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Sladden v. CNA Insurance Co.


July 17, 2009


On appeal from Superior Court of New Jersey, Law Division, Hunterdon County, Docket No. L-42-06.

Per curiam.


Submitted September 23, 2008

Before Judges Skillman and Collester.

Defendant CNA Insurance Company (CNA) appeals from the May 30, 2007, order of Judge Stephen B. Rubin, which denied CNA's motion for summary judgment and granted summary judgment to plaintiff William Sladden by ruling that the step-down clause in CNA's policy issued to plaintiff's employer is unenforceable and that therefore $1 million in uninsured motorist (UIM) benefits under the policy is available to plaintiff. We affirm.

The fact are undisputed. Plaintiff was an employee of J. Strober & Sons (J. Strober) on May 31, 2003, when, in the course of his employment, he was a passenger in his employer's vehicle that collided with an automobile owned and operated by the tortfeasor. Plaintiff suffered serious personal injuries and settled with the tortfeasor for the policy limit of $100,000.

Plaintiff notified Allstate Insurance Company, his personal insurance carrier, as well as CNA, the insurer for J. Strober, of his claim for UIM benefits. When he was denied UIM coverage, he filed a complaint against CNA and Allstate and an order to show cause to compel participation in UIM arbitration. CNA filed an answer with a counterclaim seeking dismissal of plaintiff's UIM claim with prejudice. Summary judgment was granted in favor of Allstate since its UIM limits matched those of the tortfeasor. Plaintiff's action then proceeded against CNA alone for UIM coverage.

When J. Strober obtained coverage on its vehicles with CNA in 1996, the policy provided $1 million in UIM benefits. However, the following year CNA changed the policy to include a step-down provision limiting full UIM coverage to named insureds. Those employees who were not named were limited to the amount of coverage in their personal insurance policies. Defendant admits that it never sent J. Strober notification of the addition of this step-down provision.

Plaintiff filed a motion for summary judgment seeking a determination that the step-down clause contained in defendant's policy was unenforceable and that the full UIM limit was available to plaintiff. Defendant filed a cross-motion for summary judgment seeking an order to dismiss plaintiff's UIM claim with prejudice. Following oral argument, Judge Rubin entered the order granting summary judgment to plaintiff and denying defendant's motion.

Defendant argues that because plaintiff made a "personal" choice to have a $100,000 limit under his own policy and UIM coverage is "personal" to an insured, plaintiff cannot assert a claim for UIM coverage under his employer's policy. However, the facts parallel Skeete v. Dorvius, 184 N.J. 5 (2005), in which our Supreme Court held that an injured passenger could pursue a UIM claim under the driver's policy when the tortfeasor's liability coverage was insufficient and the policyholder did not receive adequate notice of a change in UIM coverage.

In Skeete the plaintiff had no automobile policy and was not a member of a household with insurance coverage. He sued the tortfeasor whose policy was insufficient to cover plaintiff's injuries. Plaintiff pursued a UIM claim under his driver's policy since he was an "insured" under that policy as an occupant of the vehicle. When that policy was purchased, the driver-owner elected UM/UIM coverage of $100,000/$300,000, but a year before the accident the insurer added the step-down provision that only the named insured and resident relatives were entitled to the $100,000/$300,000 limit. Parties such as Skeete were characterized as "Additional Insureds" with a limit of $15,000/$30,000. The Supreme Court found that the notification of the step-down provision to the driver-owner was done in a confusing and misleading way by sending a "blizzard of documents." Id. at 9. The Court invalidated the step-down clause based on insufficient notice, stating that policy changes must be fairly communicated to the policyholder.

In the instant case the facts are even stronger since no notice was given to the policyholder. Moreover, the fact that the policyholder here was a corporation rather than an individual provides greater reason for proper notice of policy changes since the UIM coverage was for the benefit of employees or other persons, not for the named corporate insured. Furthermore, J. Strober had an obvious interest in being notified of policy changes to third-party benefits since its policy is directed at the protection of third-party interests.

The facts of this case are similar to French v. N.J. School Bd. Ass'n Ins. Group, 149 N.J. 478, 488-89 (1997), in which the Supreme Court quoted Cook-Sauvageau v. PMA Group, 295 N.J. Super. 620, 626-27 (App. Div. 1996) as follows:

[I]t is . . . clear in this case . . . that the essential risk for which [the carrier's] business automobile policy was intended to provide coverage was an accident involving an employee's operation of one of the employer's vehicles. In fact, as the court observed in Murphy v. Milbank Mut. Ins. Co., 438 N.W.2d 390, 395 (Minn. Ct. App. 1989), "[t]he employees of an insured corporation are in actuality the objects of the corporation's automobile liability coverage." Furthermore, the UIM benefits are an integral part of this coverage. Under [the UIM] 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. Although an employee's personal automobile policy also may provide UIM coverage for such an accident, the "Other Insurance" clause of the standard automobile liability policy would make the UIM coverage provided by the employer's policy "primary" and any coverage provided by the employee's personal policy only "secondary." [citations omitted.] Consequently, it would be manifestly inconsistent with the plain language of the UIM endorsement of [the carrier's] business automobile policy and with the reasonable expectations of both the employer and employee to deny the benefits of UIM coverage to an employee injured while operating one of the employer's vehicles during the course of employment.

The Court in French concluded for these reasons that "the Legislature clearly would have intended that the policy 'held' by a claimant under N.J.S.A. 17:28-1.1(e) would include a policy provided for the claimant by an employer even if coverage under the personal policy of the employee were not triggered." 149 N.J. at 489.

So in this case, even though plaintiff's own policy only provided $100,000 of UIM coverage, he "held" the CNA policy issued to his employer that provided $1 million coverage. Because CNA failed to give the Skeete notice to the employer, CNA's attempt to withhold coverage by the step-down provision is ineffective.

Plaintiff's remaining contentions are without sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(i)(E). Furthermore, in light of our disposition we do not address plaintiff's argument that N.J.S.A. 17:28-1.1(f) applies retroactively.



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