November 16, 2009
GREGORY MAKROULAKIS AND NANCI MAKROULAKIS, HIS WIFE INDIVIDUALLY, PLAINTIFFS-RESPONDENTS,
ESTATE OF FRANCIS GARCIA, MARTHA VELEZ, WELLS FARGO LEASING, STATE FARM INSURANCE COMPANY, DEFENDANTS, AND EMPIRE FIRE AND MARINE INSURANCE COMPANY, DEFENDANT-APPELLANT.
On appeal from Superior Court of New Jersey, Law Division, Essex County, Docket No. L-4662-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued September 30, 2009
Before Judges Wefing, Grall and Messano.
Defendant Empire Fire and Marine Insurance Company (Empire) appeals from an order prohibiting enforcement of a "step-down" clause that limits underinsured motorist (UIM) coverage otherwise available under a policy of commercial auto insurance it issued to ABC Towing, Inc., ABC Automotive Inc., and Merger Towing Inc. Although the Empire policy was in effect from September 6, 2003 to September 6, 2004 and the accident that gives rise to the claim for coverage occurred on March 27, 2004, the trial court concluded that the "step-down" clause was unenforceable due to a statutory amendment adopted on September 10, 2007. N.J.S.A. 17:28-1.1(f); L. 2007, c. 163. Consistent with the holdings of this court in decisions published after entry of the trial court's order that address the retroactivity of the same law, we reverse.
Plaintiff Gregory Makroulakis, co-owner, operator and an employee of ABC Towing, Inc. (ABC), was injured in a motor vehicle accident while operating ABC's tow truck. He and his wife, plaintiff Nanci Makroulakis, commenced this litigation to recover damages. Their complaint includes a claim for UIM coverage available under ABC's policy with Empire and under a personal auto policy with State Farm Insurance Company on which Gregory Makroulakis is a named insured. Empire and plaintiffs are the only parties participating in this appeal, but we granted the New Jersey State Bar Association and the Association of Trial Lawyers of America-New Jersey leave to appear as amici curiae.*fn1
There are only three named insureds on Empire's policy - ABC Towing, Inc., ABC Automotive Inc., and Merger Towing Inc. The policy includes a "step-down" clause that limits the amount Empire will pay on a claim for UIM coverage filed by an insured, other than a "named insured," who has similar coverage under another policy as a "named insured." In that circumstance, the coverage limit is "the highest applicable limit of insurance under any . . . policy providing coverage to that 'insured' as an individual named insured."*fn2 ABC selected an option that provides an enhanced amount of UIM coverage without altering the terms under which it is available. The enhanced coverage limit of the Empire policy is ten times greater than the limit under the Makroulakis policy with State Farm. Gregory Makroulakis' partner signed the election of enhanced coverage on a line calling for the "Insured's signature."*fn3
The "step-down" clause in Empire's policy applies to Gregory Makroulakis because he is an insured but not a "named insured" on that policy and, as noted above, is a "named insured" on his policy with State Farm. And, the March 27, 2004 accident was within the period covered by Empire's policy, from September 6, 2003 to September 6, 2004.
There is no question that a clause in a commercial auto insurance policy unambiguously limiting uninsured motorist (UM) or underinsured motorist (UIM) coverage with reference to the amount of an insured's personal policy of insurance was valid and enforceable prior to and during the term of this policy. On June 17, 2003, in a case involving UM coverage, this court upheld a similar "step-down" clause limiting both UM and UIM coverage. Botti v. CNA Ins. Co., 361 N.J. Super. 217, 221, 228 (App. Div. 2003). On January 21, 2004, this court upheld application of a "step-down" clause in a case involving UIM coverage under a commercial policy; like the one at issue here, that policy included only the business entity as the "named insured." Pinto v. N.J. Mfrs. Ins. Co., 365 N.J. Super. 378, 381, 397 (App. Div. 2004). The Supreme Court affirmed Pinto on June 6, 2005. 183 N.J. 405 (2005); see also Christafano v. N.J. Mfg. Ins. Co., 361 N.J. Super. 228, 237 (App. Div. 2003) (rejecting a claim that a "step-down" provision in a personal policy "did not run afoul of the provisions of N.J.S.A. 17:28-1.1" as written at that time).
The statutory amendment prohibiting "step-down" clauses of the sort at issue here was not adopted until September 10, 2007. It provides:
Notwithstanding the provisions of this section or any other law to the contrary, a motor vehicle liability policy or renewal of such policy of insurance, ... issued in this State to a corporate or business entity ... shall not provide less uninsured or underinsured motorist coverage for an individual employed by the corporate or business entity than the coverage provided to the named insured under the policy. A policy that names a corporate or business entity as a named insured shall be deemed to provide the maximum uninsured or underinsured motorist coverage available under the policy to an individual employed by the corporate or business entity, regardless of whether the individual is an additional named insured under that policy or is a named insured or is covered under any other policy providing uninsured or underinsured motorist coverage. [N.J.S.A. 17:28-1.1(f).]
The statement accompanying the bill that led to this legislative reform, demonstrates recognition of the fact that its enactment would change existing law. The legislative committee describes the bill as one "in response to the New Jersey Supreme Court's decision in Pinto v. New Jersey Manufacturers Insurance Company" and the Court's decision as one "uphold[ing] earlier case law on the subject." Olkusz v. Brown, 401 N.J. Super. 496, 501 (App. Div. 2008) (quoting the statement).
Accordingly, the question presented on this appeal is not whether a "step-down" clause of this sort was valid during the term of this policy. The question is whether the statutory amendment of September 10, 2007 reaches back in time to invalidate a clause in an insurance policy limiting coverage and requires greater coverage for an accident that took place three years prior to the change in the law.
Two panels of this court have considered whether the reform enacted in N.J.S.A. 17:28-1.1(f) applies prospectively or retroactively. Both cases involved an accident that occurred and a claim under a policy that had expired prior to the effective date of the amendment; albeit for different reasons, both panels reversed orders giving the statutory reform retroactive effect.
In Olkusz, the panel held: "[T]his statutory amendment must be applied prospectively, commencing from the date of its passage by the Legislature. Any UM/UIM claim predicated upon an accident which predates the adoption of N.J.S.A. 17:28-1.1(f) must be governed by the legal principles articulated by the Supreme Court in Pinto, supra, 183 N.J. 405." 401 N.J. Super. at 506. The Olkusz panel considered whether "(1) the Legislature has expressed, either explicitly or implicitly, its intent that the statute apply retroactively; (2) the statute is 'curative'; or (3) the expectations of the parties warrant the retroactive application of the statute." Id. at 502-03. After discussing and applying these exceptions to the generally applicable presumption of prospective application, the court concluded that none justified retroactive application of this statutory reform. Id. at 503-06.
In Hand v. Philadelphia Ins. Co., 408 N.J. Super. 124, 134 (App. Div. 2009), the panel held: "[T]he Legislature implicitly intended that the Amendment have retroactive effect. However, . . . [its members] also conclude[d] that applying the Amendment retroactively to the facts of this case would be unfair and work a manifest injustice to the contractual rights of defendant [insurer]."
Among Empire's arguments on appeal is a claim that the trial court erred in concluding that this statutory reform can be given retrospective effect because it is "curative." Substantially for the reasons stated in Olkusz, supra, 401 N.J. Super. at 503-05, we agree that this reform, which changed prior law, cannot be deemed "curative."
Beyond that error, two members of this panel would reverse substantially for the reasons stated in Olkusz, supra, 401 N.J. Super. at 502-06, and one member would reverse substantially for the reasons stated in Hand, supra, 408 N.J. Super. at 143-46. Thus, while we agree that N.J.S.A. 17:28-1.1(f) cannot be applied to void the "step-down" clause in Empire's policy on the facts of this case, our reasons differ.
The source of disagreement is this: whether reversal is required because the Legislature has not expressed its intention to give retroactive effect to this unexpected change in the insurance law, Olkusz, supra, 401 N.J. Super. at 502-06, or whether reversal is required because retroactive application, although intended by the Legislature, would be manifestly unjust in this case involving an accident that occurred and policy that expired prior to the effective date, Hand, supra, 408 N.J. Super. at 143-46.
As we concur in the conclusion that this legislative reform cannot be given retroactive effect in this case, there is no need to elaborate upon our divergent rationales. The reasons are more than adequately set forth in Olkusz and Hand, and the arguments presented by the parties and amici do not warrant discussion beyond what is stated in those opinions.
The grant of summary judgment in favor of plaintiffs is reversed, and the matter is remanded for further proceedings.*fn4