure, and it should have been permitted to intervene in the underlying action.
With respect to the first two issues raised on appeal, we must consider certain well-settled principles of insurance law. "As a threshold matter, the interpretation of an insurance contract is a question of law which we decide independent of the trial court's conclusions." Simonetti v. Selective Ins. Co., 372 N.J. Super. 421, 428 (App. Div. 2004). As such, the judge's "interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference." Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).
"[A]n insurance policy is a contract, and like other contracts, the terms of the policy define the parties' rights and obligations." Webb v. Witt, 379 N.J. Super. 18, 33 (App. Div. 2005). "[A] policyholder is obliged to read the policy he receives and is bound by the clear terms thereof." Millbrook Tax Fund, Inc. v. P.L. Henry & Assocs., Inc., 344 N.J. Super. 49, 53 (App. Div. 2001). However, because insurance policies are contracts of adhesion, there are special rules of construction that govern their interpretation. See Pizzullo v. N.J. Mfrs. Ins. Co., 196 N.J. 251, 270 (2008).
"In interpreting insurance contracts the basic rule is to determine the intention of the parties from the language of the policy, giving effect to all of its parts so as to accord a reasonable meaning to its terms." Stone v. Royal Ins. Co., 211 N.J. Super. 246, 248 (App. Div. 1986) (citing Caruso v. John Hancock Mut. Life Ins. Co., 136 N.J.L. 597, 598 (E. & A. 1948); Tooker v. Hartford Accident & Indem. Co., 128 N.J. Super. 217, 222-223 (App. Div. 1974)). "When the terms of a policy are clear and unambiguous," we must enforce the contract as we find it and "cannot make a better contract for the parties than they themselves made." Id. at 248-49 (citing Flynn v. Hartford Fire Ins. Co., 146 N.J. Super. 484, 488 (App. Div.), certif. denied, 75 N.J. 5 (1977); Am. Legion Tri-County Mem. Hosp. v. St. Paul Fire & Marine Ins. Co., 106 N.J. Super. 393, 397 (App. Div. 1969)); see also Botti v. CNA Ins. Co., 361 N.J. Super. 217, 224 (App. Div. 2003). "Rules of construction favoring the insured cannot be employed to disregard the clear intent of the policy language." Stone, supra, 211 N.J. Super. at 249 (citing Weedo v. Stone-E-Brick, Inc., 81 N.J. 233, 246-47 (1979)). Furthermore, we construe policies liberally in favor of the insured, so that coverage is afforded "to the full extent that any fair interpretation will allow." Kievit v. Loyal Prot. Life Ins. Co., 34 N.J. 475, 482 (1961) (quotations omitted).
On the other hand, an ambiguity in the policy must be resolved against the insurer. DiOrio v. N.J. Mfrs. Ins. Co., 79 N.J. 257, 269 (1979). "[I]f the controlling language of a policy will support two meanings, one favorable to the insurer and the other to the insured, the interpretation favoring coverage should be applied . . . ." Corcoran v. Hartford Fire Ins. Co., 132 N.J. Super. 234, 243 (App. Div. 1975) (citing Butler v. Bonner & Barnewall, Inc., 56 N.J. 567, 576 (1970)). "Accordingly, such contracts are to be interpreted in a manner that recognizes the reasonable expectation of the insured." Zuckerman v. Nat'l Union Fire Ins. Co., 100 N.J. 304, 320-21 (1985). We have "recognized the singular importance of the Declarations Page as the best indicator of what an insured's reasonable expectations should be." Araya v. Farm Family Cas. Ins. Co., 353 N.J. Super. 203, 209 (App. Div.) (citing Lehrhoff v. Aetna Cas. & Sur. Co., 271 N.J. Super. 340, 346-47 (App. Div. 1994)), certif. denied, 175 N.J. 77 (2002). In Lehrhoff, we held as follows:
We are, therefore, convinced that it is the declaration page, the one page of the policy tailored to the particular insured and not merely boilerplate, which must be deemed to define coverage and the insured's expectation of coverage. And we are also convinced that reasonable expectations of coverage raised in the declaration page cannot be contradicted by the policy's boilerplate unless the declaration page itself so warns the insured. [Lehrhoff, supra, 271 N.J. Super. at 347.]
We construe coverage clauses liberally, but interpret exclusionary clauses strictly. Butler, supra, 56 N.J. at 576; Ellmex Constr. Co. v. Republic Ins. Co., 202 N.J. Super. 195, 205 (App. Div. 1985), certif. denied, 103 N.J. 453 (1986). When a particular phrase or term may be interpreted in the manner urged by the insurer, "where another interpretation favorable to the insured reasonably can be made that construction must be applied." Ellmex, supra, 202 N.J. Super. at 204.
A genuine ambiguity exists "where the phrasing of the policy is so confusing that the average policyholder cannot make out the boundaries of coverage," Lee v. Gen. Accident Ins. Co., 337 N.J. Super. 509, 513 (App. Div. 2001) (citing Weedo, supra, 81 N.J. at 247), or where "the text appears overly technical or contains hidden pitfalls, cannot be understood without employing subtle or legalistic distinctions, is obscured by fine print, or requires strenuous study to comprehend," Zacarias v. Allstate Ins. Co., 168 N.J. 590, 601 (2001) (citations omitted). A genuine ambiguity does not exist merely because the parties have offered conflicting interpretations. Rosario v. Haywood, 351 N.J. Super. 521, 530-531 (App. Div. 2002) (quoting Powell v. Alemaz, Inc., 335 N.J. Super. 33, 44 (App. Div. 2000)). Not every "far-fetched interpretation of a policy will be sufficient to create an ambiguity requiring coverage." Boddy v. Cigna Prop. & Cas. Cos., 334 N.J. Super. 649, 658 (App. Div. 2000) (quotations & citation omitted).
In deciding that Danchisko was entitled to entry of a judgment confirming the arbitral award, the judge failed to apply these well-settled principles. When Lift Rite received the Harleysville renewal commercial auto policy covering the period from January 8, 2004, to January 8, 2005, which issued on December 15, 2003, it contained five pages of declarations. The first two pages identified the insured as Lift Rite, stated the annual premium, the insured's address, and notified the insured as follows:
"We renew this policy for the period stated on the renewal declarations in return for your payment of the premium. The renewal is subject to all terms, conditions, forms and endorsements attached to the policy or to this renewal declaration." The second page also contained a list of forms and endorsements applicable to all coverage parts. The third page stated the policy limits on the commercial auto coverage and the schedule of covered autos. The fourth page indicated that Lift Rite had twenty-five employees and contained a schedule of other coverages and endorsements. The fifth page listed eleven forms and endorsements and the schedule of operators, including Danchisko.*fn4 Among the eleven forms and endorsements listed on this page were CA2114, "New Jersey Uninsured and Underinsured Motorists Coverage," and CA7145 (Ed. 5-95), "New Jersey Uninsured and Underinsured Motorists Coverage Changes."*fn5 Both of these forms are "the best indicator of what an insured's reasonable expectations should be." Araya, supra, 353 N.J. Super. at 209.
Endorsement CA2114 changed the basic policy to provide UM/UIM coverage and is divided into six sections, "A. Coverage," "B. Who Is An Insured," "C. Exclusions," "D. Limit Of Insurance," "E. Changes in Conditions," and "F. Additional Definitions." Section E contained four paragraphs, "1. Other Insurance," "2. Duties In The Event Of Accident, Claim, Suit Or Loss," "3. Transfer Of Rights Of Recovery Against Others To Us," and "4. The following Condition is added: ARBITRATION." Sub-paragraph b. provided as follows: "Unless both parties agree otherwise, arbitration will take place in the county in which the 'insured' lives. Local rules of law as to arbitration procedure and evidence will apply. A decision agreed to by two of the arbitrators will be binding."
Endorsement CA7145 replaced CA2114, Section E, paragraph 4, subparagraphs a. and b. The latter subparagraph in Endorsement CA7145 provides:
Unless both parties agree otherwise, arbitration will take place in the county in which the "insured" lives. Local rules of law as to arbitration procedure and evidence will apply. A decision agreed to by two of the arbitrators will be binding only if neither "we" nor an "insured" demand a trial within 30 days after the award. Trial will be in a court of competent jurisdiction.
Trial will be on all issues of the award. (Emphasis added.)
We cannot discern what ambiguity might exist in this policy respecting the binding effect of arbitration. Lift Rite accepted the policy as written and paid the premiums therefor. There is no evidence of any change to the policy subsequent to December 15, 2003, when it was issued except for the limited amendment described above. See supra note 4. At the time of issuance, the policy contained both CA2114 and CA7145, the latter of which clearly and unambiguously replaced Section E, paragraph 4, subparagraphs a. and b., in CA2114. In the absence of any ambiguity, we must give effect to the intentions of the parties as disclosed by the declaration pages, and that was to make an arbitral award binding only when neither Harleysville nor an insured under the policy demand a trial within 30 days of the award.
We find no legal authority for the proposition that Lift Rite was required to somehow sign the renewal policy in order to make the alleged change in the arbitration of UM and UIM claims effective. Indeed, Danchisko has not even demonstrated that CA7145 was a new endorsement to the renewal policy, i.e., that it was not part of the policy that expired on January 8, 2004.
Lastly, we reject Danchisko's contention under Pinto v. N.J. Mfrs. Ins. Co., 183 N.J. 405 (2005), superseded by statute on other grounds, N.J.S.A. 17:28-1.1, L. 2007, c. 163, § 2, as recognized in Olkusz v. Brown, 401 N.J. Super. 496, 501 (App. Div. 2008), that Harleysville was obligated to notify the scheduled operators that the UM/UIM arbitration would only be binding if neither Harleysville nor the particular insured who was party to an arbitration rejected the award with thirty days and demanded a trial. Pinto simply does not support that proposition. There, the Supreme Court held:
Finally, to avoid having an employer misapprehend whether there is a need to include specific language incorporating employees as "named insureds" on business automobile policies, we impose on insurers, their agents, and brokers, a duty to inform employers about the necessity for such language so that employers may make informed decisions about whether their employees will have the status of "named insureds" under the employers' business automobile insurance policies. [Id. at 417 (emphasis added).]
Thus, the duty imposed on insurers was a duty to notify employers, not employees, and it was in the context of a step-down clause, which is not the case here.
Here, Harleysville complied with the plain terms of the policy and notified Danchisko's attorney that it rejected the award and demanded a trial de novo. The judge erred in confirming the arbitral award and the judgment for $50,000 is reversed. Because Danchisko sought to confirm the arbitration award, it has satisfied the requirement that it commence an action to compel payment. See Verbiest v. N.J. Full Ins. Underwriting Ass'n, 256 N.J. Super. 85, 89 (App. Div. 1992) (holding plaintiffs bear the burden of filing an action to recover UIM benefits after non-binding arbitration, but "[t]he filing of an action here was unnecessary since plaintiffs' claims were already before the Law Division by virtue of their pending action to confirm the arbitrators' decision"). A remand is therefore required.
Reversed and remanded for further proceedings consistent with this opinion.