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Ciechanowski v. New Jersey Manufacturers Insurance Co.


July 31, 2009


On appeal from the Superior Court of New Jersey, Law Division, Atlantic County, Docket No. L-2444-06.

Per curiam.


Argued December 17, 2008

Before Judges Parrillo, Lihotz and Messano.

We are required to interpret the offer of judgment rule, R. 4:58-1 to -5 (the Rule), in the context of plaintiffs', Jennifer and George Ciechanowski, first-party claim for underinsured motorist (UIM) benefits under their automobile insurance policy with defendant, New Jersey Manufacturer's Insurance Company (NJM). The issue arose in the following context.

Plaintiff was injured in an automobile accident on September 30, 2003.*fn1 The other driver's insurance policy contained a liability limit of $100,000, and plaintiff's policy with NJM contained a UIM limit of $300,000. After notifying NJM as required by Longworth v. Van Houten, 223 N.J. Super. 174 (App. Div. 1988), plaintiff settled her claim with the tortfeasor for his policy limits, and proceeded to UIM arbitration in accordance with the terms of NJM's policy. That proceeding resulted in an award to plaintiff of $365,000, less $100,000 plaintiff received by way of her settlement.

NJM refused to pay the award, and plaintiff filed suit. On June 8, 2006, she also served an offer of judgment upon NJM in the amount of $185,000.*fn2 After discovery, the matter was arbitrated again pursuant to Rule 4:21A, resulting in an award in plaintiff's favor of $375,000. NJM rejected that award, and requested a trial de novo. After a four-day trial, the jury found in plaintiff's favor and determined her damages to be $510,000, which, in response to specific interrogatories, the jury apportioned as $275,000 for pain, suffering, and disability, and $235,000 as economic loss.

Plaintiff moved for entry of final judgment on August 23, 2007, and requested the judgment include an award of prejudgment interest pursuant to Rule 4:42-11(b), and interest, costs and fees also pursuant to the Rule. Defendant opposed the motion, arguing the Rule did not apply, and cross-moved, seeking to mold the verdict to its $200,000 policy limits. On January 10, 2008, the judge entered two orders, as well as a short written opinion containing the reasons for his decision. He concluded that the jury's verdict should be molded to the limits of NJM's policy, i.e., $200,000. As a result, plaintiff's "money judgment," R. 4:58-2, was not more than 120% of her offer of judgment. Therefore, the judge concluded she was not entitled to an award of counsel fees, enhanced interest, or litigation expenses under the Rule because it simply "d[id] not apply." The judge calculated pre-judgment interest pursuant to Rule 4:42-11(b) on the molded judgment amount, awarding plaintiff $12,701.37. He entered final judgment in plaintiff's favor against NJM in the amount of $212,701.37, plus taxed costs.

Plaintiff argues before us that the judge erred in using the policy limits to mold the verdict into a judgment, and then in using the amount of that judgment to determine whether plaintiff should recover under the Rule. Instead, plaintiff contends that the jury verdict of $510,000 should be used to determine whether she "obtain[ed] a money judgment, in an amount that [wa]s 120% of [her] offer or more[.]" R. 4:58-2(a). NJM contends that the judge correctly molded the verdict to the limits of its policy, and, since that was the "money judgment" plaintiff recovered, her offer of judgment did not trigger the provisions of the Rule at all. Additionally, NJM cross-appeals from the judge's award of pre-judgment interest. It contends that pursuant to Rule 4:42-11(b), plaintiff was entitled to interest only on the non-economic damage portion of her recovery, i.e., based upon the jury's assessment, 53.9% of the molded verdict. NJM seeks reduction of the judgment from $212,701.37 to $206,828.32.

We have considered these arguments in light of the record and applicable legal standards. We affirm.

The Supreme Court has repeatedly described the [R]ule as being "designed particularly as a mechanism to encourage, promote, and stimulate early out-of-court settlement of... claims that in justice and reason ought to be settled without trial." The [R]ule was intended to penalize a party who rejects a settlement offer that turns out to be more favorable than the ultimate judgment. [Wiese v. Dedhia, 188 N.J. 587, 593 (2006) (quoting Gonzalez v. Safe & Sound Sec. Corp., 185 N.J. 100, 125 (2005) (internal quotation omitted).]

By its terms, the Rule is applicable to all causes of action, "[e]xcept [] a matrimonial action," but only if "the relief sought by the parties in the case is exclusively monetary in nature." R. 4:58-1(a). Although a "UIM claim is a contractual one, arising out of the insurance policy issued to plaintiff by h[er] own insurer," Bardis v. First Trenton Ins. Co., 199 N.J. 265, 275 (2009), we have specifically held the Rule applicable to such claims. McMahon v. N.J. Mfrs. Ins. Co., 364 N.J. Super. 188, 191 (App. Div. 2003).

The Rule "serves the unique and particular purpose of imposing financial consequences on parties who unwisely reject an offer of settlement and insist on a trial." Wiese, supra, 188 N.J. at 593; Schettino v. Roizman Dev., Inc., 158 N.J. 476, 482 (1999). The penalties imposed by the Rule are mandatory. Wiese, supra, 188 N.J. at 592; McMahon, 364 N.J. Super. at 194; Pressler, Current N.J. Court Rules, comment 2 on R. 4:58 (2009).

As currently enacted, Rule 4:58-2(a) provides,

If the offer of a claimant is not accepted and the claimant obtains a money judgment, in an amount that is 120% of the offer or more... the claimant shall be allowed, in addition to costs of suit: (1) all reasonable litigation expenses incurred following non-acceptance; (2) prejudgment interest of eight percent on the amount of any money recovery from the date of the offer or the date of completion of discovery, whichever is later, but only to the extent that such prejudgment interest exceeds the interest prescribed by R. 4:42-11(b), which also shall be allowable; and (3) a reasonable attorney's fee, which shall belong to the client, for such subsequent services as are compelled by the non-acceptance. (Emphasis added.)

The highlighted language reflects part of a series of amendments to the Rule adopted in 2006.*fn3 Prior thereto, the Rule provided that penalties would be imposed if "the claimant obtain[ed] a verdict or determination at least as favorable as the rejected offer or, if a money judgment, in an amount that is 120% of the offer or more[.]" R. 4:58-2 (2004) (Emphasis added). This language reflected yet another change from the Rule's operative provisions as they existed prior to 2004. At that time, the Rule drew distinctions between a claim for liquidated and unliquidated damages, providing that a claimant could recover if she obtain[ed] a verdict or determination at least as favorable as the rejected offer.... In an action for unliquidated damages, however, no allowances under this rule shall be granted to the offeror unless the amount of the recovery is in excess of 120% of the offer.

[R. 4:58-2 (2002) (emphasis added).]

Regardless of the exact language used, "[i]nducement to settlement has remained the fundamental purpose of the [R]ule as it has evolved." Pressler, supra, comment 1 on R. 4:58.

At least two cases interpreting the pre-2006 Rule definitively held that the limits of the defendant's insurance policy had no effect upon whether the plaintiff was entitled to recover the penalties provided. In McMahon, supra, the plaintiff brought suit seeking to recover the difference between the tortfeasor's policy limits already obtained in settlement, i.e., $125,000, and her UIM policy limits of $300,000. 364 N.J. Super. 190. She tendered an offer of judgment for $129,000, which the defendant rejected, resulting in a trial at which the jury returned a verdict in the plaintiff's favor for $500,000. Ibid. The plaintiff contended that she was entitled to an award of interest, attorney's fees, and litigation expenses under the Rule, while the defendant argued that any award, when combined with the judgment amount of $175,000, would exceed its contractual liability under its policy limits. Id. at 191. We rejected the defendant's argument, however, concluding that the plaintiff's UIM claim sought "unliquidated damages," and that the defendant's "policy limits... [we]re not so sacrosanct to afford protection... where it chooses not to participate, despite having the opportunity and ability to do so, in the activity fostered by the [R]ule to avoid the very sanction imposed for non-participation." Id. at 193; see also Negron v. Melcchiore, Inc., 389 N.J. Super. 70, 96 (App. Div. 2006) (considering and "reject[ing]" under the 2006 Rule, "[the] defendant's argument that... the limits of his liability policy [should be considered] in determining whether the sanctions... should be enforced"), certif. denied, 190 N.J. 256 (2007).

In Gonzalez, supra, 185 N.J. at 112, the plaintiff tendered an offer of judgment for $800,000. The defendant, who was in bankruptcy at the time, maintained a liability insurance policy with a limit of $1,000,000. The Bankruptcy Court lifted its stay to permit the plaintiff's personal injury action to proceed, limiting any recovery to the policy limits. Id. at 123-24. After settling with one defendant for $100,000 paid from the defendant's liability policy, the plaintiff subsequently obtained a multi-million dollar verdict against the defendant, and sought the penalties provided under the Rule. Id. at 124.

The defendant contended "that in light of the bankruptcy court's decree limiting any recovery against [it] to its insurance coverage, the rejected offer should have been measured against the $900,000 remaining on the policy. By that standard,... [the] plaintiff did not recover more than 120% of its settlement offer." Ibid. However, the Court rejected this argument, holding

The fee-shifting provisions of Rule 4:58-2 are triggered by a "verdict" or "determination." Here, the verdict in favor of plaintiff far exceeded 120% of plaintiff's offer. The language, structure, and policy rationale of the rule do not support the notion that plaintiff's offer should be measured against the insurance coverage rather than the verdict. [Id. at 124-25 (emphasis in original).]

NJM's argument in this case focuses on the effect of the 2006 amendment to the Rule. It contends that the previous language that defined when the penalties of the Rule were triggered, i.e., upon a plaintiff obtaining a favorable "determination or verdict," or "if a money judgment, in an amount that is 120% of the offer or more," was amended so that a plaintiff may now obtain the Rule's benefits only if she "obtains a money judgment" in excess of 120% of her offer. Defendant claims plaintiff could only obtain a money judgment of $200,000, regardless of the verdict the jury returned. That amount was never going to be greater than 120% of plaintiff's $185,000 offer. Thus, plaintiff is not entitled to any enhanced interest award, attorney's fees, or litigation expenses under the Rule.

The importance of this change in the Rule's language has been addressed tangentially in two of our recent opinions. In Taddei v. State Farm Indem. Co., 401 N.J. Super. 449, 462 n.8 (App. Div. 2008), a case involving a plaintiff's claim for UM benefits under his policy, but not involving an offer of judgment, we did not address the issue directly because it was "not... before us." Nevertheless, we noted "a sensible reading of 'judgment' in Rule 4:58-2(a) in this context would probably be to deem it the jury's verdict."*fn4 Ibid.

In Malick v. Seaview Lincoln Mercury, 398 N.J. Super. 182 (App. Div. 2008), another panel of our colleagues considered the issue in the context of a "high-low" settlement. There, plaintiff's offer of judgment, $650,000, was made prior to trial, during which the parties negotiated an agreement with $175,000 as the "low," and $1,000,000 as the "high" figure. Id. at 184-85. The jury returned a verdict in excess of $5 million, and the plaintiff sought penalties under the Rule, including pre-judgment interest calculated upon the amount of the jury verdict. Id. at 185. The panel concluded that based upon the plaintiff's acceptance of the high-low agreement, "the verdict was molded to a $1 million judgment. That is the amount on which the Rule 4:58-2 interest... is to be calculated." Id. at 191. In a footnote, however, citing Gonzalez, supra, 185 N.J. at 124, the panel noted that even under the "version of the Rule in effect prior to [the] 2006 amendments[,]" "'verdict' meant the resulting judgment after the verdict was molded by the trial court." Malik, supra, 398 N.J. Super. at 191 n.4 (emphasis added).

When interpreting the Rule, the Court has instructed

[W]e ordinarily apply canons of statutory construction. Accordingly, as with a statute, the analysis must begin with the plain language of the rule. The Court must ascribe to the [words of the rule] their ordinary meaning and significance... and read them in context with related provisions so as to give sense to the [court rules] as a whole.... If the language of the rule is ambiguous such that it leads to more than one plausible interpretation, the Court may turn to extrinsic evidence. [Wiese, supra, 188 N.J. at 592 (internal quotations and citations omitted).]

The term "money judgment" is clear and unambiguous. It differs from prior iterations of the Rule that used terms such as "verdict or determination at least as favorable as the rejected offer," or "recovery... in excess of 120% of the offer[,]" as the triggering mechanisms for imposition of penalties. Construing those prior versions of the Rule, we have said that "the words 'verdict,' 'determination,' and 'recovery' as used in R. 4:58-2 must be viewed in the same context and must receive the same interpretation--i.e., 'the jury's assessment of the value of plaintiff's claim expressed in dollar terms.'" Gonzalez v. Safe and Sound Sec. Corp., 368 N.J. Super. 203, 213 (App. Div. 2004) (quoting Lobel v. Trump Plaza Hotel & Casino, 335 N.J. Super. 319, 322-23 (App. Div. 2000)), rev'd on other grounds, 185 N.J. 100 (2005).

The term "judgment," however, means something else, because it is "the final decretal act of the court." Lobel, supra, 335 N.J. Super. at 322 (citing R. 4:47(a)). That rule provides in relevant part

[J]udgment shall be entered... [u]nless the court otherwise orders, [by] the clerk... without awaiting further direction by the court: (1) upon a general verdict of a jury; (2) upon a decision by the court that a party shall recover only a sum certain or costs or that all relief shall be denied; and (3) upon a special verdict or general verdict accompanied by answers to interrogatories which is forthwith convertible by the court into a money judgment or a judgment that relief shall be denied.

[R. 4:47(a).]

In the case at hand, the jury's "general verdict" could not be transformed into a judgment until the judge made his decision, under applicable law, that plaintiff could recover only "a sum certain," i.e., her contractual policy limits, and molded the verdict accordingly.

There are clearly other contexts in which the jury's "verdict" or "determination" of the value of a plaintiff's case does not translate automatically into the measure of a defendant's financial liability. For example, in the context of a UM/UIM case, any award must be reduced by plaintiff's comparative negligence, and if that is greater than 50%, plaintiff would not be entitled to any recovery at all under her policy of insurance. See Krohn v. N.J. Full Ins. Underwriters Ass'n, 316 N.J. Super. 477, 483 (App. Div. 1998) (the UIM plaintiff's "legal entitlement to damages for the... underinsured driver's negligence 'imports into the [uninsured or underinsured motorist's] policy all of the normal rules governing tort liability and damages[]'") (quoting Montedoro v. City of Asbury Park, 174 N.J. Super. 305, 308-09 (App. Div. 1980)), certif. denied, 158 N.J. 74 (1999). Depending upon the jury's response to special interrogatories, the actual award of damages would be "forthwith convertible by the court into a money judgment or a judgment that relief shall be denied[.]" R. 4:47(a)(3). In such circumstances, whether a plaintiff is entitled to the penalties provided for by the Rule is not determined solely by the amount of damages the jury assessed.

Similarly, in circumstances where a plaintiff settled her claim with one tortfeasor, but proceeded to trial against another, the jury's verdict would not automatically trigger an award of penalties under the Rule. Instead, assuming the non-settling defendant was entitled to an apportionment finding on liability, Young v. Latta, 123 N.J. 584, 597 (1991), whatever damages the jury awarded would be reduced by the settling defendant's percentage of negligence. Plaintiff's offer of judgment tendered against the non-settling defendant would be measured against the final "money judgment" that was molded as a result of the jury's answers to special interrogatories, not based solely upon the jury's assessment of the quantum of damages. R. 4:47(a)(3).

Plaintiff argues that the 2006 amendments were not intended to be of any "great moment," noting the lack of any commentary by Judge Pressler on the subject. She also contends that the construction that we and the trial judge have placed upon the Rule is "illogical and flout[s] [] legal precedent while undermining the Rule." We disagree.

First, in her commentary, Judge Pressler specifically noted, "The September 2006 amendments addressed... the difficulty of comparing an offer with a judgment actually rendered where non-monetary relief is sought... and is granted." Pressler, supra, comment 1 on R. 4:58 (emphasis added). The result was a change in Rule 4:58-1, "permit[ting] an effective offer [of judgment] to be made only if, when it is made, the relief sought is exclusively monetary." Ibid. In discussing the amendments to Rules 4:58-2 and 4:58-3, Judge Pressler commented, "Both rules provide[] that if the judgment is within a 20 percent margin of error, the party whose offer was rejected is entitled to" the Rule's penalties. Pressler, supra, comment 2 on R. 4:58 (emphasis added). We acknowledge plaintiff's point, however, that Judge Pressler also noted, without specific reference to the 2006 amendatory language, that "[f]or purposes of determining which party prevails under this rule, it is the actual verdict that is compared to the offer." Ibid. (citing Gonzalez, supra, 185 N.J. at 123-25). The commentary, taken as a whole, is ambiguous, and does not address the specific, unique circumstances of a UM/UIM trial.

The "legal precedent" upon which plaintiff places great reliance, specifically McMahon and Gonzalez, are both distinguishable from the case at hand. First, both cases were decided prior to the language change, when the Rule's triggering event was the "verdict or determination" of the factfinder. Gonzalez, supra, 185 N.J. at 124. Second, in McMahon, the amount of the jury's verdict was only tangentially relevant to the issue presented. In other words, plaintiff's offer of judgment in that case, $129,000, would have entitled her to the Rule's penalties even when measured against the molded judgment of $175,000. The defendant insurer conceded the Rule applied; the only issue presented was whether defendant's contractual liability limits precluded the award of the Rule's penalties.

Thus, in the case at hand, had plaintiff's offer of judgment been $166,666, and had she obtained the same $510,000 verdict from the jury, she would be entitled to the Rule's penalties even though, when added to the molded judgment of $200,000, the total would have exceeded NJM's contractual responsibility. McMahon's holding requires nothing more.

Third, Gonzalez is factually distinguishable because it involved a claim for damages that was theoretically unlimited. It was only the fortuitous intervention of the Bankruptcy Court, limiting plaintiff's recovery and possible judgment to the insurance policy limits, which served as the tether upon which the defendant attached its hopes to defeat the claim for penalties under the Rule. In other words, if the defendant was not bankrupt, the amount of its insurance policy would not have mattered. See Gonzalez, supra, 185 N.J. at 125 ("the available monies under the insurance policy" are not the measuring stick to determine whether plaintiff prevailed). But for the bankruptcy status, the balance of plaintiff's multi-million dollar judgment, i.e., the amount in excess of the policy of insurance, would have been docketed against the defendant until satisfied and discharged. In such circumstances, a plaintiff's right to recover the penalties provided by the Rule has no reasonable relationship to the limits of a defendant's insurance coverage.

However, such is not the case in a UIM lawsuit. As we earlier noted, "the UIM claim is a contractual one, arising out of the insurance policy issued to plaintiff by his own insurer." Bardis, supra, 199 N.J. at 275. The plaintiff forced to pursue her claim for UIM benefits at trial comprehends that she will not recover any more than that provided for by the contract of insurance. The insurer, of course, knows the same thing. Regardless of the jury's verdict, the molded judgment entered against the insurer will not, in the first instance, exceed the amount of the policy.*fn5 To determine whether plaintiff has prevailed under the Rule, the quantitative relationship examined is that between plaintiff's offer and the actual judgment, as required by the Rule. Only because of the unusual circumstances of UM/UIM litigation is that quantitative relationship the same as that between plaintiff's offer, and the limits of her insurance policy.

In sum, we conclude that the language of the Rule requires plaintiff's offer of judgment to be measured not against the jury verdict or the limits of her UIM insurance coverage, but against the "money judgment" she was entitled to recover as a result of the trial. This interpretation still serves the salutary goal of promoting early settlement of most UM/UIM claims, though we acknowledge plaintiff's argument that the goal is potentially thwarted in cases where the reasonable value of settlement approaches the policy limit. In that universe of cases, early settlement through the use of the Rule is unlikely because an insurer, believing it had nothing to lose, might "gamble[]" on the "precarious hope that it might achieve a judgment better than plaintiff's offer[.]" Gonzalez, supra, 185 N.J. at 125. But, as we have already noted in construing the Rule in other contexts, "Our role as an intermediate appellate court is to interpret and enforce the Rules promulgated by the Supreme Court, not to rewrite them when we detect in their application a disagreeable outcome." Negron, supra, 389 N.J. Super. at 96. We therefore affirm the trial judge's order denying plaintiff's request for penalties under the Rule.

We find NJM's cross-appeal to be of insufficient merit to warrant extensive discussion in this opinion. R. 2:11-3(e)(1)(E). Rule 4:42-11(b) provides that "[p]rejudgment interest shall not... be allowed on any recovery for future economic losses." The jury concluded that $235,000 of the total award of $510,000 was for "economic loss." NJM does not contend that all the damages were assessed as "future economic losses." Moreover, NJM provides no authority for the proposition that the molded verdict must reflect the jury's apportionment of economic loss, and non-economic damages, and our research has not yielded any precedent either.


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