July 29, 2009
FRANK J. NEWMAN, PLAINTIFF-RESPONDENT,
SELECTIVE INSURANCE COMPANY, FRANK J. HEY AND THE ROHRABUAGH CORPORATION, DEFENDANTS, AND NEW JERSEY MANUFACTURERS INSURANCE COMPANY, DEFENDANT-APPELLANT.
On appeal from the Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-2057-04.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued October 22, 2008
Before Judges Rodríguez, Lyons and Kestin.
In this insurance coverage appeal, we must decide whether the trial court was correct in awarding Frank J. Newman (Newman) uninsured motorist (UIM) benefits equal to the amount of coverage maintained on his parents' personal automobile insurance policy issued by New Jersey Manufacturers Insurance Company (NJM). In reaching its decision, the trial court found that the step-down provision in NJM's insurance policy was void and that Newman was entitled to recover UIM benefits as a named insured on his parents' policy; he was not limited to the UIM terms of his own personal insurance policy, issued by New Jersey Indemnity Insurance Company (Indemnity). We affirm.
These are the salient facts. On July 25, 2002, while exiting the driver-side of a truck owned by his employer, Canada Dry Bottling Company, Newman was struck by a vehicle owned and operated by an uninsured motorist. The truck was owned and insured under a commercial insurance policy issued by Selective Insurance to Canada Dry. The policy had been procured by Frank J. Hey, a licensed insurance sales agent through the Rohrabuagh Corporation (Rohrabuagh).
At the time, Newman was covered by his own Indemnity policy, which limited his UIM coverage to $15,000 per bodily injury, subject to an aggregate limit of $30,000 per accident for all injuries sustained. At the time of the accident, Newman resided in his parents' home. Thus, he was also covered by his parents' NJM automobile insurance policy, which provided $300,000 in UIM coverage. The NJM policy, however, included a step-down clause:
A. The limit of liability shown in the Declarations for this coverage is our maximum limit of liability for all damages resulting from any one accident.
However, subject to our maximum limit of liability for this coverage:
a. an Insured is not the named insured under this policy;
b. That Insured is a named Insured under one or more other policies providing similar coverage; and
c. All such other policies have a limit of liability for similar coverage which is less than the limit of liability for this coverage; then our maximum limit of liability for that Insured, for all damages resulting from any one accident, shall not exceed the highest applicable limit of liability under any Insurance providing coverage to that Insured as a named Insured.
The Selective policy included a similar step-down clause.
When the NJM policy was initially purchased, it did not include a step-down clause. This clause was added through a 1996 amendment to the policy. NJM asserts that such changes were included in the renewal declarations sent to Newman's parents when they renewed the policy in 1997.
After the accident, Newman gave notice to Indemnity, NJM and Selective that he would be submitting UIM claims. Pursuant to the pro-rated statutory scheme, each insurer calculated Newman's entitlement to recovery of UIM benefits at $5,000 each, which equaled the $15,000 limit in the Indemnity policy.
Newman rejected these offers and filed a declaratory judgment action, seeking to invalidate the step-down provisions in both the NJM and Selective insurance policies.*fn1 The claim against Selective was settled for $50,000.
Newman moved for summary judgment against NJM. NJM cross-moved for summary judgment. Judge Joseph P. Quinn granted Newman's motion and denied NJM's. The judge ruled that, in accordance with the Supreme Court's holding in Skeete v. Dorvius, 184 N.J. 5 (2005), the step-down provision in NJM's and Selective's insurance policy was not enforceable. Thus, the judge concluded that the UIM coverage for the NJM policy was $300,000.
NJM sought leave to appeal. We denied this request. Newman v. Selective Ins. Co., No. M.-4292-05 (App. Div. June 5, 2006).
The parties settled on the trial date before Judge Edward M. Neafsey. NJM agreed to pay $225,000 in the event its appeal was denied by this court. Judge Neafsey stayed the judgment pending the outcome of NJM's appeal.
In the present appeal, NJM contends that it "is not obligated by N.J.S.A. 17:28-1.1 to provide plaintiff with [UIM] coverage in excess of the statutory minimum." In ordinary circumstances, where the step down clause is valid and enforceable, that would be true. See Aubrey v. Harleysville Ins. Co., 140 N.J. 397, 403-05 (1995). However, here, as in Skeete v. Dorvius, supra, 184 N.J. at 5, the enforceability of the step-down clause is at issue.
In Aubrey, the Supreme Court held that UIM coverage is personal to an insured. Aubrey, supra, 140 N.J. at 403. Thus, the amount of recovery is contingent upon the UIM limits purchased by the insured. Id. at 405. Any other interpretation, the Court reasoned, would not comport with the insured's reasonable expectations, and would hinge on UIM terms in policies the insured was previously unaware of. Id. at 404-05.
NJM contends that, pursuant to Aubrey, Newman's recovery is limited to the $15,000/$30,000 UIM coverage he selected in his individual policy and not the $300,000 limit chosen by his parents. We disagree.
The present case is more directly informed by the Supreme Court's decision in Skeete v. Dorvius, supra, 184 N.J. at 8-9, which stands for the proposition that, where a policy is amended to include a step-down provision, such provision is invalid where the insured was given insufficient notice of the amendment.
In Skeete, the claimant for UIM coverage was a passenger in a car insured by Prudential. Id. at 6. The claimant did not own an automobile, had no auto policy of his own, "and was not a member of a household with insurance coverage." Ibid. Therefore, the claimant had not selected his own level of UIM coverage. Ibid. The question, then, was whether the insurer provided adequate notice to the policyholder regarding reduced UIM coverage for non-named insureds pursuant to the Auto Insurance Cost Reduction Act of 1998 (AICRA), N.J.S.A. 39:6A-1.1. Id. at 7.
The policyholder in Skeete purchased automobile coverage in 1997, which, at the time, did not contain a step-down clause. Ibid. When AICRA was adopted, the insurer amended the policy to include a step-down provision. Ibid. At that time, the insurer sent the policyholder, in two large packets, "an essentially undifferentiated passel of two hundred documents" that included information reflecting the AICRA changes. Id. at 8-9. Such changes were not noted on the declarations page of the policy.
Focusing on the reasonable expectations of the insured, the Supreme Court found this presentation provided the insured with insufficient notice of changes to the scope of coverage. Ibid. Although the Court declined to hold that notice of policy changes must take a particular form, "the policy changes must be conveyed fairly to the policyholder." Id. at 9.
Unlike Aubrey, which focused on applying a fully-enforceable step-down clause, Skeete asks the threshold question as to whether a policyholder was provided with sufficient notice of an after-inserted step-down provision. Where the notice was adequate, the step-down provision is valid. Ibid. It is noted that Skeete does not apply where there has been no change in the policy terms. N.J. Citizens United Reciprocal Exch. v. Am. Int'l Ins. Co., 389 N.J. Super. 474, 481 (App. Div. 2006). Similarly, if the coverage increases or remains constant, no Skeete-type notice is required. Seabridge v. Discount Auto, Inc., 393 N.J. Super. 327, 333 (App. Div. 2007).
Here, Newman's parents were longstanding policy holders with NJM and continued to renew their policy, over many years, with the understanding that the limits to their coverage remained unchanged, as reflected in the declarations page. Common sense dictates that even the most diligent policyholder will not expect a reduction in coverage absent clear and express notice of a change to the policy terms. Holding otherwise shifts the burden to the insured to continuously monitor and scrutinize the language of the policy to ascertain whether any changes have occurred. The policyholder would be further burdened by the task of interpreting the raw policy terms to determine the scope, nature and general effect of such changes.
As Judge Quinn noted, the policy "changes were communicated exactly the way they were in Skeete. Therefore, the changes were not effective in advising the policy holder of the change in the step down language."
NJM should have informed Newman's parents when the step-down clause was added, that the coverage for any insured who was not a named insured would be greatly limited. Moreover, although the policy had been renewed many times prior to the accident, Newman's parents nevertheless operated under the assumption that the scope of the coverage remained constant.
NJM argues that Newman "has no right to demand that NJM's step-down be declared void when [Newman], at all times, has insured himself under the terms of a policy which steps down coverage for insureds other than the named insured." We are not persuaded by this argument.
The UIM coverage limits in Newman's policy are not at issue because NJM's argument hinges on its own policy endorsement. Newman's reasonable expectations regarding UIM coverage under his own policy are not relevant to a Skeete analysis. The focus is on the expectations of Newman's parents.
NJM also argues that the judge erred in resolving credibility issues relating to Newman's and his parents' reasonable expectations regarding the scope of the UIM coverage provided in the NJM policy. NJM bases its argument on the discrepancies in Newman's and his parents' discovery responses regarding Newman's residency at the time of the accident. This issue goes directly to both Newman's and his parents' credibility.
The judge declined to consider the credibility issue because NJM had not raised it as an affirmative defense. As Judge Quinn noted:
In connection with this motion at the end of [NJM]'s brief and in oral argument there was a suggestion that perhaps Newman, Jr. did not live with his parents at the time of this accident. I would point out for purposes of the record that there has never been a denial of coverage based on that theory, nor has there been any cancellation of the policy, nor has there been any discontinuation of the policy. Indeed, the parents' policy was in effect at the time of this accident in July of 2002 and remains in effect until the present time.
As I indicated, there has been no denial, revocation or it's not in any of the pleadings in this case that there were misrepresentations with regard to the living arrangements.
Although a dispute as to Newman's residential status would ordinarily constitute a question of material fact sufficient to defeat a motion for summary judgment, Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995), we agree with Judge Quinn's finding that the issue was not timely raised as an affirmative defense.