April 27, 2009
MICHELLE LAYTON AND DAVID R. LAYTON, H/W, PLAINTIFFS-APPELLANTS,
SAMI I. ALKHATIB, FATHEY E. DEWAIR, REGINA M. LOOMIS, WEST AMERICAN INSURANCE COMPANY/OHIO CASUALTY GROUP, DEFENDANTS, AND ALLSTATE INSURANCE COMPANY, DEFENDANT-RESPONDENT.
On appeal from the Superior Court of New Jersey, Law Division, Atlantic County, L-7023-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued February 24, 2009
Before Judges Winkelstein, Fuentes and Chambers.
Plaintiff Michelle Layton appeals from a March 14, 2008, Law Division order dismissing her claim against defendant Allstate Insurance Company for underinsured motorist (UIM) benefits. The court also dismissed the consortium claim of plaintiff's husband David Layton.
The Allstate policy's limit for UIM benefits is $100,000. The policy also contains a provision that reduces available UIM benefits by the amount the injured party receives from the tortfeasor, and by the amount Allstate pays to the injured party for medical expense benefits (the setoff provision). Here, because plaintiff recovered $50,000 from the tortfeasor, and received over $100,000 in medical expense (personal injury protection (PIP)) benefits from Allstate, Allstate denied plaintiff's UIM claim. Relying on the policy language, the Law Division judge found that UIM benefits available to plaintiff had been fully exhausted.
On appeal, plaintiff's primary argument is that Allstate should be estopped from enforcing the setoff provision because she relied on the availability of the $100,000 UIM policy limits when she settled with the tortfeasor with Allstate's consent for the tortfeasor's $50,000 policy limits. See Longworth v. Van Houten, 223 N.J. Super. 174, 194 (App.Div. 1988)(insured who receives an acceptable settlement offer from tortfeasor should seek consent to settle from UIM carrier). Plaintiff claims that she would not have settled for that sum had she been aware of the setoff provision. In other words, plaintiff claims she is entitled to an additional $50,000 in UIM benefits, representing the full $100,000 UIM policy limit, less the $50,000 she recovered from the tortfeasor. We find merit to plaintiff's estoppel argument, and consequently, we reverse.*fn1
On November 28, 2003, plaintiff was a passenger in Regina Loomis's car. Loomis was a Connecticut resident and her Allstate policy was issued in that state. Plaintiff was injured when the car was struck from the rear by a vehicle driven by Sami Alkhatib and owned by Fathey Dewair (the tortfeasors).
Plaintiff sought damages from the tortfeasors, as well as PIP and UIM coverage from Allstate. Allstate initially paid approximately $23,000.00 on plaintiff's PIP claim, but disputed the rest, which was submitted to arbitration. On February 9, 2007, an arbitrator awarded plaintiff $76,312.50 on that claim.
Allstate made the payments between October 2007 and January 2008. Thus, Allstate paid approximately $100,000 in PIP benefits on plaintiff's behalf.
In April 2007, the tortfeasors offered to settle for their policy limit, $50,000. Plaintiff sent a letter to Allstate asking permission to settle pursuant to Longworth. Allstate replied in a letter that stated, in its entirety: "Please accept this letter as consent to settle the bodily injury claim with the tortfeasor's policy. . . . [T]his does not infer [sic] that Allstate Insurance Co. values the claim in excess of the tortfeasor's policy limits." Plaintiff then accepted the tortfeasors' settlement offer, and dismissed her complaint against them.
Plaintiff's claim against Allstate for UIM benefits was submitted to mandatory non-binding arbitration, where the arbitrators awarded plaintiff $135,000. Allstate rejected the award, and demanded a trial de novo.
The Allstate policy states: "[d]amages payable under this [UIM] coverage will be reduced by all amounts payable under any automobile medical payments coverage . . . ." Allstate claims that pursuant to this provision, the $100,000 UIM limit was reduced not only by the $50,000 the tortfeasors paid to plaintiff, but also by the $100,000 Allstate paid on plaintiff's PIP claims. On summary judgment, the trial court agreed and dismissed plaintiff's complaint.
"[I]n the absence of a statutory prohibition to the contrary, an insurance company has a right to impose whatever conditions it desires prior to assuming its obligations." Royal Ins. Co. v. Rutgers Cas. Co., 271 N.J. Super. 409, 419 (App. Div. 1994). As the New Jersey Supreme Court has recently iterated, an "insurance policy is an agreement that 'set[s] forth in fundamental terms, the general outlines of coverage.'"
Hardy v. Abdul-Matin, ___ N.J. ___, ___ (2009) (slip op. at 8) (quoting Weedo v. Stone-E-Brick, 81 N.J. 233, 237 (1979)). The premium paid for insurance coverage "does not buy coverage for all . . . damage but only for that type of damage provided for in the policy." Ibid.
Here, the Allstate policy states that the amount of UIM benefits available to an injured party are to be reduced both by the amount received from the tortfeasor, as well as by any benefit paid for medical expenses. Connecticut law, under which the policy was issued, specifically permits UIM insurers to make various deductions from otherwise available UIM limits. See Allstate Ins. Co. v. Ferrante, 518 A.2d 373, 375-76 (Conn. 1986) (noting that insurers permitted to limit liability to the extent that damages have been paid or are payable "under any provisions of the policy for direct indemnity for medical expense or basic reparations benefits"). Thus, Connecticut law specifically authorizes the setoff of medical payments from available UIM limits.*fn2 See Prudential Prop. & Cas. Ins. Co. v. State Farm Ins. Co., 306 N.J. Super. 315, 320 (App. Div. 1997) (absent legislative rule or case law to the contrary, courts enforce other insurance provisions as written).
Nevertheless, plaintiff claims that Allstate should be barred from exercising the setoff provision under a theory of estoppel. We recently addressed the theory of estoppel under similar, but not identical, circumstances in Boritz v. New Jersey Manufacturers Insurance Co., ___ N.J. Super. ___ (App. Div. 2009). There, we explained the estoppel doctrine as follows:
"'Estoppel is an equitable doctrine, founded in the fundamental duty of fair dealing imposed by law.' The doctrine is designed to prevent injustice by not permitting a party to repudiate a course of action on which another party has relied to his detriment." Marsden v. Encompass Ins. Co., 374 N.J. Super. 241, 249 (App. Div.) (quoting Casamasino v. Jersey City, 158 N.J. 333, 354 (1999)), certif. denied, 183 N.J. 257 (2005). To establish a claim of estoppel, a party must prove, by a preponderance of the evidence, that the alleged conduct was done, or representation was made, intentionally or under such circumstances that it was both natural and probable that it would induce action. Further, the conduct must be relied on, and the relying party must act so as to change his or her position to his or her detriment.
[Miller v. Miller, 97 N.J. 154, 163 (1984).]
See also Barrett v. N.J. Mfrs. Ins. Co., 295 N.J. Super. 613, 618 (App. Div. 1996) (estoppel may only be invoked when the party seeking estoppel has justifiably relied on the actions of the other party), certif. denied, 150 N.J. 29 (1997).
Although a party seeking to invoke estoppel must demonstrate reliance to his or her detriment or prejudice, Merchants Indem. Corp. v. Eggleston, 37 N.J. 114, 129 (1962), under certain circumstances, prejudice may be presumed. Griggs v. Bertram, 88 N.J. 347, 358 (1982) (finding that when insurance carrier, after receiving timely notice and adequate opportunity to investigate a claim, fails for an unreasonable time to inform the insured of a potential disclaimer, insurance company estopped from later denying coverage); see also Sneed v. Concord Ins. Co., 98 N.J. Super. 306, 318-19 (App. Div. 1967) (observing that prejudice may be presumed whether insurer controls defense after institution of an action or before suit is filed); but see Reliable Newspaper Delivery, Inc. v. Maryland Cas. Co., 131 N.J.L. 424, 426 (E. & A. 1943) (finding no prejudice, and consequently no estoppel, by "mere delay in giving the information as to noncoverage").
[Boritz, ___ N.J. Super. ___, ___ (slip op. at 7-9).]
Here, as in Boritz, plaintiff relies on Barrett, supra, 295 N.J. Super. 613, in support of her estoppel argument. In Barrett, the plaintiff sustained injuries while a passenger in a vehicle involved in an accident. Id. at 615. The tortfeasor's automobile insurance policy provided $100,000 of combined single limit liability coverage. Ibid. Four individuals, including the plaintiff, filed personal injury claims against the tortfeasor and submitted their claims to non-binding arbitration. Ibid. The arbitrators placed a total aggregate value of $300,000 on the claims, valuing the plaintiff's claim at $75,000. Ibid.
The tortfeasor subsequently offered the plaintiff $25,000 to settle, which reflected her twenty-five percent share of the award. Ibid. Both the plaintiff and the owner of the vehicle in which the plaintiff was riding had personal policies containing UIM coverage through NJM. Ibid. Accordingly, the plaintiff's counsel requested and received a consent to settle letter from NJM. Id. at 615-16.
Later, while NJM was evaluating the plaintiff's claim under the owner's policy, the Supreme Court decided Aubrey v. Harleysville Insurance Company, 140 N.J. 397, 405 (1995), which held that "[t]he right to recover UIM benefits depends on the UIM limits chosen by the insured."*fn3 Relying on Aubrey, NJM took the position that the plaintiff was not entitled to UIM benefits under the owner's policy because the benefits provided under her personal policy did not exceed the liability coverage available under the tortfeasor's policy. Barrett, supra, 295 N.J. Super. at 617. The plaintiff argued that NJM was estopped from denying her claim because she had detrimentally relied upon NJM's consent to settle as an assurance that it would provide coverage. Ibid.
The trial judge granted summary judgment in favor of NJM. Ibid. On appeal, we reversed, finding that "[a]n insurance company which expressly or impliedly acknowledges that its policy provides coverage for a particular claim may be estopped from subsequently denying coverage if an insured has relied upon the availability of that coverage." Id. at 618. We added that "even an insurer which does not acknowledge coverage may be estopped by an '[u]nreasonable delay in disclaiming coverage, or in giving notice of the possibility of such a disclaimer.'" Ibid. (quoting Griggs, supra, 88 N.J. at 357). Holding that NJM was estopped from denying the plaintiff coverage, we observed that the consent to settle letter "at least implicitly acknowledged [the plaintiff's] entitlement to the UIM coverage provided under the policy issued to the [owners]." Id. at 619.
[Boritz, supra, ___ N.J. Super. ___ (slip op. at pp. 9-11).]
Applying a similar analysis here, we conclude that plaintiff's reliance on Allstate's consent to settle estops Allstate from enforcing an otherwise valid provision of its policy.*fn4 As we indicated in Boritz, supra, Reliance may take the form not only of the expectancy of receipt of UIM benefits, but "also of foregoing the opportunity to pursue a recovery from the tortfeasor in excess of the insurance company's settlement offer." Barrett, supra, 295 N.J. Super. at 619. That loss of opportunity itself constitutes prejudice.
[Boritz, supra, ___ N.J. Super. ___ (slip op. at 11.]
In Boritz, while acknowledging, like here, that the plaintiff did not contend that the insurance carrier acted in bad faith by not informing the plaintiff of the actual UIM limits, we discussed the broad concept of good faith applicable to an insurance carrier when dealing with an injured party. We stated that "an insurer's duty of good faith is more than simply an obligation not to act in bad faith." (Slip op. at 12). We reasoned as follows:
In weighing the merits of an injured party's Longworth request to settle with a tortfeasor, a carrier is, or should be, aware of its coverage limits. When a step-down clause is implicated, the carrier, like NJM here, should know that its UIM coverage limits are constrained by that provision. And just as coverage limits are important to the carrier, they are perhaps even more critical to an injured party's decision whether to settle for the tortfeasor's policy limits in exchange for releasing the tortfeasor from liability. From an injured party's perspective, knowing the UIM policy limits may have as significant an influence upon that party's decision to settle as knowing whether the insurance carrier provides UIM coverage in the first instance.
[Boritz, supra, ___ N.J. Super. ___ (slip op. at 13-14).]
Applying those principles in this case, estoppel is warranted. When Allstate had an opportunity to weigh the merits of plaintiff's request to settle against Allstate's coverage limits, Allstate knew, or at least should have been aware, that the setoff provision in its policy reduced UIM limits by the injured party's receipt of PIP payments. Allstate did not give its consent to settle until April 26, 2007. The arbitration of plaintiff's complaint against Allstate for PIP benefits had been held on January 17, 2007, and an arbitrator awarded plaintiff medical benefits against Allstate in the sum of over $76,000 on February 9, 2007. Thus, by the time Allstate responded to plaintiff's request to settle with the tortfeasor, Allstate was aware that the medical benefits it would pay to plaintiff would severely, if not entirely, deplete the policy's $100,000 UIM limits. Under these circumstances, applying the principles we espoused in Barrett, supra, 295 N.J. Super. 613, and in Boritz, supra, ___ N.J. Super. ___, Allstate is estopped from enforcing the setoff provision in its policy. See also Griggs, supra, 88 N.J. at 355-56 (finding that under certain circumstances, insurer may be estopped from asserting what otherwise may be "a clear contractual provision excluding the claim from coverage of the policy").
We reverse and remand for further proceedings consistent with this opinion.